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[Burning Issue] Rural Electrification

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India has achieved its long-pending goal of 100% electrification of its villages. But there is still a long way to go in providing electricity to all households in the country. According to Central Electricity Authority (CEA), a village is considered electrified only if the Gram Panchayat certifies that the basic infrastructure has been provided to the inhabited area, including Dalit hamlets, and 10% of the households are electrified.

Rural Electrification in India

  • Rural electrification is considered to be the backbone of the rural economy.
  • The electricity generation capacity in India is the fifth largest in the world.
  • India is the sixth largest consumer of electricity and accounts for 3.4 percent of the global energy consumption.
  • The year 2022, has been earmarked for achieving the target of ‘24×7 Power for All’.

Rural electrification has five major facets:

  1. Setting up of Rural Electricity Infrastructure
  2. Providing connectivity to households
  3. Adequate supply of desired quality of power
  4. Supply of electricity at affordable rates
  5. Providing clean, environmentally benign and sustainable power in efficient way

When a village is called an Electrified Village?

Prior to October 1997

A Village should be classified as electrified if electricity is being used within its revenue area for any purpose whatsoever.

After October 1997

A village will be deemed to be electrified if the electricity is used in the inhabited locality, within the revenue boundary of the village for any purpose whatsoever.

As per the new definition, a village would be declared as electrified, if:

  • Basic infrastructure such as Distribution Transformer and Distribution lines are provided in the inhabited locality as well as the Dalit Basti hamlet where it exists.
  • Electricity is provided to public places like Schools, Panchayat Office, Health Centers, Dispensaries, Community centers etc.
  • The number of households electrified should be at least 10% of the total number of households in the village.

What is Rural Electrification provides for?

  1. Increase in agriculture yield.
  2. Business of Small and household enterprises shall grow resulting into new avenues for employment.
  3. Improvement in Health, Education, Banking (ATM) services.
  4. Improvement in accessibility to radio, telephone, television, internet and mobile.
  5. Betterment in social security due to availability of electricity.
  6. Accessibility of electricity to schools, panchayats, hospitals and police stations.
  7. Rural areas shall get increased opportunities for comprehensive development.

Energy source and Percentage Share in installed capacity

National Electricity Policy 2005

  • In compliance with section 3 of the Electricity Act 2003 the Central Government notified the National Electricity Policy.
  • The National Electricity Policy aims at laying guidelines for accelerated development of the power sector, providing supply of electricity to all areas and protecting interests of consumers and other stakeholders keeping in view availability of energy resources, technology available to exploit these resources, economics of generation using different resources, and energy security issues.
  • The National Electricity Policy was evolved in consultation with and considering views of the State Governments, Central Electricity Authority (CEA), Central Electricity Regulatory Commission (CERC) and other stakeholders.

The aims and objectives of the policy

  1. Access to Electricity – Available for all households in next five years
  2. Availability of Power – Demand to be fully met by 2012. Energy and peaking shortages to be overcome and adequate spinning reserve to be available.
  3. Supply of Reliable and Quality Power of specified standards in an efficient manner and at reasonable rates. Per capita availability of electricity to be increased to over 1000 units by 2012.
  4. Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012.
  5. Financial Turnaround and Commercial Viability of Electricity Sector.
  6. Protection of consumers’ interests.

National Rural Electrification Policy, 2006

  1. Goals include provision of access to electricity to all households by the year 2009, quality and reliable power supply at reasonable rates, and minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012.
  2. For villages/habitations where grid connectivity would not be feasible or not cost effective, off-grid solutions based on stand-alone systems may be taken up for supply of electricity. Where these also are not feasible and if only alternative is to use isolated lighting technologies like solar photovoltaic, these may be adopted. However, such remote villages may not be designated as electrified.
  3. State government should, within 6 months, prepare and notify a rural electrification plan which should map and detail the electrification delivery mechanism. The plan may be linked to and integrated with district development plans. The plan should also be intimated to the appropriate commission.
  4. Gram panchayat shall issue the first certificate at the time of the village becoming eligible for declaration as electrified. Subsequently, the Gram Panchayat shall certify and confirm the electrified status of the village as on 31st March each year.
  5. The state government should set up a committee at the district level within 3 months, under the chairmanship of chairperson of the Zilla Panchayat and with representations from district level agencies, consumer associations, and important stakeholders with adequate representation of women.
  6. The district committee would coordinate and review the extension of electrification in the district and consumer satisfaction, etc.
  7. Panchayat Raj institutions would have a supervisory / advisory role.
  8. Institutional arrangements for backup services and technical support to systems based on non-conventional sources of energy will have to be created by the state government.

National policy for renewable energy-based micro and mini-grids

  • Introduced by Ministry of New and Renewable Energy
  • It targets setting up of at least 10,000 projects with a minimum capacity of 500MW by 2021
  • The draft policy proposes to extend energy services beyond lighting

Draft National Electricity Policy 2021

  • NEP 2021 covers multiple areas– grid operation, power markets, regulatory process, energy efficiency, optimal generation mix, transmission, distribution and many more.
  • The draft talks about the creation of Electric Vehicle charging stations, Smart meters, power markets, environment and more.
  • Ministry of Power has created a committee of experts to submit suggestions to the draft NEP 2021 within two months of the release of the draft.
  • The members of the committee include members from state governments, the Ministry of New and Renewable Energy (MNRE), NITI Aayog, and the Central Electricity Authority.

Areas of improvement:

  • It lacks a fair and coherent approach to energy transition from coal to renewable.
  • It mentions the addition of coal capacity, despite the clear writing on the wall that thermal power is becoming unviable.
  • New coal capacity should be considered only if shown essential based on rigorous modelling studies.
  • Since many coal plants are going to retire, NEP should give policy directions to generating companies to take responsibility post-retirement for waste management as well as restoration of the land, water bodies and air quality in their project areas.
  • Prevention of electricity accidents requires focus, the current NEP has provisions for efforts to build consumer awareness, but this is sadly missing in the new draft. 

What is the actual scenario of rural electrification?

  • Recently Union government announced it has achieved 100% rural electrification.
  • The definition of electrification was limited to the provision of basic infrastructure such as transformers, of electricity in public places like schools and panchayats, and electrification of at least 10% households in the village.
  • India continues to harbour energy poverty with 31 million rural households and about five million urban households still unconnected to the electricity grid.
    • A significant portion of connected rural households are yet to get adequate quantity and quality of supply.
What are the plans of the government on electrification?
  • Union government under Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and Integrated Power Development Scheme (IPDS) planning to provide universal electrification.
  • By which it has an ambitious target of connecting all remaining households by the end of March 2019 and made budgetary allocations to cover the cost of electrification.
  • As part of a Centre-State joint initiative on 24×7 ‘Power for All’, State governments have already committed to ensuring round-the-clock supply to all households from April 2019.

What are the challenges for India’s electrification target?

  • Regional imbalances in electricity access is persisting in seven States namely Uttar Pradesh, Bihar, Odisha, Jharkhand, Assam, Rajasthan and Madhya Pradesh, which account for 90% of un-electrified households.
  • Coincidentally, these States are ranked poorly in social development indices and house about two-thirds of the population living below the poverty line.
  • There are a range of implementation shortcomings in universal electrification by state governments due to sluggish finance structure of the union government.
  • Most of the Indian power distribution companies (discoms) in these states are bankrupt and are unable to purchase power and provide it to consumers.
  • As a result, discoms don’t have the capacity to sign power purchase agreements (PPAs).
  • Add to this the issue of aggregate technical and commercial (AT&C) losses, heightened by the rampant problem of power theft.
  • Given the context, it is uncertain whether the goal of electrifying all ‘willing households’ by March 2019 would translate into universal access to electricity.

Related Schemes

(1) Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY)

Aim

  • To ensure electrification of all the un-electrified villages by 2017 in mission mode
  • The Scheme draws its inspiration from the similar pioneering scheme implemented by the Government of Gujarat
  • It will enable to initiate much awaited reforms in the rural areas

Objectives

  • To provide electrification to all villages
  • Feeder separation to ensure sufficient power to farmers and regular supply to other consumers
  • Improvement of Sub-transmission and distribution network to improve the quality and reliability of the supply
  • Metering to reduce the losses

 (2) Pradhan Mantri Sahaj Bijli Har Ghar Yojana –“Saubhagya”

  • The Saubhagya is a scheme to ensure electrification of all willing households in the country in rural as well as urban areas.
  • It was launched in September 2017.
  • The Rural Electrification Corporation Limited (REC) is the nodal agency for the operationalization of the scheme throughout the country.

Objective

  • To provide energy access to all by last mile connectivity and electricity connections to all remaining un-electrified households in rural as well as urban areas
  • To achieve universal household electrification in the country

Beneficiaries of the project

  • The beneficiaries for free electricity connections would be identified using Socio-Economic and Caste Census (SECC) 2011 data.
  • However, un-electrified households not covered under the SECC data would also be provided electricity connections under the scheme on payment of Rs. 500 which shall be recovered by DISCOMs in 10 installments through electricity bill.
  • The solar power packs of 200 to 300 Wp with battery bank for un-electrified households located in remote and inaccessible areas, comprises Five LED lights, One DC fan, One DC power plug.
  • It also includes Repair and Maintenance (R&M) for 5 years.

Expected outcomes of the scheme

What are the issues involved?

  1. Definition: Only 1 in 10 households need to have electricity supply for the village to be officially electrified. According to 2011 census, only 55.3% of all rural households had access to electricity
  2. Quality: Around 67% of electrified villages suffer from erratic and unreliable power supply. Low voltage was widely reported.
  3. The distribution transformers catering to villages had the capacity to support the load of only 10% of the households and thus the instances of overloading and transformer breakdowns are significant.
  4. Only 7%–10% rural locations receive supply during the full evening hours (5 pm to 11 pm).
  5. In Bihar, Jharkhand and UP, more than one-third of electrified households received less than four hours of supply during the day and voltage fluctuations are also common.
  6. Metering: More than 28% electrified villages reported overcharging and ad-hoc billing. One-time connection charges also differed from village to village.
    • There are also instances of billing delays, particularly in issuing the first bill after connection. This increases the likelihood of payment defaults leading to disconnection of supply.
  7. Accountability: 52% villages face issues with contractors, repair persons and power distribution companies. Either no one turns up to address complaints or repairs are done after paying bribes or residents get repairs done at their own cost.
  8. Inaccessibility: Geographical terrain is posing a problem to grid expansion in at least 13% of all villages.
  9. NPA: Banks do not lend to mini-grid developers due to poor recovery of loans
  10. Kerosene dependence: Despite having electricity connection.
  11. Affordability: Among the most energy deprived states, while most villages and more than two-thirds of the households had electricity connections, less than 40 per cent had meaningful access to electricity.
  12. Financial Issues: High upfront cost is the major reason behind consumer disinterest in taking up and sustaining  an electricity connection.
  13. Implementation and operational roadblocks: Network investments for rural electrification have been slower than planned. Lack of timely network investments jeopardizes the provision of reliable, affordable power supply.
  14. Operational issues: In the first phase of RGGVY, rural franchisees were expected to manage distribution operations in newly electrified areas. However, most of them are not operational and DDUGJY does not envisage such franchisees.

Way forward

  • Metering and data management using ICT: Use information technology to monitor metering at feeder and distribution transformer levels to allow proper auditing of power supply.
    • Parameters such as DT failure rate, hours of supply (especially during evening hours), metering and billing information, information on consumer disconnections, new connections for entrepreneurial use, electrification of rural institutions., could be tracked and reported on the national dashboards on a monthly basis for every district or division.
    • With usage technology to monitor hours of supply, the duration of supply and interruptions can be recorded without manual intervention and tracked at a disaggregated level. This information can be used by SERCs and consumers to make DISCOMs more accountable for power supply.
  • Expansion:
    • The first step towards the target would be to provide new connections to un-electrified households and legalising existing illegal connections.
    • Improving uptake of connections by addressing financial hurdles and awareness barriers is to be taken up.
    • Financial constraint: While BPL households already receive a free connection under the Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), APL families could be given a low-cost EMI based connection.
  • Awareness: Empowering and encouraging local authorities to organise awareness campaigns and enrolment camps in habitations exhibiting limited awareness are also essential.
  • Best practice: Bihar has currently evolved a good model both awareness campaigns subsidy for APL families.
  • Supply situation: Improving the supply situation for already electrified households is to be done.
  • DISCOM reforms: DISCOMs need to better plan for their infrastructure, factoring in near-term increase in demand, strengthening maintenance, and improving supply.
  • Innovative Business: As managing rural customers, particularly in remote areas, is a challenge innovative business models need to be explored.
  • Accountability: There is a need to hold DISCOMs accountable for monitoring of supply quality and operation and maintenance efforts in rural areas in order to ensure uninterrupted supply.
  • Tariff changes:
    • In many states, small industrial and commercial consumers pay tariff rates comparable to large industrial units and commercial complexes. There needs to be innovation in tariff design to encourage home-based or small enterprises in newly electrified villages
    • Currently, supply of one unit of power costs the DISCOMs about Rs. 7 and this cost will most likely increase at a rate of more than 4% per unit in the coming years. As such costs will be unaffordable for many consumers, and with the contribution of cross-subsidies reducing, substantial subsidy support will be necessary.
  • Research:
    • Even after the targets of connections are met, there is a need for a national institution, with rural electrification as its key focus.
    • Its mandate need not be to operate the rural distribution businesses but to provide knowledge and financial support to DISCOMs for maintaining and strengthening the rural network and ensuring supply.
    • Success mainly depends on curbing DISCOM losses and ensuring consumer honesty. It is hoped that electrification would lead to improved consumer satisfaction, as electricity truly becomes an enabler of prosperity in rural India.
    • Concerted efforts to monitor supply hours for rural, remote and newly electrified households are needed.

Discuss how the rural electrification has the potential to become a driver of rural economic growth. (250 words)

Post your answers in comments below.

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Burning Issues

[Burning Issue] India’s Coal Crisis

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With rising power demands in the domestic sector, Indian utilities are facing a severe shortage of coal, which is the primary fuel powering 70 percent of India’s energy consumption. More than half of the country’s 135 coal-fired power plants are running on fumes – as coal stocks run critically low. India’s thermal power plants currently have an average of four days worth of coal stock against a recommended level of 15-30 days, with a number of states highlighting concerns about blackouts as a result of the coal shortage.

Coal has become a priceless commodity of late in a white-hot market with an over 100 percent jump in prices, which is driven mainly by China and India – the two largest consumers of thermal coal globally.

What is the extent of the current coal crisis?

A number of states including Delhi, Punjab, and Rajasthan have raised concerns about potential blackouts as a result of low coal inventory at thermal power plants and have already reported load shedding. India is the world’s second-largest importer of coal despite also being home to the fourth-largest coal reserves in the world.

Increase in power demand

  • The shortage in coal is a result of a sharp uptick in power demand as the economy recovered from the effects of the pandemic.

Global factors

  • A sharp increase in the international prices of coal due to a shortage in China have also contributed to the coal shortage.
  • Unseasonal rains in Indonesia, Covid-induced production cuts in Australia have ensured a once-in-a-lifetime bull run in coal prices.
  • A balance is possible if and when the global supply chain – both in terms of prices as well as availability – improves.
  • China consumes nearly half of the coal produced globally and Indonesia and Australia happen to be two of the largest exporters.
  • India sources 43 per cent of its imported coal from Indonesia and 26 per cent from Australia.

Low accumulation of stocks by Thermal power plants

  • Low accumulation of stock by thermal power plants has contributed to the coal shortage in India.
  • Heavy rains in coal bearing areas had also led to a slowdown in the supply of coal to thermal plants.
  • Coal and lignite fired thermal power plants account for about 54 per cent of India’s installed power generation capacity but currently account for about 70 per cent of power generated in the country.

Increase in the price of the other fuels

  • Incidentally, the demand for coal has also gone up because other sources of generating power – natural gas, for instance – have become even costlier.
  • The price of natural gas, too, has increased nearly 100 per cent in 2021 alone.
  • This has hampered the plan to grow the share of renewable energy as well.

Legacy issues

  • Legacy issues of heavy dues of coal companies from certain states viz., Maharashtra, Rajasthan, Tamil Nadu, UP, Rajasthan and Madhya Pradesh also contributed to this coal shortage.
  • Power plants that usually rely on imports are now heavily dependent on Indian coal, adding further pressure to already stretched domestic supplies.

Why is the demand for natural gas surging?

  • Nations across the world are committed to reducing carbon emissions. China has committed to becoming carbon neutral by 2060.
  • To reduce its emissions, China needs to give up coal, reduce consumption of other dirty fossil fuels and adopt cleaner energy such as natural gas and renewables.
  • The country is also taking harsh measures to reduce pollution in Beijing before the February 2022 Winter Olympics and thus display its commitment to decarburization.
  • The targets China has set for itself is seen to have escalated the current energy crisis in the nation where two-thirds of the electricity was generated from burning coal.
  • European Union has targeted to become carbon neutral by 2050 and reduce greenhouse gas emissions by 55% by 2030 compared to 2005 levels.

Why are prices between domestic and global coal widening?

  • Domestic coal prices in India are largely decided by Coal India. An increase in coal prices generally has a knock on effect on power prices and inflation..
  • Coal India has kept prices steady over the last year despite global coal prices rising steeply in the same period.
  • Meanwhile, Asia’s coal price benchmarks have hit record highs in the recent times, buoyed by global demand for power generation fuels as economies open up.
  • A major power crisis in China is the latest event driving global demand for the fuel.

Why are utilities unable to pass on higher costs?

  • India’s power tariffs, set by the respective states, are among the lowest in the world as state-run distribution companies have absorbed higher input costs to keep tariffs steady.
  • This has left many of these companies deeply indebted, with cumulative liabilities running into billions of dollars.
  • This triggered delayed payments to power producers, often affecting cash flows and disincentivising further investment in the electricity generation sector.
  • Indian power producers locked in long-term agreements with distribution utilities often cannot pass on higher input costs unless clauses are included in their contracts.

What does the deepening energy crisis mean for India?

  • The sharp rise in global coal prices came as a boon for domestic suppliers such as Coal India.
  • As the supply crunch in the key overseas markets grew and prices soared, the demand for coal from domestic sources climbed. Coal India and other producers increased output, yet supply remains quite tight.
  • Over 70% of India’s power is generated from burning coal while the share of natural gas is just about 5%. Thus, rising natural gas prices had a limited impact on the cost of power generation in India.
  • India, however, suffered a scare when the inventory of coal with power plants reached critically low levels, as demand surged about 11%. The situation was resolved by diverting coal away from non-power uses.
  • The power demand is set to climb higher when more restrictions are eased, including those on cinema halls and multiplexes.
  • While efforts are on to provide an uninterrupted supply of coal to power plants, non-power users are likely to suffer.
  • Indian households were more affected by the rise in prices of petroleum products as consumption of cooking gas, petrol and diesel grew.

What does it mean for global recovery?

  • Higher fuel prices are only one part of the problem. Temporary closures of factories in China will slow the repair of global value chains that broke down last year when countries locked down their economies.
  • These shutdowns will lead to another round of disruption in the supply of parts to makers of various goods across the globe.
  • The temporary shutdowns also mean missed deadlines for delivery of merchandise ahead of the November-January holiday season sales in many parts of the world.
  • When power rationing was ordered, factories in China were racing to meet the global and domestic demand for everything from apparel to mobile phones and other gadgets.
  • Higher fuel prices and shortages will add to inflationary pressures in the global economy and hurt the recovery of demand in lower-income economies.

What are the recent Reforms in Coal Sector?

  • Commercial mining of coal allowed, with 50 blocks to be offered to the private sector.
  • Entry norms will be liberalized as it has done away with the regulation requiring power plants to use “washed” coal.
  • Coal blocks to be offered to private companies on revenue sharing basis in place of fixed cost.
  • Coal gasification/liquefaction to be incentivized through rebate in revenue share.
  • Coal bed methane (CBM) extraction rights to be auctioned from Coal India’s coal mines.

Challenges posed

  • The desire to cut its reliance on heavily polluting coal burning power plants has been a major challenge for the government in recent years.
  • The question of how India can achieve a balance between meeting demand for electricity from its almost 1.4bn people has to be answered.

Way Forward

Ramp-up domestic coal production

  • The efforts are being taken to fill the shortage of coal from domestic mines and to do so the government is working closely with coal producing companies to ramp up domestic production of coal.

Reduce demand-supply mismatches

  • Load shading is not new to India. Rationing of power supply in rural and semi-urban areas will be the immediate solution for the power distress in industrial areas.

Rationalize the coal imports

  • India will need to amplify its imports despite the financial cost. The gap in the coal demand after domestic production has to be filled by the imports from Indonesia and Australia.

Focus on Hydro-power generation and natural gal

  • India has the immense potential in the Hydro-power generation and is among the most important sector for generating electricity after thermal power plants.
  • The sector performs at its peak around the rainy season which typically extends from June to October.
  • There could be a larger role for natural gas to play, even with global prices currently surging.

Increasing the share of Renewable energy

  • Experts advocate a mix of coal and clean sources of energy as a possible long-term solution.
  • It’s not completely possible to transition and it’s never a good strategy to transition 100% to renewables without a backup.
  • Long term investment in multiple power sources aside a crisis like the current one can be averted with better planning.

Increased coordination

  • There is need for closer coordination between Coal India Limited – the largest supplier of coal in the country and other stakeholders.
  • For now, the government is working with state-run enterprises to ramp up production and mining to reduce the gap between supply and demand.

Decentralized power generation

  • The main issue is that we are dependent on large, centralized power generation.
  • The only way our power sector can absorb shocks better is if large power plants are augmented by decentralized generation sources at village level.
  • This can be a template for better resilience to future power crises.

Coal stocking norms

  • To avoid such a crisis situation in future, the Ministry of Power has worked out a strategy which includes tweaking the coal stocking norms. If the power plants do not follow them, then there will be a penal provision.
  • To overcome the storage issue in the generation of electricity from renewable sources, the government is working on a provision for creating more storage facilities in the grid.

Conclusion

India can learn a lesson from Europe’s power crisis. While Europe has gas power plants to stand in, India doesn’t have similar options. As we move more towards greening our power sources, we need to provision for paying for standby thermal generation to avoid a mega-crisis. Adequate liquidity for backup reserve capacity needs to be planned and provisioned for.

Probably, the present situation is a good opportunity to rethink and fine-tune the energy policy without further delay. Bits and pieces reforms will not work anymore, as the chain has to been broken and a complete overhaul is required.


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Burning Issues

[Burning Issue] Pandora Papers Leak

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Global elites continue to exploit the cracks in tax laws and the lax jurisdiction in tax havens to ring-fence their assets, through complex offshore structures, from scrutiny by authorities. The leak of financial documents, called the Pandora Papers, follows similar such exposés in the past, for instance, the Panama Papers and the Paradise Papers. While the earlier revelations had forced governments to tighten the regulatory architecture, owing to worries over these channels being used to launder money and evade taxes, the uncovering of this trove of 12 million documents now only underlines the challenges that the authorities continue to face.

There are at least 300 persons of Indian nationality in the Pandora Papers. The papers consist of as many as 12 million documents from 14 companies in offshore tax havens with details of ownership of 29,000 offshore companies and Trusts.

Let us look at the issue in detail.

What is Pandora papers leak?

  • The Pandora Papers show that over 300 Indians have set up such offshore structures. It is the largest trove of leaked data exposing tax haven secrecy in history.
  • It includes over 11.9 million leaked files from 14 global corporate services firms which set up about 29,000 off-the-shelf companies and private trusts in not just obscure tax jurisdictions.
  • Such structures are typically used to not pay taxes, to launder money gotten through illegal means, and to sequester assets.
  • They provide a rare window into the hidden world of offshore finance, casting light on the financial secrets of some of the world’s richest people.
  • Businessmen, who have declared themselves bankrupt before recovery tribunals, hold billions through such offshore entities. Some have set up offshore trusts to hold assets.
  • The use of such structures may not necessarily be illegal; they do raise questions over the nature of the transactions.
  • These documents relate to the ultimate ownership of assets ‘settled’ (or placed) in private offshore trusts and the investments including cash, shareholding, and real estate properties, held by the offshore entities.

What do these papers reveal?

  • They reveal how the rich, the famous and the notorious, many of whom were already on the radar of investigative agencies, set up complex multi-layered trust structures for estate planning.
  • This is particularly in jurisdictions that are loosely regulated for tax purposes, but characterized by air-tight secrecy laws.
  • The purposes for which trusts are set up are many, and some genuine too.

But a scrutiny of the papers also shows how the objective of many is two-fold:

  1. Tax Avoidance: to hide their real identities and distance themselves from the offshore entities so that it becomes near impossible for the tax authorities to reach them and,
  2. Tax Evasion: to safeguard investments — cash, shareholdings, real estate, art, aircraft, and yachts — from creditors and law enforcers.

How is Pandora different from the Panama Papers and Paradise Papers?

  • The Panama and Paradise Papers dealt largely with offshore entities set up by individuals and corporates respectively.
  • The Pandora Papers investigation shows how businesses disguised as Trusts have created a new normal with rising concerns of money laundering, terrorism funding, and tax evasion.

What is a Trust?

  • A trust can be described as a fiduciary arrangement where a third party, referred to as the trustee, holds assets on behalf of individuals or organizations that are to benefit from it.
  • It is generally used for estate planning purposes and succession planning.
  • It helps large business families to consolidate their assets — financial investments, shareholding, and real estate property.
  • A trust comprises three key parties:
    1. Settlor — one who sets up, creates, or authors a trust;
    2. Trustee — one who holds the assets for the benefit of a set of people named by the ‘settlor’; and
    3. Beneficiaries — to whom the benefits of the assets are bequeathed.
  • A trust is not a separate legal entity, but its legal nature comes from the ‘trustee’.
  • At times, the ‘settlor’ appoints a ‘protector’, who has the powers to supervise the trustee, and even remove the trustee and appoint a new one.

Is setting up a trust in India or one offshore/outside the country illegal?

  • The Indian Trusts Act, 1882 gives legal basis to the concept of trusts.
  • While Indian laws do not see trusts as a legal person/ entity, they do recognize the trust as an obligation of the trustee to manage and use the assets settled in the trust for the benefit of ‘beneficiaries’.
  • India also recognizes offshore trusts i.e., trusts set up in other tax jurisdictions.

If it’s legal, what’s the investigation about?

  • There are legitimate reasons for setting up trusts — and many set them up for genuine estate planning.
  • A businessperson can set conditions for ‘beneficiaries’ to draw income being distributed by the trustee or inherit assets after her/his demise.
  • For instance, while allotting shares in the company to say, four siblings, the father promoter set conditions that a sibling can get the dividend from the shares and claim ownership of the shares.
  • This could be to ensure ownership of the enterprise within the family.
  • But trusts are also used by some as secret vehicles to park ill-gotten money, hide incomes to evade taxes, protect wealth from law enforcers.

Why are the trusts set up overseas?

Overseas trusts offer remarkable secrecy because of stringent privacy laws in the jurisdiction they operate.  From the investigation, some key tacit reasons why people set up trusts are:

(1) Maintain a degree of separation

  • Businesspersons set up private offshore trusts to project a degree of separation from their personal assets.

(2) Hunt for enhanced secrecy

  • Offshore trusts offer enhanced secrecy to businesspersons, given their complex structures. The Income-Tax Department can get information only with the financial investigation agency or international tax authority.

(3) Avoid tax in the guise of planning:

  • Businesspersons avoid their NRI children being taxed on income from their assets by transferring all the assets to a trust.
  • Further, the tax rates in overseas jurisdictions are much lower than the 30% personal I-T rate in India plus surcharges, including those on the super-rich (those with annual income over Rs 1 crore).

(4) Prepare for estate duty eventuality

  • There is pervasive fear that estate duty, which was abolished back in 1985 when Rajiv Gandhi was PM, will likely be re-introduced soon.
  • Setting up trusts in advance, business families have been advised, will protect the next generation from paying the death/ inheritance tax, which was as high as 85 per cent.

(5) Flexibility in a capital-controlled economy

  • India is a capital-controlled economy. Individuals can invest only $250,000 a year under the Reserve Bank of India’s Liberalized Remittance Scheme (LRS).
  • To get over this, businesspersons have turned NRIs, and under FEMA, NRIs can remit $1 million a year in addition to their current annual income, outside India.

(6) The NRI angle

  • Offshore trusts, as noted earlier, are recognised under Indian laws, but legally, it is the trustees — not the ‘settlor’ or the ‘beneficiaries’ — who are the owners of the properties and income of the trust.
  • An NRI trustee or offshore trustee taking instructions from another overseas ‘protector’ ensures they are taxed in India only on their total income from India.

Can offshore Trusts be seen as resident Indians for tax purposes?

  • There are certain grey areas of taxation where the Income-Tax Department is in contestation with offshore trusts.
  • After the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, came into existence, resident Indians — if they are ‘settlors’, ‘trustees’, or ‘beneficiaries’ — have to report their foreign financial interests and assets.
  • NRIs are not required to do so — even though, as mentioned above, the I-T Department has been sending notices to NRIs in certain cases.

What are the grey areas of Indian taxation

  • There are certain grey areas of taxation where the Income-Tax Department is in contest with offshore trusts.
  • After the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, came into existence, resident Indians have to report their foreign financial interests and assets.
  • NRIs are not required to do so.
  • The I-T Department may consider an offshore trust to be a resident of India for taxation purposes if the trustee is an Indian resident.
  • In cases where the trustee is an offshore entity or an NRI, if the tax department establishes the trustee is taking instructions from a resident Indian, then the trust may be considered a resident of India for taxation purposes.

What are the government initiatives on Indian Taxation?

(1) Legislative Action

  • The Fugitive Economic Offenders Act, 2018

It seeks to confiscate properties of economic offenders who have left the country to avoid facing criminal prosecution or refuse to return to the country to face prosecution.

  • The Central Goods and Services Tax Act, 2017

Uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighboring States and that between intra and inter-state sales.

  • The Benami Transactions (Prohibition) Amendment Act, 2016
    • It is designed to curb black money and passed by parliament in came into effect.
    • Persons indulging in benami transactions may face up to 7 years’ imprisonment and fine.
    • Furnishing false information is punishable by imprisonment up to 5 years and fine.
    • Properties held benami are liable for confiscation by government without compensation.
    • Initiating Officer may pass an order to continue holding property and may then refer case to Adjudicating Authority which will then examine evidence and pass an order.
    • Appellate Tribunal will hear appeals against orders of Adjudicating Authority. High Court can hear appeals against orders of Appellate Tribunal.
  • The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
    • It penalizes the concealment of foreign income and provides for criminal liability for attempting to evade tax in relation to foreign income.
    • The Act gave a one-time opportunity to Indian residents to declare undisclosed foreign income and assets.
    • The concerned person had to pay tax at the rate of 30% and an equal amount by way of penalty if found having undisclosed overseas wealth.
    • However, in case of non-declaration, the provisions included slapping of tax at the rate of 30% along with a penalty equal to three times the amount of tax evaded or 90% of the undisclosed income or the value of the asset.
    • The Act provides for punishment of jail for 3-10 years for the willful evasion.
  • Prevention of Money Laundering Act, 2002
    • The PMLA was enacted in 2002 and it came into force in 2005. The chief objective of this legislation is to fight money laundering, that is, the process of converting black money into white.
    • The Act enables government authorities to confiscate property and/or assets earned from illegal sources and through money laundering.
    • Under the PMLA, the burden of proof lies with the accused.

(2) International cooperation

  • Double Taxation Avoidance Agreements (DTAAs): India is proactively engaging with foreign governments with a view to facilitate and enhance the exchange of information under Double Taxation Avoidance Agreements (DTAAs)/Tax Information Exchange Agreements (TIEAs)/Multilateral Conventions.
  • Automatic Exchange of Information: India has been a leading force in the efforts to forge a multilateral regime for proactive sharing of financial information known as Automatic Exchange of Information which will greatly assist the global efforts to combat tax evasion.
  • Foreign Account Tax Compliance Act of USA: India has entered into an information sharing agreement with the USA under the act.

Way Forward

  • In the current running economy, the measures taken by the governments are not sufficient enough to solve the problems of over growing scams and other economic crimes.
  • There is need of strict provisions to deal with such problems.
  • The governments are required to bring out certain reforms to overcome these issues such as to govern the crimes of economics the government should revamp the laws since the existing laws are not so harsh.
  • Also the enforcement agencies should try to keep bars on the benefits arising out of such crimes by the offenders or scam.
  • Side by side, all the private or public agencies such as income tax department, custom offices, police departments, SEBI, etc. should work in a coordination to quickly get rid of these economics crimes.

Conclusion

  • It is clearly evident from the aforementioned cases that the occurrence and re – occurrence of such scams can only be attributed to the weak financial regulations and a failure of corporate governance in finance.

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Burning Issues

[Burning Issue] Ayushman Bharat Digital Mission

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Prime Minister Narendra Modi recently launched the Ayushman Bharat Digital Mission via video conferencing. Currently, the program is being implemented on a pilot basis in six Union Territories. Ayushman Bharat Digital Mission has the potential to bring revolutionary changes to our health facilities. It marks a new phase in 7-year efforts to strengthen health facilities.

Ayushman Bharat Digital Mission will create a seamless online platform that will enable interoperability within the digital health ecosystem and will now connect the digital health solutions of hospitals across the country with each other. Under the New Mission, every citizen will now get a digital health ID and their health record will be digitally protected.

Background

Before knowing about the latest initiative, let us look at India’s flagship ‘Ayushman Bharat Scheme’.

What is Ayushman Bharat Scheme?

  • The Government announced two major initiatives in health sector, as part of Ayushman Bharat programme.
  • Health and Wellness Centre
  • National Health Protection Scheme
  • Aimed at making path breaking interventions to address healthcare problems holistically, in primary, secondary and tertiary care systems.
  • Covers both prevention and promotion of health.

Need for Ayushman Bharat

  1. India is in a state of health transition.
  2. Infectious diseases such as tuberculosis, malaria, dengue, H1N1 pandemic influenza and antimicrobial resistance are a threat.
  3. Also the country is facing the emerging problem of chronic non-communicable diseases such as cardiovascular diseases, diabetes, cancer which are now the leading cause of mortality.
  4. New factors are emerging that threatens the country’s health security like ageing population, climate change, globalization, urbanization and changing lifestyles.
  5. We lag behind in addressing healthcare delivery across the length and breadth of the country.
  6. We have one of the highest levels of out-of-pocket spending on health.
  7. Average cost of treatment in private hospitals is 4 times higher than that of public. This pushes many people below poverty line.
  8. Funding for healthcare has been a major concern.
  9. Several states have implemented or supplemented their own health protection schemes. Ayushman Bharat programme builds on these schemes.
  10. Failure of Rashtriya Swasthya Bima Yojana (RSBY).

Health and Wellness Centre

  1. Health and Wellness Centres will be the foundation of country’s health system.
  2. 1.5 lakh centres will bring health care system closer to the homes of people.
  3. Will provide comprehensive health care, including for non-communicable diseases and maternal and child health services.
  4. Will also provide free essential drugs and diagnostic services.
  5. Also provide mental health services, vaccinations against selected communicable diseases, and screening for hypertension, diabetes, and some cancers.
  6. Allocation of Rs. 1200 crore for this flagship programme.
  7. Contribution of private sector through CSR and philanthropic institutions in adopting these centres is also envisaged.

National Health Protection Scheme

  1. National Health Protection Scheme will cover over 10 crore poor and vulnerable families or around 50 crore people.
  2. Will provide coverage upto 5 lakh rupees per family per year for secondary and tertiary care hospitalization.
  3. Identification of eligible families through the socio-economic caste census (SECC) data.
  4. World’s largest government funded health care programme.
  5. National Health Agency will govern the implementing mechanism.
  6. Adequate funds will be provided for smooth implementation of this programme.
  7. Cost of packages will be decided by National Health Agency.

Significance of Ayushman Bharat

  1. Move towards the goal of universal health coverage
  2. Creating Swasth Bharat.
  3. Accessible healthcare at secondary and tertiary level institutions for the bottom 40% of the population.
  4. High involvement of states as the states are the custodians and the implementers of the scheme.
  5. Ensures enhanced productivity, well being and avert wage loss and impoverishment.
  6. Generation of lakhs of jobs, particularly for women.
  7. Like Jan Dhan scheme did for financial inclusion, Ayushman Bharat will create huge awareness of health insurance
  8. A higher life expectancy.
  9. The country will meet its social development goals.
  10. With respect to infrastructure and trained medical professionals, tertiary healthcare faces a big challenge. This problem is more acute in rural areas. AB will address this challenge.
  11. Will improve access to healthcare and bridge the demand-supply gap.

National Digital Health Eco-system

It is a National Digital Health Eco-system that supports Universal Health Coverage in an efficient, accessible, inclusive, affordable, timely, and safe manner, through the provision of a wide range of data, information, and infrastructure services, duly leveraging open, interoperable, standards-based digital systems, and ensuring the security, confidentiality, and privacy of health-related personal information.

Knowing in detail the main scheme, let us look at the current developments and initiatives by the government to bring the health sector and Digital India mission in confluence to provide better services to the people of India and increasing governance through ICT.

What is Ayushman Bharat Digital Mission?

  • It aims to provide digital health IDs for all Indian citizens to help hospitals, insurance firms, and citizens access health records electronically when required.
  • The pilot project of the Mission had been announced by the Prime Minister from the ramparts of the Red Fort on 15th August 2020.
  • The project is being implemented in the pilot phase in six States & Union Territories.

Features of the Mission:

Use of technology

  • There had also been an unprecedented expansion of telemedicine in the corona period- so far about 125 crore remote consultations completed through e-Sanjeevani.
  • The Ayushman Bharat Digital Mission would now connect the digital health solutions of hospitals across the country with each other.

Health ID:

  • It will be issued for every citizen that will also work as their health account. This health account will contain details of every test, every disease, the doctors visited, the medicines taken and the diagnosis.
  • Health ID is free of cost, voluntary. It will help in doing analysis of health data and lead to better planning, budgeting and implementation for health programs.

Healthcare Facilities & Professionals’ Registry:

  • The other major component of the programme is creating a Healthcare Professionals’ Registry (HPR) and Healthcare Facilities Registry (HFR), allowing easy electronic access to medical professionals and health infrastructure.
  • The HPR will be a comprehensive repository of all healthcare professionals involved in delivering healthcare services across both modern and traditional systems of medicine.
  • The HFR database will have records of all the country’s health facilities.

Ayushman Bharat Digital Mission Sandbox:

  • The Sandbox, created as a part of the mission, will act as a framework for technology and product testing that will help organizations, including private players intending to be a part of the national digital health ecosystem become a Health Information Provider or Health Information User or efficiently link with building blocks of Ayushman Bharat Digital Mission.

Who will be the implementing agency for the mission?

  • National Health Authority (NHA) under the Ministry of Health and Family Welfare.

What are the intended benefits of the mission?

  • Indians will be able to use IT-enabled tools to share prescriptions, blood test reports and X-ray diagnostics with doctors, irrespective of where they were generated.
  • It involves the creation of a unique health ID for every citizen and a digital registry that aims to facilitate seamless interactions between healthcare experts.
  • This is a much-needed intervention given that management of chronic diseases has become a critical public health challenge in the past 15 years.
  • Data portability could expedite the treatment of the critically ill, especially those who suffer from more than one ailment.
  • The severity of Covid-19 effects amongst those with comorbidities has highlighted the need for a repository that alerts a doctor to a patient’s medical history at the click of a computer mouse.
  • In the long run, the creation of a health record system could improve public health monitoring and advance evidence-based policymaking.
  • It ensures ease of doing business for doctors and hospitals and healthcare service providers.
  • Enable access and exchange of longitudinal health records of citizens with their consent.
  • Create integration within the digital health ecosystem, similar to the role played by the Unified Payments Interface (UPI) in revolutionizing payments.
  • Old medical records cannot get lost as every record will be stored digitally. The Digital Ecosystem will also enable a host of other facilities like Digital Consultation, Consent of patients in letting medical practitioners access their records, etc.  
  • Based on the foundations laid down in the form of Jan Dhan, Aadhaar and Mobile (JAM) trinity and other digital initiatives of the government, Ayushman Bharat Digital Mission will create a seamless online platform.
  • Through this platform, the provision of a wide range of data, information and infrastructure services, duly leveraging open, interoperable, standards-based digital systems while ensuring the security, confidentiality and privacy of health-related personal information.

Global learning

  • Globally, the tryst with e-health innovations has been a mixed one.
  • The UK’s National Health Service was one of the first to deploy a digital system to make patients’ records accessible to doctors across the country.
  • The programme did not earn the trust of doctors and failed to adequately address issues related to data confidentiality. Aborted in 2011, the project is regarded as amongst the most expensive failures in IT history.
  • In the US and Australia, where digital healthcare has enjoyed a relatively better outing, the creation of a patient and physician-centric e-healthcare ecosystem remains a work in progress.
  • The US medical system has witnessed regular debates on what must be jotted down in hospital records and prescriptions.

What are the challenges and concerns?

  • The lack of a data protection bill could lead to the misuse of data by private firms and bad actors.
  • Exclusion of citizens and denied healthcare due to faults in the system are also a cause of concern.
  • Evolving a language of communication in the digital health ecosphere could pose unforeseen problems in India given the country’s diversity and its chronic shortage of doctors, especially in public health centres — the main source of medical care for a vast number of people in the country.
  • Poor internet speeds could make data entry an onerous proposition for the rural healthcare provider.

Way Forward

  • The NDHM still does not recognize Health as a justifiable right. There should be a push draft at making health a right, as prescribed in the draft National Health Policy, 2015.
  • Learning from the global experiences, India has to wisely draft the policy rules and implement according to current infrastructural limitations and present needs. The experience out of corona pandemic will be the key guiding factor behind the implementation of the mission.
  • The standardisation of NDHM architecture across the country will need to find ways to accommodate state-specific rules.
  • It also needs to be in sync with government schemes like Ayushman Bharat Yojana and other IT-enabled schemes like Reproductive Child Health Care and NIKSHAY etc.
  • The Ayushman Bharat Digital Mission gives patients the option to choose the records they want to share. The areangements should be accordingly made to protect the privacy of the people and save them from further exploitation.

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Burning Issues

[Burning Issue] Gender Responsive Budgeting amid COVID-19

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The concept of Gender Responsive Budgeting (GRB) gained widespread popularity in the early 20th century when budgets began to be regarded as a significant fiscal innovation tool to achieve gender equality. Since then, more than 80 countries have adopted some variant of gender budgeting. This list includes India, where in the past 16 years, finance ministers have all promised to improve women’s welfare through higher and more gender-focused government expenditures.

COVID-19 pandemic and need of the GRB

  • The COVID-19 pandemic — which has exacerbated pre-existing economic inequalities within India’s patriarchal society — rigorous and concentrated GRB efforts are needed more than ever.
  • The GRB process could, in fact, help governments identify gender needs, allocate resources to programs by applying a gender lens, and prioritize gender-specific outcomes.
  • Given this context, it becomes important to understand how useful past Indian gender budgets have proven to be and analyze whether India’s first pandemic gender budget (2021-2022) will be able to facilitate a gender sensitive economic recovery in the face of the current crisis.

What is Gender Responsive Budgeting (GRB)?

  • Gender Budgeting in India: India adopted gender budgeting in 2004-05 based on the recommendations of an expert group committee constituted by the Ministry of Finance on “Classification of Budgetary Transactions”.
  • Objective: Gender budgeting, a fiscal innovation was envisioned and incorporated into the financing mechanism to tackle gender inequalities in India.
  • Gender Responsive Budgeting is concerned with gender sensitive formulation of legislation, programmes and schemes; allocation of resources; implementation and execution; audit and impact assessment of programmes and schemes; and follow-up corrective action to address gender disparities.
  • GRB is a powerful tool for achieving gender mainstreaming so as to ensure that benefits of development reach women as much as men.
  • GRB entails dissection of the Government budgets to establish its gender differential impacts and to ensure that gender commitments are translated in to budgetary commitments.
  • It does not seek to create a separate budget but seeks affirmative action to address specific needs of women and monitors expenditure and public service delivery from a gender perspective.
  • The impact of government budgets on the most disadvantaged groups of women is a focus of special attention.

Rationale Behind Gender Budgeting

  • Women, constitute 48% of India’s population (according to 2011 census), but they lag behind men on many social indicators like health, education, economic opportunities, etc.
  • Hence, they need special attention due to their vulnerability and lack of access to resources.
  • Women face disparities in access to and control over services and resources.
  • Bulk of the public expenditure and policy concerns are in ‘‘gender neutral sectors”.
  • Gender responsive budgets policies can contribute to achieving the objectives of gender equality, human development and economic efficiency.

Who implements a Gender Responsive Budget in India?

Though the Ministry of Women and Child Development (MWCD)  is the nodal agency to implement GRB in India, it is the Ministry of Finance in coordination with the National Institute of Public Finance and Policy (NIPFP) that carries out the pioneering study on GRB to design the matrices of gender budgeting.

Why Gender Responsive Budgeting is important?

  • Eliminating gender inequalities: GRB has both intrinsic and instrumental relevance.
    • GRB is critical for eliminating gender inequalities with significant improvements in social, educational, health and economic indicators of a country. 
  • Economic rationale: Persistent gender inequality hinders the overall growth and development of a nation. The economic rationale for promoting a gender-sensitive budget also emanates from efficiency and equity perspectives.
    • It addresses budgetary gender inequality issues, such as how gender hierarchies influence budgets, and gender-based unpaid or low paid work.
  • Achieving social goals: Gender inequality is correlated with a loss in human development due to inequality.
    • Gender inequality translates into other areas of human development, threatening progress across the 2030 Agenda for Sustainable Development.
  • Public expenditures with gender implications:
    • While some public expenditure is by nature ‘non-excludable’ and ‘non-rival’, such as defence, road/bridge-building, etc.
    • Some public expenditure like on education, health, sanitation may have intrinsic gender implications and require separate assessment/monitoring/evaluation of gender-specific needs.
    • Rationale for gender budgeting arises from the recognition of the fact that national budgets impact men and women differently through the pattern of resource allocation.

Gender Responsive Budgeting and India

  • Increasing trend in the Budget allocation: Over the last 16 years, India’s gender budget has witnessed a six-fold increase in absolute terms, growing from 242 billion rupees in 2005-2006 to 1.4 trillion rupees in 2020-21.
  • The gender budget statement has been divided into two parts:
    • Part A reflects schemes with 100 percent allocation for women, such as the maternity benefit scheme or widow pension scheme; and
    • Part B entails schemes with nearly 30 percent of funds allocated for women, such as the rural livelihood mission and mid-day meals program.
  • Stands out globally: India’s gender budgeting efforts stand out globally because they have not only influenced expenditure but also revenue policies (like differential rates for men and women in property tax rates and reconsideration of income tax structure) and have extended to state government levels.
  • Gender budgeting efforts in India have encompassed four sequential phases:

(i) knowledge building and networking,

(ii) institutionalizing the process,

(iii) capacity building, and

(iv) enhancing accountability.

  • Gender budgeting in India is not confined to an accounting exercise. The gender budgeting framework has helped the gender-neutral ministries to design new programs for women.
  • Gender Budgeting Cells (GBC) as an institutional mechanism has been mandated to be set up in all Ministries/Departments.
    • GBCs conduct gender based impact analysis, beneficiary needs assessment and beneficiary incidence analysis to identify scope for re-prioritization of public expenditure and improve implementation etc.

What are the shortcomings in India’s GRB?

  • Lack of amount allocated towards women’s welfare: Despite such a large growth in Budget (in monetary term), the amount allocated toward women’s welfare has stagnated in the last 13 years.
  • Dominance of Part B of Gender Budget: Since its inception, schemes that partly benefit women have continued to dominate the gender budget, with allocations under Part B accounting for at least two-thirds of the total gender budget.
    • Women in India have remained deprived of schemes that are entirely targeted toward their development and have therefore only partially benefited from the introduction of the gender budget statement.
  • Omission of schemes beneficial schemes: The gender budget is a summation of funds allocated by different ministries toward the goal of women’s empowerment but in doing so, it has also ended up omitting several schemes that are actually beneficial for women.
    • e.g.: Jal Jeevan Mission — a scheme aimed at providing rural households with tap connections which will particularly improve the quality of life for women, the Department of Water and Sanitation has not reported any part of the allocation under the gender budget.
  • Unequal allocations of funds across ministries under GRB: Only five government ministries and departments have cornered nearly half of the total gender budget allocations in the last three years.
    • These include the Ministry of Rural Development, Ministry of Women and Child Development, Ministry of Agriculture, Ministry of Health and Family Welfare, and Ministry of Human Resource Development.

Are outcomes of GRB satisfactory?

  • Omission of schemes and women-led-programs, along with unequal allocations of funds across ministries, continue to pose severe disadvantages for women in India, limiting the facilitation of an equitable access of resources and services for all.
  • This is particularly concerning as India has lots of ground to cover with regards to its gender equality goals.
  • India, in fact, slipped from 108th position among 153 countries in the World Economic Forum’s Global Gender Gap Index 2018 to 112th in 2020.
  • According to the report, it will take nearly 100 years to close the gender gap across politics, economic, health and education.
  • In light of these limitations, it would be fair to state that India’s GRB process has resulted in a lack of outcome-oriented budgeting.
  • Government ministries and departments in India have merely reduced GRB to an aggregation exercise, with the central goal of achieving gender parity often taking a back seat.

Pandemic Gender Budget: Beneficial or Not?

  • Despite emerging evidence about the disproportionate impact of COVID-19 on women and young girls, India’s first pandemic gender budget has continued to follow the worrying historical trends.
  • In fact, the gender budget outlay in the Union Budget 2021-22 was cut by 26 percent, plummeting from 2.1 trillion rupees in 2020-21 (revised estimate) to 1.5 trillion rupees in 2021-22 (budget estimate).
    • It therefore, accounts for merely 4.4 percent of the total budgetary expenditure and 0.7 percent of GDP, which is considerably insufficient.
  • These allocations are particularly disappointing for a time when economic activities have reduced to a bare minimum, with women standing at the forefront of layoffs, job losses, and wage cuts.
  • The GRB 2021-22 has remained concentrated within a few ministries and traditional schemes or programs, where only 34 of more than 70 central ministries and departments have reported some kind of allocations.
    • Yet, the same five ministries that dominated the former gender budgets have received 87 percent of the allocations even in the current financial year.
    • For an effective and adequate mainstreaming of gender concerns, all ministries and departments should receive some amount of funding.
  • The new priority areas that have emerged in the wake of the pandemic — including digital literacy, domestic violence, skill training, and more — have only received 2 percent of the budget allocation in 2021-22.
    • As per the United Nations, these are some of the key short-terms priorities that need government action not only to reduce the disproportionate burden of the pandemic on women’s shoulders but also to bring about the gender-sensitive social and economic recovery of a country.

Conclusion

The current budgetary provisions as specified in the Union Budget 2021-22 may turn out to be incompetent to tackle the mounting problems of job losses faced by women, the high dropout rates of young girls, increasing gender-based violence, and so on.

The GRB process in India has clearly been marred by various limitations that often result in suboptimal outcomes, with gender inequality remaining rife in every aspect of Indian life. These inequalities are nonetheless being reinforced and, to some extent, deepened in the current COVID-19 pandemic. As a result, a greater focus needs to be laid on the gender budgets in India.         


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Burning Issues

[Burning Issue] Asset Monetization & Value Creation

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Sustained economic growth is the key to India’s power. Infrastructure without a doubt lies at the heart of this growth story. Infrastructure is inextricably linked to growth by its inherent ability to supports livelihoods, drive businesses, generate employment, and in effect determine the quality of life. Top-quality well managed Infrastructure holds the key to growth and job creation.

Recently, the government has announced an ambitious program of asset monetization. It hopes to earn ₹6 trillion in revenues over a four-year period. At a time when the government’s finances are in bad shape, that is money the government can certainly use. Getting asset monetization right is quite a challenge, though.

The creation of the National Monetization Pipeline (NMP) is the government’s pioneering initiative and a step in the right direction to establish a medium-term pipeline along with a roadmap for “monetization ready” assets.

Covid pandemic and its effect on economic activity in the country

  • Need of infrastructure investment: With the COVID taking an unprecedented toll on the economic activity in the country, significantly enhanced level of infrastructure investment is required for reviving growth.
  • Sustainable infrastructure systems: Covid has also bought to fore, the need for resilient, sustainable and advanced infrastructure systems.
  • Need for Long-term capital: Investing huge sums into creating world class infrastructure will lead to a high trajectory of growth, but this essentially hinges on availability of long-term capital at scale.
    • Financing of infrastructure thus requires a diversified set of alternatives, especially so in economies at the cusp of transformation such as India.
    • Meeting the required scale of infrastructure spending can only be made possible through a re-imagined approach.

In this context, Asset Monetization merits a seat on the table.

What is Asset Monetization?

  • In asset monetization, the government parts with its assets — such as roads, coal mines — for a specified period of time in exchange for a lump sum payment.
  • At the end of the period, the assets return to the government. Unlike in privatization, no sale of government assets is involved.
  • By monetizing assets it has already built, the government can earn revenues to build more infrastructures.
  • Asset monetization will happen mainly in three sectors: roads, railways and power.
  • Other assets to be monetized include: airports, ports, telecom, stadiums and power transmission.

What is the objective of Asset recycling and monetization?

Asset recycling and monetization serves two critical objectives

1) Firstly, it unlocks value from public investment in infrastructure, and;

2) Secondly, it taps private sector efficiencies in operations and management of infrastructure.

How it is different from privatization?

  • In privatization, there involves sale of public assets to private sector like land, Public Sector Enterprises, etc. But this is not the case with asset monetization.
  • Government doesn’t transfer ownership of assets to private entities in asset monetization.
  • Asset Monetization at its core, is a distinct shift from ‘privatization’ and ‘slump sale’ of assets to ‘structured partnerships’ with private sector within defined contractual frameworks.
  • The driver for Asset Monetization is beyond its fiscal impact.
  • It is not just a funding mechanism, but an overall paradigm shift in infrastructure operations, augmentation and maintenance.

Why private sector is important in infrastructure development?

  • India has made massive strides in creating a mesh of infrastructure through flagship build-out programmes in recent years.
  • For most sectors, this has been driven by the public sector or public funding. Today, India holds one of the largest brownfield stocks of fixed assets in the world.
  • However, while public sector can build infrastructure, it is rarely able to run it efficiently. It is a widely accepted fact the private sector has much greater resource efficiencies, when it comes to developing and managing infrastructure.
  • Increasingly, therefore, government looks to partner with the private sector as a partner. However, for effective co-working between the public and private sector, PPP models are now demanding a reboot.

India and PPP ecosystem

  • India has a robust PPP ecosystem involving institutional mechanisms, model contractual frameworks, regime of standards and financing institutions.
  • Concepts such as preservation of ownership with government, transfer back of asset at the end of concession and key Performance Indicators are well engrained in our PPP eco-system.
  • However, over the last few years there has been reduced appetite of private sector and debt financiers for Greenfield infrastructure.
  • This necessitates innovative mechanisms, structured around mature brownfield assets, for tapping private investment.
  • Asset Monetization, therefore strives to tilt the axis from greenfield to brownfield models.
  • Increased appetite for brownfield assets is evidenced by the flow of private and institutional capital into sectors such as roads, power and telecom.
  • Private sector has very effectively utilized risk managed structures to monetize assets such as toll roads, transmission towers, pipelines and telecom towers thus bringing in a new investor class into India’s Infrastructure.

Recent successful examples of asset monetization:

  • From the public sector, NHAI has monetized close to 1,400 km of toll roads through TOT concessions and has raised Rs. 17,000 crore.
  • Powergid successfully launched the first ever public sector InvIT monetizing its first batch of transmission assets and raising Rs. 7,700 crore.
  • Airports Authority of India successfully monetized 6 brownfield AAI airports through OMDA model raising upfront proceed and private investment towards augmentation of the airports.
  • Indian Railways also launched the strategic foray into PPP in station redevelopment and running of passenger trains.

Role of Infrastructure Investment Trusts (InvITs) & Real Estate Investment Trusts (REITs)

  • Innovative structured vehicles such as Infrastructure Investment Trusts (InvITs) & Real Estate Investment Trusts (REITs) are a capital market play.
  • They are created and operated under the regulatory framework of SEBI and targets pooled long term capital.
  • Since the launch of regulations for these vehicles by SEBI in year 2014, India’s private sector has very effectively unlocked its invested equity by employing these vehicles and bringing in capital from global pension and sovereign funds.
  • Assets Under Management (AUM) of Rs. 1 lakh crore from the private sector alone, is held by these vehicles.
  • Through the Asset Monetization programme, public sector entities will also tap into long term institutional capital and build on the recent success of PowerGrid’s InvIT.
  • More importantly, India’s common public can also invest in InvITs and REITs as retail investors.
  • These models interest a different investor class comprising of global pension and sovereign wealth funds and also retail investors.
  • The SEBI Regulations bring transparency for investors and also efficiency in asset management.

What is National Monetization Pipeline (NMP)?

  • The NMP comprises a four-year pipeline of the Central Government’s brownfield infrastructure assets.
  • It will serve as a medium-term roadmap for the Asset Monetization initiative of the government, apart from providing visibility for the investors.
  • Incidentally, the 2021-22 Union Budget, laid a lot of emphasis on Asset Monetization as a means to raise innovative and alternative financing for infrastructure.
  • It has to be noted that the government views asset monetization as a strategy for the augmentation and maintenance of infrastructure, and not just a funding mechanism.

Framework

The framework for core asset monetization has three key imperatives:

  • The pipeline has been prepared based on inputs and consultations from respective line ministries and departments, along with the assessment of total asset base available therein.
  • Monetization through disinvestment and monetization of non-core assets have not been included in the NMP.
  • Further, currently, only assets of central government line ministries and CPSEs in infrastructure sectors have been included.
  • Process of coordination and collation of asset pipeline from states is currently ongoing and the same is envisaged to be included in due course.

Estimated Potential

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  • The aggregate asset pipeline under NMP over the four-year period, FY 2022-2025, is indicatively valued at Rs 6.0 lakh crore.
  • The estimated value corresponds to ~14% of the proposed outlay for Centre under NIP (Rs 43 lakh crore). This includes more than 12-line ministries and more than 20 asset classes.
  • The sectors included are roads, ports, airports, railways, warehousing, gas & product pipeline, power generation and transmission, mining, telecom, stadium, hospitality and housing.
  • The top 5 sectors (by estimated value) capture ~83% of the aggregate pipeline value. These top 5 sectors include: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%).

Implementation & Monitoring Mechanism

  • As an overall strategy, significant share of the asset base will remain with the government.
  • The programme is envisaged to be supported through necessary policy and regulatory interventions by the Government in order to ensure an efficient and effective process of asset monetisation.
  • These will include streamlining operational modalities, encouraging investor participation and facilitating commercial efficiency, among others.
  • Real time monitoring will be undertaken through a separate dashboard.

What are the challenges involved?

  • Realizing adequate value: The First and foremost criticism is whether adequate value from the assets will be realized or not.
    • This depends on the quality of the bidding process and whether enough private players are attracted to bid.
  • Ensuring sufficient participation from bidders: The only way of ensuring that asset monetization doesn’t lead to cronyism is to make the bidding conditions such that the people eligible to bid are not a small, predetermined set.
    • However, because of the capital intensity of the project, not everybody is going to be able to bid. Even so, you can ensure that there is sufficient participation.
  • Execution Risk: There will be execution risk in such a large programme. However, this is exactly why NMP is not adopting a one-size-fits-all approach.
  • Issue of Taxpayers’ Money: The taxpayers have already paid for these public assets — and, so, why should they pay again to a private party to use them.
  • Suboptimal Contractual Enforcement: A criticism is born out of scepticism about a sub-optimal contractual and judicial framework to make such a plan a success.
  • Monopolistic Outlook: A few business houses will corner the bulk of the assets offered under NMP.
  • Right and targeted policy planning and implementation: There is a need to systematically adopt these initiatives across varied asset classes and streamline the frameworks and modalities of such alternatives in a programmatic manner which can be readily absorbed, evaluated and replicated.
  • Involvement of states: Any of the center’s objectives can’t go in full throttle without apt cooperation from the states. The growth of the states is a precondition for the overall growth of India.

Conclusion

  • A well laid out pipeline gives a comprehensive view to investors & developers of brown-field investment avenues in Infrastructure and helps them plan their fund raising and due-diligence activities.
  • A diverse and sustained National Monetisation Pipeline (NMP) not only provides visibility to the investors on potential financing opportunities but also driving preparedness of public authorities to structure and launch transactions in a systematic and transparent manner.
  • Contribution of States is essential: States are an equal partner in India’s Infrastructure story. India cannot grow faster unless states grow at higher rates and hence there is a need to work closely with states.
    • States, too present a significant potential for leveraging assets such as tolled State Highways, Transmission towers, discoms, bus terminals, sports stadiums and state warehouses to mobilize capital for Infrastructure investment which can have multiplier effects on the state economies.
    • Recognizing the criticality of enhanced capital expenditure, the “Scheme for Special Assistance to States for Capital Expenditure” to boost capital expenditure by state governments reeling under the financial impact of COVID-19 pandemic, is a path breaking measure.
    • Under the Scheme, incentive is provided to the States in the form of 50-year interest free loan.
  • In order to give the needed fillip to the monetization initiative, following three aspects need concerted efforts and interventions.
    1. Firstly, a relentless focus on implementation is the key.
    2. Secondly developing brownfield models and frameworks will provide the needed pace.
    3. Lastly, driving states and partnering with them in undertaking monetization in a structured manner.

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Categories
Burning Issues

[Burning Issue] BRICS and its relevance in today’s world

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The 13th BRICS summit is set to be held on September 9 in digital format under India’s chairmanship. This plurilateral grouping comprising Brazil, Russia, India, China, and South Africa is chaired by turn. India held the chair in 2012 and 2016 too.

The grouping is successful in moving towards the desire objectives for which it has come into existence. But currently, there are many challenges engulfing it. This is high time that it should look forward to resolving them and progress towards its desired objectives.

What is BRICS?

  • BRICS is an acronym for the grouping of the world’s leading emerging economies, namely Brazil, Russia, India, China and South Africa.
  • The BRICS Leaders’ Summit is convened annually. It does not exist in form of organization, but it is an annual summit between the supreme leaders of five nations.

Inception

  • On November 30, 2001, Jim O’Neill, a British economist who was then chairman of Goldman Sachs Asset Management, coined the term ‘BRIC’ to describe the four emerging economies of Brazil, Russia, India, and China.
  • He made a case for BRIC on the basis of econometric analyses projecting that the four economies would individually and collectively occupy far greater economic space and become among the world’s largest economies in the next 50 years or so.

How it has formed?

  • The grouping was formalized during the first meeting of BRIC Foreign Ministers on the margins of the UNGA in New York in September 2006.
  • The first BRIC Summit took place in 2009 in the Russian Federation and focused on issues such as reform of the global financial architecture.

Who are the members?

  • South Africa was invited to join BRIC in December 2010, after which the group adopted the acronym BRICS. South Africa subsequently attended the Third BRICS Summit in Sanya, China, in March 2011.
  • The Chairmanship of the forum is rotated annually among the members, in accordance with the acronym B-R-I-C-S.
  • The importance of BRICS is self-evident: It represents 42% of the world’s population, 30% of the land area, 24% of global GDP and 16% of international trade.
  • The five BRICS countries are also members of G-20.

Significant feats of BRICS

 1. Johannesburg Declaration, 2018

  • The 2018 summit saw the BRICS leaders come together and discuss various international and regional issues of common concern and adopted the ‘Johannesburg Declaration’ by consensus.
  • The leaders jointly reaffirmed their commitment to the principles of mutual respect, sovereign equality, democracy, inclusiveness and strengthened collaboration.
  • The BRICS leaders have used the summit to reject the growing unilateralism and instead reiterate their commitment to the strengthening of multilateral institutions, calling for stronger intra-trade within member states.

2. Focus on New Industrial Revolution

  • The other big idea emanating from the summit is to help nations to prepare for the Fourth Industrial Revolution.
  • Participants embraced it, articulating the need for a new strategy on employment, education and skill development as the digital revolution unfolds.
  • The leaders commended the establishment of the BRICS Partnership on New Industrial Revolution (PartNIR).
  • It aims to deepen BRICS cooperation in digitalization, industrialization, innovation, inclusiveness and investment and to maximize the opportunities and address the challenges arising from the 4th Industrial Revolution.

3. BRICS Plus

  • The BRICS outreach to Africa began at the last summit hosted by South Africa, in 2013. It has picked up momentum now but African leaders want more.
  • They need big loans from the New Development Bank (NDB) for their infrastructure projects.
  • China introduced the “BRICS Plus” format at the Xiamen summit last year by inviting a few countries from different regions.
  • South Africa emulated it, arranging the attendance of top-level representation of five nations of its choice: Argentina, Jamaica, Turkey, Indonesia and Egypt.
  • The precise role of “BRICS Plus” countries will take time to evolve but an immediate benefit is the immense opportunities it provides for networking among leaders.

4. Brasilia outcome

  • During Brazil’s chairmanship, the grouping reported 30 new outcomes, initiatives and documents.
  • The latest summit needed a 73 para-long Brasilia Declaration to spell out the leaders’ shared worldview and spectrum of their work.
  • Much to India’s satisfaction, the commitment of BRICS to counterterrorism seems to be getting strengthened.

5. New Development Bank (NDB) projects

  • The NDB, the grouping’s flagship achievement, has 44 projects with its lending touching $12.4 billion, in just five years.
  • This is not a small gain, but the bank needs to grow as “a global development finance institution”. A move is now afoot to open its membership selectively.
  • NDB has opened its regional centers in South Africa and Brazil and will do so in Russia and India in 2020.

6. Local Currency Bond Fund

  • With a successful Contingent Reserve Arrangement in the bag, BRICS governments are set to establish a Local Currency Bond Fund.

7. Business promotion

  • The BRICS Business Council held a substantive dialogue to foster cooperation in areas ranging from infrastructure and energy to financial services, regional aviation and digital economy.
  • Its cooperation with the NDB is being encouraged. The national trade promotion agencies signed an MoU on cooperation among themselves.
  • A BRICS Women Business Alliance was also created, both as a women empowerment measure and as a tool to bring “a distinctive perspective on issues of interest for the business community.”

How relevant is the BRICS in today’s world?

New front against western dominance

  • The BRICS is group of countries having total population of approximately 3.6 billion which makes 40% of world population.
  • Also, the cumulative economy of the group members aggregate to around 17 trillion in nominal term which is 22% of world economy in current context.
  • The relevance of the group increases when it is considered as rival of western dominated institutions of World Bank and IMF.

Future power centers of the world

  • India and China are today the fastest growing economies and they are considered as future super power of world.
  • The group also has Russia the former USSR as a member which was one of the two super power until 1991 when it was disintegrated for various political and economic reason but still retain the hegemony of western, US led military dominance.

A step towards a more democratic world order

  • In subsequent summits since its inception the group has taken various initiatives which have changed the world economic order.
  • The group pledged a corpus of $75 billion to IMF on precondition of voting rights reform in June, 2012 which is not only the end of US hegemony in institution but also a start of more democratic world order.

New Development Bank

  • During its fifth summit at Durban, South Africa in 2013, the member countries agreed to create a new global financial institution which finally came into existence as New Development Bank in 2015.
  • It has a head quarter at Shanghai with initial capital of $50 billion and subsequently increased to $100 billion.
  • The bank is today considered as rival of World Bank and the bank’s primary focus is to lend for various development projects in member and other developing countries.

Contingent Reserve Agreement

  • To save members from immediate economic shocks the group has also agreed to Contingent Reserve Agreement.
  • The agreement provide protection to member countries against global liquidity pressure as all the members are developing economies and prone to increased economical volatility in current globalized scenario and is considered as rival of International Monetary Fund.

A bridge between North and South

  • The grouping has gone through a reasonably productive journey. It strove to serve as a bridge between the Global North and Global South.

Assuring global peace and security

  • The US unilateral withdrawal from Intermediate-Range Nuclear Forces (INF) Treaty and Iran deal has posed a great security threat to global peace.
  • BRICS, being a pillar of fairer polycentric world order, can play a significant role in assuring world peace by playing an active role in dispute resolution based on principle of fairness.

Sustainable and inclusive growth and development

  • Structural imbalances caused by the global financial crisis of 2008 and new threats to the global economy posed by trade war and unilateral economic sanctions are yet to be resolved.
  • The growing contribution of the BRICS to the world economy and the rising importance of the economic relations between the BRICS and other Emerging Market and Developing Countries (EMDCs) create an opportunity for new initiatives.
  • This would better help to support sustainable and inclusive growth and development.

Poverty Reduction

  • The BRICS contribution to world poverty reduction has been sizeable.
  • Continued BRICS growth remains important for poverty reduction as well as for reducing international inequalities.

Issues in its consolidation

  • Common ground for the members was built by ensuring that no bilateral issues were brought up, but the contradictions remained.
  • Many economists soon grew tired of “emerging” economies that didn’t reach the goals they had predicted.
  • Others saw India’s closer ties with the US after the civil nuclear deal as a sign its bonds with BRICS would weaken.
  • Meanwhile, Russia, which had hoped to bolster its own global influence through the group, had been cast out of the G-7 order altogether after its actions in Crimea in 2014.
  • China, under Xi Jinping, grew increasingly aggressive, and impatient about the other underperforming economies in the group, as it became the U.S.’s main challenger on the global stage.

Long-term prospects

  • China’s decision to launch the trillion-dollar Belt and Road Initiative in 2017 was opposed by India, and even Russia did not join the BRI plan, although it has considerable infrastructure projects with China.
  • South Africa’s debt-laden economy and the negative current account have led some to predict an economic collapse in the next decade.
  • Brazil’s poor handling during the Covid-19 crisis has ranked it amongst the world’s worst-affected countries, and its recovery is expected to be delayed.
  • India’s economic slowdown was a concern even before Covid-19 hit, and government policies like “Aatmanirbhar” were seen as a plan to turn inward.

Issues with BRICS nations

  • Concerns about aggressions from Russia in Ukraine and Eastern Europe and China in the South China Sea, the border with India and internally in Hongkong and Xinjiang are clear visible.
  • There is creeping authoritarianism in democracies like Brazil and India have made investors question long-term prospects of the group.
  • In the market, BRICS has been mocked for being “broken”, while others have suggested it should be expanded to include more emerging economies like Indonesia, Mexico and Turkey, called the “Next-11”.

Importance of BRICS for India

Geo-Politics

  • Global geopolitics today represents the case of a tug of war and India finds itself in the middle of it.
  • This has made difficult for India to carve a middle path for balancing its strategic interests between the U.S and the Russia-China axis.
  • Therefore, BRICS platform provides an opportunity for India to balance Russia-China axis.

Global Economic Order

  • BRICS countries shared a common objective of reforming the international financial and monetary system, with a strong desire to build a more just, and balanced international order.
  • To this end, BRICS community plays an important role in the G20, in shaping global economic policies and promoting financial stability.

Voice of Developing Nations

  • As the western countries are raising challenges on issues ranging from World Trade Organization to climate change, the developing countries are crippling under the onslaught of these policies.
  • In recent period, BRICS has emerged as the voice of developing countries, or the global south and playing a significant role in protecting the rights of developing countries.
  • Terrorism
  • BRICS also provides a platform for India to galvanize its efforts against terrorism and has worked within the grouping to take a strong stand against terrorism and bring about focused consultations on specific aspects relating to terrorism.

Global Grouping

  • India is actively pursuing its membership for United Nation Security Council (UNSC) and Nuclear Supplier Group (NSG).
  • China forms the major roadblock in pursuing such goals.
  • Therefore, BRICS provides an opportunity to actively engage with China and resolve the mutual disputes. It also helps in garnering support of other partner countries.

What are the challenges with the BRICS?

Heterogeneity

  • It is claimed by critics that heterogeneity (variable/diverse nature of countries) of the BRICS nations with its diverse interests possess a threat to the viability of the grouping.

China Centric nature of the group

  • All the countries in BRICS grouping trade with China more than each other, therefore it is blamed that as a platform to promote China’s interest.
  • Balancing trade deficit with China is huge challenge for other partner nations.

Global Model for Governance

  • Amidst, global slowdown, trade war and protectionism, the critical challenge for the BRICS consists in the development of a new global model of governance which should not be unipolar but inclusive and constructive.
  • The goal should be to avoid a negative scenario of unfolding globalization and to start a complicated merging of the global growing economies without distorting or breaking the single financial and economic continuum of the world.

Not Been Effective

  • The five-power combine has succeeded, albeit up to a point.
  • However, China’s economic rise has created a serious imbalance within BRICS.
  • Also the group has not done enough to assist the Global South to win their optimal support for their agenda.

Contentious issues between India and China

  • However, the future of the group seems little gloomy as the two biggest economy India and China of the group are having various contentious issues between them.
  • The two countries are often seen as rival on various global forums which degenerate the confidence between each other.
  • China is opposed to the entry of India to group like NSG and also a staunch supporter of Pakistan which has a demeaning record fuelling terrorism in India.
  • China has also opposed to UN resolution of declaring Masood Azhar a global terrorist who is a mastermind of various terrorist attack in India and globally.
  • At the same time India is also opposed to the China’s aggressive policy in South China Sea where various countries like Vietnam, China, Philippines and others in the reason have territorial disputes.

Sanctions on Russia

  • In recent times the global slowdown, sanction on Russia since it annexed Crimea and political instability in Brazil has also added burden on BRICS economy.

Priorities/Immediate goals of BRICS

1. Reform of multilateral institutions

  • The first is to pursue reform of multilateral institutions ranging from the United Nations, World Bank and the International Monetary Fund to the World Trade Organization and now even the World Health Organization.
  • This is not a new goal. BRICS has had very little success so far, although strengthening multilateralism serves as a strong bond as well as a beacon.
  • Reform needs global consensus which is hardly feasible in the current climate of strategic contestation between the U.S. and China and the devastation caused by COVID-19 to health, lives and livelihoods.
  • BRICS emerged from the desire to challenge dominance (by the U.S.) in the early years of the century. The “counter-dominance instinct and principled commitment to multipolarity in all forms” is “written into the DNA of BRICS.”

2. Resolve to combat terrorism

  • Terrorism is an international phenomenon affecting Europe, Africa, Asia and other parts of the world. Tragic developments concerning Afghanistan have helped to focus attention sharply on this overarching theme, stressing the need to bridge the gap between rhetoric and action.
  • China, for example, feels little hesitation in supporting clear-cut denunciations of terrorist groups, even as its backing of Pakistan, which is heavily enmeshed with a host of international terrorist groups, remains steadfast.
  • In this context, BRICS is attempting to pragmatically shape its counter-terrorism strategy by crafting the BRICS Counter Terrorism Action Plan containing specific measures to fight radicalization, terrorist financing and misuse of the Internet by terrorist groups.
  • This plan is expected to be a key deliverable at the forthcoming summit and may hopefully bring some change.

3. Promoting technological and digital solutions for the Sustainable Development Goals

  • Digital tools have helped a world adversely hit by the pandemic, and India has been in the forefront of using new technological tools to improve governance.

4. Expanding people-to-people cooperation

  • However, enhancing people-to-people cooperation will have to wait for international travel to revive. Interactions through digital means are a poor substitute.

Way Forward

  • A close examination of India’s record in BRICS reveals that New Delhi has used its membership to make a substantial contribution to the global financial architecture, while also making efforts to address glaring gaps in areas such as counter-terrorism, the fight against climate change and UNSC reform.
  • India is not a free-rider in a system of global governance dominated by the West, and continues to provide a vision of global governance.
  • The BRICS needs to expand its agenda for increasing its relevance in the global order. As of now, climate change and development finance, aimed at building infrastructure must dominate its agenda.
  • For BRICS to remain relevant over the next decade, each of its members must make a realistic assessment of the initiative’s opportunities and inherent limitations.
  • BRICS should promote comprehensive development of all states — both big and small — and enhanced mutually beneficial cooperation among them on the basis of shared interests.
  • Democratization of international issues i.e agreements on global agendas should be reached with the widest and equal participation of all stakeholders and be based on universally recognized legal norms.
  • The principle of respect for cultural and civilization diversity of the world should be a top priority.
  • BRICS nations should strive for peaceful and politico-diplomatic settlement of crisis and conflict in various regions of the world.

Conclusion

BRICS, being one of the pillars of the emerging fairer polycentric world order, plays an important stabilizing role in global affairs. In the storming ocean of world politics, BRICS can contribute significantly in maintaining international stability and ensuring global economic growth, and becoming a united center of the multipolar world.


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Categories
The Overlooked

Judiciary-Executive Faceoff – Part II : The Overlooked Ep. 3

“Judiciary-Executive Clash Over Supremacy from 1947 till Today – Part II”

In the third episode of The Overlooked Series, Sajal sir and Sudhanshu sir will continue the discussion on the “tussle between Executive and Judiciary since independence.” They will discuss about the origin of the dispute and look into some more specific cases such as:

  1. Minerva Mill 1980
  2. Concept of Locus Standii ( PIL )
  3. Three Judges Case ( 1982, 1993, 1998 )
  4. Judicial Activism vs Judicial Adventurism
  5. NJAC ( 4th Judges Case 2015 )
  6. Global Modals of Judicial Appointments.

Please fill this form if you want to connect with Sajal sir or Sudhanshu sir:

https://www.civilsdaily.com/course/streak-daily-initiative/

Previous Episodes of The Overlooked:

The Overlooked Ep. 2 || Judiciary-Executive Clash Over Supremacy from 1947 till Today – Part I :-

https://youtu.be/ZWApdNvMIT8

The Overlooked Ep. 1 || Why one country’s villain is another country’s hero :-

https://youtu.be/ZWApdNvMIT8

Categories
Burning Issues

[Burning Issue] India – Sri Lanka relations in recent times

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India and Sri Lanka have a legacy of intellectual, cultural, religious, and linguistic interaction, and the relationship between the two countries is more than 2500 years old. Trade and investment have grown and there is cooperation in the fields of development, education, culture, and defense.

India’s ‘Neighbourhood First’ policy towards Sri Lanka had resonated with Sri Lanka’s ‘India First’ foreign and security policy in 2020.

However in recent times, due to Chinese intervention, the ties between the two countries have plummeted. The condition is likely to worsen with Sri Lanka declaring a state of emergency in the country.

Brief background of India-SL relations

  • India is the only neighbor of Sri Lanka, separated by the Palk Strait; both nations occupy a strategic position in South Asia and have sought to build a common security umbrella in the Indian Ocean.
  • There are deep racial and cultural links between the two countries. Both share a maritime border.
  • The India- SL relations have been however tested by the Sri Lankan Civil War and by the controversy of Indian intervention during the war.
  • In recent years Sri Lanka has moved closer to China, especially in terms of naval agreements.
  • India has signed a nuclear energy deal to improve relations and made a nuclear energy pact with Sri Lanka in 2015.

India’s role in the Lankan Civil War

  • In the 1970s–1980s, the RAW and the state government of Tamil Nadu were believed to be encouraging the funding and training for the Liberation Tigers of Tamil Eelam (LTTE), a separatist insurgent force.
  • In 1987, faced with growing anger amongst its own Tamils, and a flood of refugees India intervened directly in the conflict for the first time.
  • This was after the Sri Lankan government attempted to regain control of the northern Jaffna region by means of an economic blockade and military assaults; India supplied food and medicine by air and sea.

Why did India intervene?

  • Indian intervention in Sri Lankan civil war became inevitable as that civil war threatened India’s unity, national interest and territorial integrity.

Outcomes

  • The peace accord assigned a certain degree of regional autonomy in the Tamil areas with a body controlling the regional council and called for the Tamil militant groups to lay down their arms.
  • Further India was to send a peacekeeping force, named the IPKF to Sri Lanka to enforce the disarmament and to watch over the regional council.
  • The accord failed over the issue of representations. The result was that the LTTE now found itself engaged in military conflict with the Indian Army.

Areas of cooperation

Economic Relations
  • India and Sri Lanka enjoy a vibrant and growing economic and commercial partnership, which has witnessed considerable expansion over the years.
  • India and Sri Lanka are member nations of several regional and multilateral organizations such as the South Asian Association for Regional Cooperation (SAARC), South Asia Co-operative Environment Programme, South Asian Economic Union and BIMSTEC.
  • India is Sri Lanka’s third largest export destination, after the US and UK.
  • India-Sri Lanka Free Trade Agreement (ISFTA): More than 60% of Sri Lanka’s exports enjoy the benefits of the agreement, which came into effect in March 2000.
    • Sri Lanka remains among the largest trade partners of India in the SAARC.
Development co-operation
  • Line of Credit: India is active in a number of areas of development activity in Sri Lanka. About one-sixth of the total development credit granted by India is made available to Sri Lanka.
  • Development Partnership: India’s development partnership with Colombo has always been demand-driven, with projects covering social infrastructure like education, health, housing, access to clean water and sanitation, besides industrial development.
  • Concessional financing of about $2 billion has been provided to Sri Lanka through various Indian government-supported Lines of Credit across sectors for railway connectivity, infrastructure, etc.
  • Foreign direct investment (FDI) from India amounted to around $ 1.7 billion over the years from 2005 to 2019.
  • Fishing Sector: Projects for providing fishing equipment to the fishermen in the East of Sri Lanka and solar energy aided computer education in 25 rural schools in Eastern Sri Lanka are under consideration.
  • Healthcare: India has supplied medical equipment to hospitals at Hambantota and Point Pedro, supplied 4 state-of-the-art ambulances to the Central Province etc.
  • Tourism: Indian governments have also showed interest in collaborating with their Sri Lankan counterparts on building tourism between the two countries based on shared religious heritage.
Defense and strategic cooperation
  • India and Sri Lanka conducts one of the largest joint Military exercises called ‘Mitra Shakti’. Both conducts joint naval exercise called ‘SLINEX’.
  • India is the largest provider of defense training program to Sri Lankan soldiers and Defence officials
  • India, Sri Lanka, and Maldives have signed trilateral maritime security cooperation in the Indian Ocean region.
    • The cooperation aims at improving surveillance, anti-piracy operations and reducing maritime pollution
Cultural relations
  • India and Sri Lanka have a shared legacy of historical, cultural, religious, spiritual and linguistic ties that is more than 2,500 years old.
  • In contemporary times, the Cultural Cooperation Agreement signed between the two governments forms the basis for periodic Cultural Exchange Programmes between the two countries.
People-to-people ties
  • Buddhism is one of the strongest pillars connecting the two nations and civilizations from the time when the Great Indian Emperor Ashoka sent his children Arhat Mahinda and Their Sangamitta to spread the teachings of Lord Buddha at the request of King Devanampiya Tissa of Sri Lanka.
  • Underlining the deep people-to-people connect and shared Buddhist heritage, the venerated relics of Lord Buddha from Kapilawasthu discovered in 1970 in India have been exhibited two times in Sri Lanka.
  • India in 2020, announced USD 15 million grant assistance for protection and promotion of Buddhist ties between India and Sri Lanka.
    • It may be utilized for construction/renovation of Buddhist monasteries, education of young monks, strengthening engagement of Buddhist scholars and clergy, development of Buddhist heritage museums, etc.
Plummeting relations
  • The ties began to worsen between the two since February, 2021 when Sri Lanka backed out from a tripartite partnership with India and Japan for its East Container Terminal Project at the Colombo Port, citing domestic issues.
    • However, later, the West Coast Terminal was offered under a public private partnership arrangement to Adani Ports and Special Economic Zones Ltd.
  • Sri Lanka in a state of economic emergency: Sri Lanka is running out of foreign exchange reserves for essential imports like food. It has recently declared a state of economic emergency.
    • Covid Impact:
      • Sri Lanka increased policy rates after the covid pandemic in response to rising inflation in August 2021 caused by currency depreciation.
      • Tourism sector has suffered since the Easter Sunday terror attacks of 2019, followed by the pandemic.
      • Earnings fell from $3.6 billion in 2019 to $0.7 billion in 2020, even as FDI inflows halved from $1.2 billion to $670 million over the same period.
      • Sri Lanka’s fragile liquidity situation has put it at high risk of debt distress. Its public debt-to-GDP ratio was at 109.7% in 2020, and its gross financing needs remain high at 18% of GDP.
      • Its gross official reserves slipped to $2.8 billion, which is equivalent to just 1.8 months of imports. More than $2.7 billion of foreign currency debt will be due in the next two years.

Major outstanding issues

 Fishing disputes
  • There have been several alleged incidents of Sri Lankan Navy personnel firing on Indian fishermen fishing in the Palk Strait, where India and Sri Lanka are only separated by 12 nautical miles.
  • The issue started because of Indian fishermen having used mechanized trawlers, which deprived the Sri Lankan fishermen (including Tamils) of their catch and damaged their fishing boats.
  • The Sri Lankan government wants India to ban use of mechanized trawlers in the Palk Strait region, and negotiations on this subject are undergoing.
  • So far, no concrete agreement has been reached since India favors regulating these trawlers instead of banning them altogether.
Alleged political interference
  • A media report from Colombo soon after Rajapaksa’s defeat in the January 8 elections of 2015 had said that an Indian Intelligence official was instrumental in uniting rival political parties — the Sri Lanka Freedom Party (SLFP) and the United National Party (UNP) — against him during the polls.
  • In October 2018, President Sirisena alleged that Indian intelligence agencies were plotting his assassination.
Katchatheevu Island
  • It is an uninhabited island that India ceded to Sri Lanka in 1974 based on a conditional agreement called “Kachchativu island pact”.
  • Later on, Sri Lanka declared Katchatheevu, a sacred land given the presence of a Catholic shrine.
  • But Tamil Nadu claimed that Katchatheevu falls under the Indian Territory and Tamil fishermen have traditionally believed that it belongs to them and therefore want to preserve the right to fish there.
China factor
  • Sri Lanka has a history of taking independent decisions even if they cause misgivings in India.
  • In the period of low profile relationship between the two nations, Sri Lanka apparently started favoring China over India.
  • China is Sri Lanka’s largest bilateral creditor: China’s loans to the Sri Lankan public sector amounted to 15% of the central government’s external debt, making China the largest bilateral creditor to the country.
    • Sri Lanka has increasingly relied on Chinese credit to address its foreign debt burden.
  • China’s Exports surpasses India: China’s exports to Sri Lanka surpassed those of India in 2020 and stood at $3.8 billion.
    • India’s exports were $3.2 billion.
  • Infrastructural Investment by China: Owing to Sri Lanka’s strategic location at the intersection of major shipping routes, China’s investment stands at $12 billion between 2006 and 2019.
    • Unable to service its debt, in 2017, Sri Lanka lost the unviable Hambantota port to China for a 99-year lease.
    • Sri Lanka passed the Colombo Port City Economic Commission Act, which provides for establishing a special economic zone around the port and also a new economic commission, to be funded by China.
    • The Colombo port is crucial for India as it handles 60% of India’s trans-shipment cargo.
  • Shifting interests due to economic crisis: Sri Lanka’s economic crisis may further push it to align its policies with Beijing’s interests.
    • This comes at a time when India is already on a diplomatic tightrope with Afghanistan and Myanmar.
    • Other South Asian nations like Bangladesh, Nepal and the Maldives have also been turning to China to finance large-scale infrastructure projects.

Why is Sri Lanka important to India?

  • India is Sri Lanka’s closest neighbor. Both sides have built upon a legacy of intellectual, cultural, religious and linguistic interaction.
  • Sri Lanka has always been politically and economically important to India given its strategic geographical position in the Indian Ocean. The relationship has been marked by close contacts at all levels.
  • Sri Lanka sits at the epicenter of the arc connecting the Persian Gulf to the Strait of Malacca. An island nation with an economy that’s mainly reliant on tourism and tea exports, Sri Lanka’s blessed geography puts it at a crucial juncture of the busy shipping lanes of the Indian Ocean.
  • India also has a vital strategic stake in Sri Lanka for its own security interests. An unfriendly Sri Lanka or a Sri Lanka under influence of a power unfriendly to India would strategically discomfit India.
  • For the Indian Navy, Sri Lanka is important as the switching of naval fleets from the Bay of Bengal to the Arabian Sea and vice versa requires the fleets to go around the island nation.
  • Both countries share a common broad understanding on major issues of international interest and experience common social-political problems relating to community divides.

What does Sri Lanka expect from India?

  • The humanitarian work by Indian agencies like supplies of medicines, doctors and providing refuge to more than 3 lakhs IDP’s during the decade-old civil war has created a sense of mutual cooperation among the countries natives.
  • SL is one of the leading recipients of India’s Line of Credits.
  • India has always rushed for the relief at the first signs of the rains and floods in SL recently. SL still commends the post-tsunami HADR relief operations carried out by India in the end-2004.
  • India’s military, intelligence and security establishment has maintained its relations with its Sri Lankan counterpart, and both sides have been on the same page at all times.
  • The security environment in the neighborhood will be discussed in light of the 21 April Easter Church bombings, and lessons learned from it.
  • India is also the largest provider of defense training programs for Sri Lankan soldiers and Defence officials.

A greater role for India

 Gathering convergence towards SL

  • Delhi needs to invest some political capital in resolving problems such as the long-standing dispute over fisheries.
  • Beyond its objection to China’s BRI projects, Delhi, either alone or in partnership with like-minded countries like Japan, should offer sustainable terms for infrastructure development.
  • Delhi also needs to contribute more to the development of Colombo’s defence and counter-terror capabilities.

Answering the Tamil Question

  • The second structural factor shaping India’s relations with Sri Lanka is the Tamil question.
  • Delhi has certainly learned the dangers of being drawn too deep into the domestic conflicts of neighboring countries.
  • If the new government in Colombo can advance reconciliation with the Tamil minority, it will be easier for India to strengthen ties with the Gotabaya government.

No china factor indeed

  • Labeling governments in Sri Lanka as “pro-China” or “pro-India” is irrelevant. It is evident that China’s economic and strategic salience in the subcontinent is not tied to the regime leadership.
  • Previous Lankan President Maithripala Sirisena who considered as pro-India came to power criticizing the Chinese projects in Sri Lanka, but within two years into power, it extended full backing to the Chinese projects.

Harnessing the ray of hope

  • Our challenges in Sri Lanka will continue, but we are off to a good start with the new government.
  • The new president has made repeated statements that his government would like Sri Lanka to be a “neutral country” and that “Sri Lanka won’t do anything that will harm India’s interests.”
  • Gotabaya was also critical of the previous government giving Hambantota Port on a 99-year lease to China.
  • He went on to add that giving land as investment for developing a hotel or a commercial property was not a problem but the strategically important, economically important harbor, giving that is not acceptable.
  • The Rajapaksas have acknowledged that India has not interfered in the recent elections.
  • The first visit abroad by Gotabaya Rajapaksa to India has its own symbolic significance, translating into a diplomatic gesture his statement to the EAM that while China is a trade partner, India is a relative.

Way Forward

  • Nurturing the Neighborhood First policy with Sri Lanka will therefore be important for India, albeit with due caution, to preserve its strategic interests in the Indian Ocean region.
  • Regional platforms like the BIMSTEC, SAARC, SAGAR and the IORA could be leveraged to foster cooperation in common areas of interest like technology-driven agriculture and marine sector development, IT and communication infrastructure, renewable energy, and transport and connectivity.
  • Both countries could also cooperate on enhancing private sector investments to create economic resilience.
  • This stability in the Indian government should find synergy with the new Sri Lankan president policy which includes “neutrality” and “non-alignment” between major powers.
  • Rather than focusing on building the case against China, New Delhi must step up its efforts to show what it is for.
  • India can never match Beijing’s economic wherewithal to make a difference to Colombo’s developmental requirements.
  • But it can carve out a niche role in some areas and also partner smartly with likeminded strategic partners like Japan to make an economic and strategic difference in Sri Lanka and make use of and leverage India’s soft power.

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Categories
Burning Issues

[Burning Issue] Privatization of PSBs

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Banking is considered to be the “Backbone of a Nation’s Economy”. It is the most leading part of the financial sector of the country as it is responsible for more than 70% of the funds that flow through the financial sector in the country.

Indian banking was more or less turned into a tool of state policy by bank nationalization in 1969. While our 1991 reforms did decentralize the allocation of capital overall, lending India’s economy some efficiency, the Centre retained much of its command of credit flows.

PSU banks are under dual control, with the RBI supervising the banking operations and the Finance Ministry handling ownership issues. Many committees had proposed bringing down the government stake in public banks below 51% — the Narasimham Committee proposed 33% and the P J Nayak Committee suggested below 50%.


Timeline of Structural and Technological Developments in the Banking Sector in India:

1955: SBI Act passed and Imperial Bank of India became State Bank of India
1959: State Bank of India (subsidiary banks) Act passed to create subsidiaries of SBI
1969: The government nationalized 14 major commercial banks
1975Regional Rural Bank was conceptualized to serve the rural population
1987HSBC first introduced ATM kiosk in Mumbai
1996Local Area Banks were set up in the Union Budget to mobilize rural savings.
1991: Licenses given to 11 Private Sector Banks
1994ICICI bank introduced net banking for retail customers in India
2000: Introduction of ATMs in India through countrywide BANCS network
2006Cash Deposit Machines first introduced in India by ICICI bank, starting from western India
2008Mobile banking through Mobile Apps introduced, pioneered by ICICI bank
2010Cheque Truncation System (CTS) introduced, it eliminated a lot of paper and reduced cheque clearing time to a minimum
2014: Automatic Passbook Printing machines introduced in India
2015: Payments banks were given license to operate in India
2016: Prime Minister announced demonetization of Rs. 1,000/- and Rs. 500/- currency notes, led to a forced yet phenomenal increase in the use of non-cash i.e. electronic payments.
2017: EMV chip cards made mandatory in ATM-cum-Debit cards to enhance security.

Banking System in India

Importance of Private Sector Banks

The private sector banks play a vital role in the Indian economy. They indirectly motivate the public sector banks by offering healthy competition.

  • Professional Management: The private sector banks help in introducing a high degree of professional management and marketing concept into banking. It helps the public sector banks as well to develop similar skills and technology.
  • Creates Healthy Competition: The private sector banks provide a healthy competition on general efficiency levels in the banking system.
  • Attracts Foreign Direct Investment: The private sector banks especially the foreign banks have much influence on the foreign investment in the country.
  • Access to Foreign Capital Markets: The foreign banks in the private sector help the Indian companies and the government agencies to meet their financial requirements from international capital markets.
  • Innovation in the Banking Sector: The private sector banks are always trying to innovate new product avenues (new schemes, services, etc.) and make the industries achieve expertise in their respective fields by offering quality service and guidance. This helps the public at large and they have a range of options to choose between.
  • Introduction of new technology: With innovations comes new technologies in the banking sector and they lead the other banks in various new fields. For example, introduction of computerized operations, credit card business, ATM service, etc

What is the government plan on the Privatization of PSBs?

  • During Union Budget 2020-21 presentations, the government announced a new policy for strategic disinvestment of public sector enterprises. This policy provides a clear roadmap for disinvestment in all non-strategic and strategic sectors.
  • The Banking Sector falls under the strategic sector. The government aims to keep a bare minimum presence in the strategic sector.
  • In 2019, after a massive consolidation exercise, the no. of PSBs reduced from 28 to 12. Recently the NITI Aayog consolidation plan left 6 PSBs out of the Privatization plan.
  • The NITI Aayog suggested privatizing all the PSBs except the SBI, Union Bank, Punjab National Bank, Canara Bank, Indian Bank, and Bank of Baroda.
  • Further, the government also decided to perform privatization of two PSBs in the next fiscal year.

Nationalization and Equitable growth

  • Nationalization helped in promoting more equitable regional growth, and this is evident from RBI data.
  • There were only 1,833 bank branches in rural areas in the country in 1969, which increased to 33,004 by 1995 and continued to grow over the next decades.
  • Banking services also reduced the dependence on moneylenders in rural regions.
  • Nationalized banking improved the working conditions of employees in the banking sector, as the state ensured higher wages, security of services, and other fringe benefits.
  • As an institution, PSBs are vehicles of the Indian economy’s growth and development, and they have become the trustees of people’s savings and confidence.
  • The PSBs played a huge role in making the country self-sufficient by supporting the green, blue, and dairy revolutions.
  • They have also contributed significantly to infrastructural development.
  • The PSBs pioneered the concept of ‘priority sector lending. This provided credit to certain priority sectors which were earlier deprived of credit such as housing, etc.
  • The Differential Rate of Interest (DRI) loans are the brainchild of public sector banking. Under this poorest section of people will receive the loan at a very marginal interest rate.
  • The PSBs extended loans to women’s self-help groups under various programs. This contributed to women’s empowerment in India.
  • PSBs also funded rural infrastructure projects through the Rural Infrastructure Development Fund.
  • The PSBs provided access to a formal banking network for all and facilitated financial inclusion in India.
  • Democratization of Banking: Before nationalization, banks had been lending 67% of their funds to industry and virtually nothing to agriculture.
    • Also, the commercial banks couldn’t lend money to farmers because they were only present in less than 1% of villages.
    • Farmers were unable to get bank loans just when the Green Revolution was getting underway and they needed credit to buy the expensive inputs required to increase output.
    • Thus, nationalizing banks helped in the democratization of banking services of the masses.

Reasons for Privatizing Public Sector Banks

  • Increasing NPAs: RBI data shows that that 9.3 per cent of the industry loan book for private sector banks was stressed by March 2017, as opposed to 28.8 per cent for PSBs.
    • As of end-March 2016, RBI data showed that public sector lenders accounted for over 90 per cent of the Rs. 5.5 lakh crore gross NPAs with banks.
  • Poor Lending: PSBs have been criticized for poor lending decisions, inadequate risk controls, and bad governance.
  • Previous reform measures have not yielded results: Years of capital injections and governance reforms have not been able to improve the financial position of in public sector banks significantly.
    • Many of them have higher levels of stressed assets than private banks, and also lag the latter on profitability, market capitalization and dividend payment record.
  • Aligned with Long Term Goal: Privatization public sector banks will set the ball rolling for a long-term project that envisages only a handful of state-owned banks, with the rest either consolidated with strong banks or privatized.
  • Reduces Government Burden: Privatization will free up the government, the majority owner, from continuing to provide equity support to the banks year after year. 
    • The government front-loaded Rs 70,000 crore into government-run banks in September 2019, Rs 80,000 crore in in FY18, and Rs 1.06 lakh crore in FY19 through recapitalization bonds.
    • It will be another step towards reducing the fiscal deficit and financing revenue expenditure through revenue receipts in the long term.
  • Rationalization of Banks in Post-COVID Scenario: After the Covid-related regulatory relaxations are lifted, banks are expected to report higher NPAs and loan losses. 
    • This would mean the government would again need to inject equity into weak public sector banks. The government is trying to strengthen the strong banks and also minimize their numbers through privatization.
  • Changed Approach to Financial Sector Problems: Privatization and proposal of setting up an asset reconstruction company entirely owned by banks, underline an approach of finding market-led solutions to challenges in the financial sector.
  • Private Participation promotes innovation in market: Private Banks’ market share in loans has risen to 36% in 2020 from 21.26% in 2015, while public sector banks’ share has fallen to 59.8% from 74.28%. They have expanded the market share through new innovative products, latest technology, and better services.
  • Efficiency, financial prudence and governance: There is a belief that the public sector equates to inefficiency and corruption, while private ownership automatically brings with it efficiency, financial prudence and governance.
    • Also, privatizing a few loss-making PSBs will ensure that market discipline forces them to rectify their strategy, and this will have a ripple effect on other PSBs.
    • Better financial performance is ensured when a strong financial institution is involved as a significant shareholder in privatization.

What factors aggravated NPAs in PSBs?

  • During high growth period, FY07 to FY12, corporate groups has invested in mega projects in power, metals and infrastructure. They were funded by domestic banks.
  • By FY13, with regulatory hurdles hitting some projects and scams stalling others, many projects failed to take off and these groups landed in a classic debt trap.
  • Many companies took on more loans to manage their debts, which eventually turned into NPAs.
  • Which in turn took on a five-fold expansion in their aggregate debt from  Rs. 1 lakh crore to Rs. 5.5 lakh crore (present value of NPAs).
  • Many PSBs chairman were given high political pressures to sanction loans to the companies which were favorable to politicians.

Factors against Privatization of PSBs

  • Undermining Social Welfare: Public banks open branches, ATMs, banking facilities, etc even in the non-profitable rural areas of India or the poorer sides where the possibility of getting big deposits or making money is less.
    • However, Private Banks are not inclined to do so and they may prefer opening such facilities mostly in megacities or urban areas.
    • If the corporate sector is allowed to dominate banking again, profit will become the prime motive rather than the desire to serve the public.
    • The government will have difficulty in providing low-cost financial services to rural and poor sections of society as the private may not like to extend its services to them.
  • International Precedent: Most East Asian success stories have been underpinned by financial systems effectively controlled by governments.
    • On the other hand, the governments of western countries, where banking is largely in the hands of the private sector, have had to rescue private banks from bankruptcy.
    • The past history of private sector banks tells the failure. Before 1969, all banks, except the SBI, were in the private sector. Between 1947 and 1969, 559 banks failed.
  • This would totally defeat the idea of inclusive banking as it is practiced now and was the guiding principle at the time of the nationalization of banks.
  • Public sector banks are created out of public money. These entities are therefore duty-bound to extend all types of services to customers across categories. Privatization will impact this very root purpose.

Way forward

  • We need a broad set of actions, some immediate and others over the medium-term and aimed at preventing the recurrence of such crises. Wholesale privatization of PSBs is thus not the answer to a complex problem.
  • Overall risk management at PSBs needs to be taken to a higher level. This certainly requires the strengthening of PSB boards. We need to induct more high-quality professionals on PSB boards and compensate them better.
  • In the case of banking, what is needed is increased autonomy for state-backed banks and strict regulatory oversight by the banking supervisor.
  • The boards of state-backed banks should be independent of political influence.
  • Managers should be held accountable for operational performance and there should be constant monitoring of targets, risk assessment, and credit controls.
  • The clean-up of bank balance sheets and the overhaul of India’s archaic insolvency law are steps in the right direction, but they will only bear fruit if accompanied by improved governance and regulation.
  • The Privatization of PSBs is not going to be easy, as it would involve building consensus amongst various stakeholders, including unions and parliamentarians. Further, Bank privatization, without strengthening regulatory controls and improving governance, won’t prevent fraud or curtail undue exposure to risk.

Conclusion

Privatization of banks is not a remedy to all solutions. With steps like Privatization of Banks, the Government should also focus on comprehensive governance reforms, resolution of NPAs, and creating a free market so that investment can be reinvigorated and wheels of the economy can again get back on track. Even though private sector banks have better balance sheets than PSBs, it is very important to consider that Privatization alone would not solve all of the problems faced by the sector. A better solution than privatization may well be giving PSBs autonomy to reform themselves and function free of political interference.


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Categories
The Overlooked

Judiciary-Executive Faceoff || The Overlooked Ep. 2

Judiciary-Executive Clash Over Supremacy from 1947 Till Today

In the Second Episode of The Overlooked Series, Sajal sir and Sudhanshu sir will look into the tussle between Executive and Judiciary since independence. They will discuss about the origin of the dispute and look into specific cases such as “Sankari Prasad” case, “Patanjali Sastry” case, “A N Ray” case, “H R Khanna” case, etc.

Please fill this form if you want to connect with Sajal sir or Sudhanshu sir:

https://www.civilsdaily.com/course/streak-daily-initiative/

The Overlooked Ep. 1 || Why one country’s villain is another country’s hero :- https://youtu.be/ZWApdNvMIT8

Categories
Burning Issues

[Burning Issue] Tribunal Reforms Bill, 2021 and Inherent Issues with Indian Judiciary

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“Justice delayed is democracy denied”

—John F Kennedy, US president

Recently, Parliament passed the Tribunal Reforms Bill, 2021, which seeks to lay down terms for service and tenure of members of various tribunals. The new law contained the same provisions as the Tribunal Reforms (Rationalization and Conditions of Service) Ordinance, 2021, which the Supreme Court struck down last month in a 2:1 verdict in Madras Bar Association versus Union of India saying it as unconstitutional as it interferes with the independence of the judiciary. This has triggered a fresh stand-off between the legislature and the judiciary over the powers of and limitations on lawmaking.

What are Tribunals?

  • Tribunals are specialist judicial bodies that decide disputes in a particular area of law.
  • They are institutions established for discharging judicial or quasi-judicial duties.
  • The objective may be to reduce the caseload of the judiciary or to bring in subject expertise for technical matters.

Creation of Tribunals

In 1976, Articles 323A and 323B were inserted in the Constitution of India through the 42nd Amendment.

  • Article 323A: This empowered Parliament to constitute administrative Tribunals (both at central and state level) for adjudication of matters related to recruitment and conditions of service of public servants.
  • Article 323B: This specified certain subjects (such as taxation and land reforms) for which Parliament or state legislatures may constitute tribunals by enacting a law.
  • Article 262: The Indian Constitution provides a role for the Central government in adjudicating conflicts surrounding inter-state rivers that arise among the state/regional governments.
  • In 2010, the Supreme Court clarified that the subject matters under Article 323B are not exclusive, and legislatures are empowered to create tribunals on any subject matters under their purview as specified in the Seventh Schedule.

Tribunal Reforms Bill, 2021

(1) Dissolution of Existing Bodies

  • The Bill seeks to dissolve certain appellate bodies and transfer their functions to other existing judicial bodies.

(2) Merging of Existing Bodies

  • The Finance Act, 2017 merged tribunals based on domain.

(3) Search-cum-selection Committees

  • The Chairperson and Members of the Tribunals will be appointed by the central government on the recommendation of a Search-cum-Selection Committee.
  • The Committee will consist of:
    1. The Chief Justice of India, or a Supreme Court Judge nominated by him, as the Chairperson (with casting vote).
    2. Two Secretaries nominated by the central governments.
    3. The sitting or a retired Supreme Court Judge, or a retired Chief Justice of a High Court, and
    4. The Secretary of the Ministry under which the Tribunal is constituted (with no voting right).

(4) State Administrative Tribunals

  • It will have separate search-cum-selection committees with the Chief Justice of the High Court of the concerned state, as the Chairman (with a casting vote).

(5) Eligibility and Term of Office

  • The Bill provides for a four-year term of office (subject to the upper age limit of 70 years for the Chairperson, and 67 years for members).
  • Minimum age requirement of 50 years for appointment of a chairperson or a member.

(6) Removal of Tribunal Members

  • The central government shall, on the recommendation of the Search-cum-Selection Committee, remove from office any Chairperson or a Member.

To summarize the transfer of functions and other provisions of the Bill, consider the following table:

Transfer of functions of key appellate bodies as proposed under the Bill

ActsAppellate BodyProposed Entity
The Cinematograph Act, 1952Appellate TribunalHigh Court
The Trade Marks Act, 1999Appellate BoardHigh Court
The Copyright Act, 1957Appellate BoardCommercial Court or the Commercial Division of a High Court*
The Customs Act, 1962Authority for Advance RulingsHigh Court
The Patents Act, 1970Appellate BoardHigh Court
The Airports Authority of India Act, 1994Airport Appellate TribunalThe central government, for disputes arising from the disposal of properties left on airport premises by unauthorized occupants. High Court, for appeals against orders of an eviction officer.
The Control of National Highways (Land and Traffic) Act, 2002Airport Appellate TribunalCivil Court#
The Geographical Indications of Goods (Registration and Protection) Act, 1999Appellate BoardHigh Court

Amendments to the Finance Act, 2017:

  • The Finance Act, 2017 merged tribunals based on domain.
  • It also empowered the central government to notify rules on:

(i) Composition of search-cum-selection committees,

(ii) Qualifications of tribunal members, and

(iii) Their terms and conditions of service (such as their removal and salaries).

  • The Bill removes these provisions from the Finance Act, 2017.
  • Provisions on the composition of selection committees and term of office have been included in the Bill.
  • Qualification of members and other terms and conditions of service will be notified by the central government.

What are the issues raised by the Supreme Court?

(1) Bypassing the usual legislative process

  • The government has re-enacted the very same provisions struck down by the Court in the Madras Bar association case (2021).
  • There was no discussion over the bill in the Parliament.
  • It amounts to “unconstitutional legislative overriding” of the judgment passed by the SC.

(2) Government not following repetitive directions issued by the Court

  • The Centre is not following the repeated directions issued by the Court to ensure the proper functioning of the Tribunals.
  • The provisions in the ordinance regarding conditions of service and tenure of Tribunal Members and Chairpersons were already struck down by the Supreme Court.

(3) Issue over the Security of Tenure

  • The Tribunals Reforms Act, 2021 bars appointments to tribunals of persons below 50 years of age.
  • It undermines the length/security of tenure.

(4) Violates the principles of separation of powers and judicial independence

  • Central Government can take a decision on the recommendations made by the selection Committee within three months from the date of such recommendations.
  • Section 3(7) of the bill mandates the recommendation of a panel of two names by the search-cum selection committee.
  • This violates the principles of separation of powers and judicial independence.

(5) Existence of a large number of vacancies in the Tribunals

  • Currently, India has 16 tribunals including the National Green Tribunal, the Armed Forces Appellate Tribunal, and the Debt Recovery Tribunal, etc.
  • Many of these tribunals suffer from crippling vacancies.
  • Existence of large number of vacancies of Members and Chairpersons and the inordinate delay caused in filling them up has resulted in weakening of the tribunals.

(6) Detrimental to the Decision-making Process

  • These cases will be transferred to High Courts or commercial civil courts immediately.
  • The lack of specialization in regular courts could be detrimental to the decision-making process.

Government is yet to constitute the National Tribunals Commission (NTC)

  • Further, the Centre is yet to constitute a National Tribunals Commission (NTC), an independent umbrella body to supervise the functioning of tribunals, appointment of and disciplinary proceedings against members, and to take care of administrative and infrastructural needs of the tribunals.
  • The idea of an NTC was first mooted in L. Chandra Kumar v. Union of India (1997).
  • Developing an independent oversight body for accountable governance requires a legal framework that protects its independence and impartiality.
  • Therefore, the NTC must be established vide a constitutional amendment or be backed by a statute that guarantees it functional, operational and financial independence.
  • As the Finance Ministry has been vested with the responsibility for tribunals until the NTC is constituted, it should come up with a transition plan. 

 Advantages of NTC

  • The NTC would ideally take on some duties relating to administration and oversight.
  • It could set performance standards for the efficiency of tribunals and their own administrative processes.
  • It could function as an independent recruitment body to develop and operationalise the procedure for disciplinary proceedings and appointment of tribunal members.
  • Giving the NTC the authority to set members’ salaries, allowances, and other service conditions, subject to regulations, would help maintain tribunals’ independence.

Inherent Issues with Indian Judiciary

The Constitution of India, through its Preamble, has guaranteed its citizens ‘ Justice’’—economic, political, and social. But even after 70 years of independence, achieving substantive justice for the vast majority of the citizens has remained a distant dream. In the specific area of the justice delivery system, India is faced with several problems relating to large backlogs and pendency of cases.

Despite the independence of the judiciary from the executive and legislative bodies, the Indian judicial system faces a lot of problems.

The major issues that the system faces are:

  1. The pendency of cases.
  2. Corruption.
  3. Lack of transparency (particularly in the appointment of judges).
  4. Under trials of the accused.
  5. Lack of information and interaction among people and courts.

1) Pendency of cases

  • India’s legal system has the largest backlog of pending cases in the world – as many as 30 million pending cases. Of them, over four million are High Court cases, 65,000 Supreme Court cases.
  • This number is continuously increasing and this itself shows the inadequacy of the legal system.
  • And also due to this backlog, most of the prisoners in India’s prisons are detainees awaiting trial.
  • It is also reported that in Mumbai, India’s financial hub, the courts are burdened with age-old land disputes, which act as a hurdle in the city’s industrial development.

What led to the underperformance of the Indian Judiciary?

The issue of heavy arrears pending in the various courts of the country has been a matter of concern since the time of independence. The primary factors contributing to docket explosion and arrears as highlighted by Justice Malimath Committee report are as follows:

  1. Population explosion
  2. Litigation explosion
  3. Hasty and imperfect drafting of legislation
  4. Plurality and accumulation of appeals (Multiple appeals for the same issue)
  5. Inadequacy of judge strength
  6. Failure to provide adequate forums of appeal against quasi-judicial orders
  7. Lack of priority for disposal of old cases (due to the improper constitution of benches)

2) Corruption in the judiciary

  • Like any other institution of the Government, the Indian judicial system is also allegedly corrupt.
  • There is no system of accountability. The media also do not give a clear picture on account of the fear of contempt.

3) Lack of transparency

  • Another problem facing the Indian judicial system is the lack of transparency. It is seen that the Right to Information (RTI) Act is totally out of the ambit of the legal system.
  • Thus, in the functioning of the judiciary, the substantial issues like the quality of justice and accountability are not known properly.
  • In the recent past, there have been many debates regarding the Collegium system and the new system that the government wanted to introduce for the appointment of judges, the NJAC.

4) Hardships of the undertrials

  • Right to a speedy trial is an integral part of the principles of fair trial and is fundamental to the international human rights discourse.
  • In Indian jails, most of the prisoners are undertrials, which are confined to the jails until their case comes to a definite conclusion.
  • In most of the cases, they end up spending more time in the jail than the actual term that might have had been awarded to them had the case been decided on a time and, assuming, against them.
  • Plus, the expenses and pain and agony of defending themselves in courts is worse than serving the actual sentence. Undertrials are not guilty till convicted.

5) No interaction with society

  • It is very essential that the judiciary of any country should be an integral part of the society and its interactions with society must be made regular and relevant.
  • Lack of faith in a fair and swift judicial system creates a low-trust society.
  • The rule of law and trust are central to enable people in large societies, who do not personally know each other, to live together peacefully and collaborate.

The inherent issues can be addressed with some simple measures like:

  • For pendency, time-limits should be prescribed for all cases based on priorities. So setting time-standards is essential and it will vary for different cases, and also for different courts depending on their disposal-capacity. Alternative disputes resolution  (ADR) mechanisms should be promoted for out of court settlements.
  • To imbibe transparency, a thorough understanding of the principle of independence of the judiciary and ensuring its accountability is the sole prerogative of the Supreme Court itself. The judiciary should come up with its own solution for transparent functioning and judicial appointments.
  • To make trials speedy, the judiciary must scrutinize the sensitivity of a particular case before taking up for hearing. Fast track courts must be established for varieties of cases.

Way Forward

  • Impartiality, independence, fairness and reasonableness in decision-making are the hallmarks of the judiciary.
  • Speedy trial and quick justice are a fundamental right implicit in the guarantee of life and personal liberty enshrined in Article 21 of the Constitution.
  • The effort to fast-track the judicial process is in a major policy tangle. The need for a new policy framework and governmental and judicial initiative are need of the hour.
  • The executive and judiciary are the two pillars of Indian democracy and their independence is the most important thing for nation to grow and democracy to flourish and live long.
  • Tribunals have shown immense potential in the past and to make most out of it, the government should look to strengthen them giving them more powers and resolving the issues faced by them like insufficient staff.
  • The rapidly evolving field of “legal tech” enables us to use emerging technologies like digitization, process automation, data and analytics, AI to completely reimaging how a 21st century, the citizen-centric legal system should work.

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Why Afghanistan is Graveyard of Empires?

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Samachar Manthan is our flagship program designed to help you develop a solid command on your newspaper reading and current affairs analyzing skills. We’re are also going to focus on imparting skills required to utilize current affairs. Since it builds your core, it is important for both Prelims and Mains. 

Program inclusion

1. Weekly 3+ hours video lecture

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4. Weekly Current Affairs based Mains Test (10 Questions) and Evaluation

5. Current Affairs Monthly Prelims Test package

6. Marathon Revision sessions on Habitat before Prelims and Mains

7. Frequent Google meet Sessions to check on Student’s Preparation status

8. Micro notes to help you make your notes.

Duration of the program:

This program will continue till UPSC Mains 2022

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Sudhanshu sir has firsthand experience of 3 mains and two interviews of UPSC. He has served in the defense ministry for 10 years with keen interests in regional and global geopolitics and has ample experience of various other competitive exams as well.

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[Burning Issue] National Hydrogen Mission: A step toward developing a Hydrogen Economy

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India recently announced the launch of the National Hydrogen Mission (NHM) with an aim to cut down carbon emissions and increase the use of renewable sources of energy. The broad objective of the mission is to scale up Green Hydrogen production and utilization and to align India’s efforts with global best practices in technology, policy and regulation. Accordingly, the Government of India has allotted Rs 25 crore in the Union Budget 2021–22 for the research and development in hydrogen energy.

The NHM aims to leverage the country’s landmass and low solar and wind tariffs to produce low-cost green hydrogen and ammonia for export to Japan, South Korea, and Europe. In this regard, there are immense possibilities for India to collaborate with the Gulf Cooperation Council (GCC) countries that have also invested significantly in developing hydrogen as a future source of energy.

What is National Hydrogen Energy Mission?

  • Focus: The main aim of the mission is on generation of hydrogen from green power resources and to link India’s growing renewable capacity with the hydrogen economy.
  • Goal: India’s ambitious goal of 175 GW by 2022 got an impetus in the 2021-22 budget which allocated Rs. 1500 crore for renewable energy development and NHM.
  • Sustainable energy and help in reduce import: The usage of hydrogen will not only help India in achieving its emission goals under the Paris Agreement, but will also reduce import dependency on fossil fuels.
  • The mission will include all aspects including research and exploration of areas where hydrogen can be used.

Green Hydrogen Mission is not only essential to decarbonise heavy industries like steel and cement but it will equally clean electric mobility that doesn’t depend on rare minerals to be explored.

What is Hydrogen Energy?

  • Hydrogen is an important source of energy since it has zero carbon content and is a non-polluting source of energy in contrast to hydrocarbons that have net carbon content in the range of 75–85 per cent.
  • Hydrogen energy is expected to reduce carbon emissions that are set to jump by 1.5 billion tons in 2021.
  • It has the highest energy content by weight and lowest energy content by volume.
  • As per International Renewable Energy Agency (IRENA), Hydrogen shall make up 6 per cent of total energy consumption by 2050.
  • Hydrogen energy is currently at a nascent stage of development, but has considerable potential for aiding the process of energy transition from hydrocarbons to renewable.

Hydrogen as an energy source:

  • Hydrogen is the lightest (travels up in the atmosphere and rarely found in purity) and first element on the periodic table.
  • Most hydrogen on Earth is bonded to oxygen in water and to carbon in live or dead and/or fossilized biomass. It can be created by splitting water into hydrogen and oxygen.
  • At standard temperature and pressure, hydrogen is a nontoxic, nonmetallic, odorless, tasteless, colorless, and highly combustible diatomic gas.
  • Hydrogen fuel is a zero-emission fuel when burned with oxygen. It can be used in fuel cells or internal combustion engines. It is also used as a fuel for spacecraft propulsion.
  • Hydrogen can be sourced from natural gas, nuclear power, biomass, and renewable power like solar and wind.

Why is India focusing on Hydrogen to fulfill its energy demands?

  • The enthusiasm about hydrogen has a simple reason: whether it’s used in a fuel cell or burned to create heat, wherever hydrogen replaces fossil fuels, it slows global warming.
  • Inclusion of “Hydrogen” as an energy carrier in the future energy portfolio presents a unique opportunity to address emerging energy vectors, including power to gas, power to power, and power to mobility and even vehicle to grid applications.
  • India remains committed to environmental and climate causes with a massive thrust on deploying renewable energy and energy efficiency measures. 
  • In the past six years, India has increased its renewable power portfolio from 32 GW to almost 100 GW and is well on track to achieve 450 GW target of renewable energy generating capacity by 2030.
  • Diversification of our energy basket would be the key lever enabling this transition. That’s why the emergence of hydrogen at the centre stage is a welcome development.

How Hydrogen can be produced?

  • Commercially viable Hydrogen can be produced from –

1. Hydrocarbons including natural gas, oil and coal through processes like steam methane reforming, partial oxidation and coal gasification

2. Renewables like water, sunlight and wind through electrolysis and photolysis and other thermo-chemical processes.

  • The current global demand for hydrogen is 70 million metric tons per year, more than 76 per cent of which is being produced from natural gas, 23 per cent comes from coal and the remaining is produced from electrolysis of water.
  • Storage: Hydrogen can be stored in cryo-compressed tanks in gaseous form apart from being kept in liquefied and solid state.

Primarily uses

  • Presently, Hydrogen is mostly used in industry sector including those dealing with oil refining, ammonia production, methanol production and steel production.
  • It has huge potential in transportation sector as a direct replacement to fossil fuels.
  • Shipping and aviation have limited low-carbon fuel options available and represent an opportunity for hydrogen-based fuels.

What Is Grey, Blue, And Green Of Hydrogen?

  • Hydrogen has been color-coded based on the source of production and the emphasis is on the use of Green Hydrogen as it helps in reducing the emissions of greenhouse gases and increases the share of renewables in total energy consumption.

Grey Hydrogen

  • The most common form of hydrogen, it’s created from fossil fuels and the process releases carbon dioxide which is not captured.
  • There is also a gasification process which uses coal as a feedstock, creating brown hydrogen, which also releases carbon dioxide and can be put in the same category as grey.

Blue Hydrogen

  • Blue hydrogen uses the same process as grey, except this time the carbon is captured and stored. This makes it much more environmentally friendly, but comes with added technical challenges and a big increase in cost.
  • Carbon capture and storage (CCS) has been around a while, with the technology being used by heavy industry and power generation companies burning fossil fuels.
  • The technology can capture up to 90% of the CO2 produced, so it isn’t perfect but clearly a massive improvement.

Green Hydrogen

Green hydrogen will be a unique energy vector that can enable deep decarbonization of many sectors such as transportation, industry, and power. One of the most common methods of generating green hydrogen is by electrolysis of pure water through electrolyzers.

We will discuss it in detail as it is very important for today’s world to rely on such a source of energy which can redefine the GHGs emission and sustainable use of energy resources while keeping global warming in check.

How is green hydrogen produced?

  • In a world struggling to address the issue of climate change and growing carbon footprint, green hydrogen is being heralded as the future of energy.
  • Unlike gray hydrogen, green hydrogen is fully renewable in both its source material and its energy supply. 
  • For source material, green hydrogen today is typically generated from water through a process known as electrolysis, which uses an electric current to split water into its component molecules of hydrogen and oxygen. 
  • This is done using a device called an electrolyzer, which utilizes a cathode and an anode (positively and negatively charged electrodes). 
  • This process produces only oxygen – or steam – as a byproduct. 
  • As for energy supply, to qualify as “green hydrogen,” the source of electricity used for electrolysis must derive from renewable power, such as wind or solar energy.
  • Currently the production of green hydrogen is two or three times more expensive than blue hydrogen.

How can green hydrogen be used?

Hydrogen can be used in broadly two ways. It can be burnt to produce heat or fed into a fuel cell to make electricity.

  • fuel-cell hydrogen electric cars and trucks
  • container ships powered by liquid ammonia made from hydrogen
  • “green steel” refineries burning hydrogen as a heat source rather than coal
  • hydrogen-powered electricity turbines that can generate electricity at times of peak demand to help firm the electricity grid
  • H-CNG can be used as a as a substitute for natural gas for cooking and heating in homes and automotive.

What makes Hydrogen one of the best options in disguise?

1. Its availability

2. Its efficiency: The energy in 2.2 pounds (1 kilogram) of hydrogen gas contains about the same as the energy in 1 gallon (6.2 pounds, 2.8 kilograms) of gasoline.

3. Its characteristics of a clean fuel: The only byproduct or emission that results from the usage of hydrogen fuel is water.

2H2 (g) + O2 (g) → 2H2O (g) + energy

With a wide range of methods to produce and use Hydrogen as a fuel, it thereby allows the impetus to a circular economy.

What are the challenges in producing Green Hydrogen?

India’s transition towards a green hydrogen economy (GHE) can only happen once certain key issues are addressed.

  1. Supply chain issues: GHE hinges upon the creation of a supply chain, starting from the manufacture of electrolysers to the production of green hydrogen, using electricity from a renewable energy source.
  2. Technology: Green hydrogen needs electrolysers to be built on a scale larger than we’ve yet seen.
  3. Transportation and Storage: Either very high pressures or very high temperatures are required, both with their own technical difficulties. It is hazardous because of its low ignition energy and high combustion energy.
  4. Risk to use as a fuel: Automotive fuels are highly inflammable, but a vehicle laden with hydrogen is likely to be more vulnerable in case of a major accident.
  5. Cost: To become competitive, the price per kilogram of green hydrogen has to reduce to a benchmark of $2/kg. At these prices, green hydrogen can compete with natural gas.
  6. Electricity: Creating green hydrogen needs a huge amount of electricity, which means an enormous increase in the amount of wind and solar power to meet global targets.
  7. Lack of proper infrastructure, only 500 Hydrogen stations exist globally.
  8. Only countable manufacturers are involved as market players in this technology.
  9. Integration with other energy vectors using information and communication infrastructure.
  10. Low user acceptance and social awareness.
  11. Developing after-sales service for hydrogen technology.

Hydrogen Energy in India

  • At present, bulk of the global energy consumption comes from hydrocarbons.
  • Government as well as non-government funding agencies are engaged in R&D projects pertaining to hydrogen production, storage, utilisation, power generation and for transport applications.
  • National Hydrogen Energy Board formed in 2003and in 2006 the Ministry of New and Renewable Energy laid out the National Hydrogen Energy Road Map identifying transport and power generation as two major green energy initiatives.
  • By 2050 India intends to produce three-fourths of its hydrogen from renewable resources.
  • R&D projects in India focus on improving the efficiency of water-splitting reaction, and finding newer materials, catalysts and electrodes to accelerate the reaction. 

What are the policy challenges?

  • Economic sustainability: One of the biggest challenges faced by the industry for using hydrogen commercially is the economic sustainability of extracting green or blue hydrogen.
  • Technological challenges: The technology used in production and use of hydrogen like Carbon Capture and Storage (CCS) and hydrogen fuel cell technology are at nascent stage.
  • Cost Factor: These technologies are expensive which in turn increases the cost of production of hydrogen and will require a lot of investment which in turn add fiscal pressure on government.
  • Higher Maintenance costs: Maintenance costs for fuel cells post-completion of a plant can be costly.
  • Commercial sector’s role is crucial: The commercial usage of hydrogen as a fuel and in industries requires mammoth investment in R&D of such technology and infrastructure for production, storage, transportation and demand creation for hydrogen.
  • Need for legal and administrative adherence, certification mechanisms, recommendations, and regulations for different components of the system.

Way forward

  • India’s National Hydrogen Mission is a futuristic vision that can help the country not only cut down its carbon emissions but also diversify its energy basket and reduce external reliance.
  • Hydrogen energy is at a nascent stage of development but has significant potential for realizing the energy transition in India.
  • Having missed out on many technology-led innovations in the past, hydrogen presents India with the opportunity to lead the change. The parts of the puzzle just need to be put together.
  • Green hydrogen has the potential to decarbonise the sectors, which currently have the largest carbon footprint in the world.
  • With the capability to provide a zero-emission fuel, green hydrogen is well placed to be integrated into the transport sector and replace the use of coal and coke in the industrial sector.
  • India’s transition towards a green hydrogen economy can be a testament to the world on the achievement of energy security, without compromising the goal of sustainable development.
  • The GoI, therefore, must strongly pursue the objective of creating a GHE to make India a global manufacturing hub of green hydrogen and place itself at the top of the green hydrogen export market.

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[Burning Issue] National Education Policy – 2020: Higher Education and Regional Languages

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The National Policy on Education was framed in 1986 and modified in 1992. Since then several changes have taken place that calls for a revision of the Policy.

The National Education Policy (NEP), 2020 is the first education policy of the 21st century and replaces the thirty-four-year-old National Policy on Education (NPE), 1986. Built on the foundational pillars of Access, Equity, Quality, Affordability, and Accountability, this policy is aligned to the 2030 Agenda for Sustainable Development and aims to transform India into a vibrant knowledge society and global knowledge superpower by making both school and college education more holistic, flexible, multidisciplinary, suited to 21st century needs and aimed at bringing out the unique capabilities of each student.

Backgrounder: Education Policies in India

Education Policy lays particular emphasis on the development of the creative potential of each individual. It is based on the principle that education must develop not only cognitive capacities -both the ‘foundational capacities’ of literacy and numeracy and ‘higher-order’ cognitive capacities, such as critical thinking and problem-solving — but also social, ethical, and emotional capacities and dispositions.

The implementation of previous policies on education has focused largely on issues of access and equity. The unfinished agenda of the National Policy on Education 1986, modified in 1992 (NPE 1986/92), is appropriately dealt with in this Policy. A major development since the last Policy of 1986/92 has been the Right of Children to Free and Compulsory Education Act 2009 which laid down legal underpinnings for achieving universal elementary education.

Evolution of Education Policy in India

  1. University Education Commission (1948-49)
  2. Secondary Education Commission (1952-53)
  3. Education Commission (1964-66) under Dr D. S. Kothari
  4. National Policy on Education, 1968
  5. 42nd Constitutional Amendment, 1976- Education in Concurrent List
  6. National Policy on Education (NPE), 1986
  7. NPE 1986 Modified in 1992 (Programme of Action, 1992)
  8. S.R. Subrahmanyam Committee Report (May 27, 2016)
  9. K. Kasturirangan Committee Report (May 31, 2019)

Some of the major path-breaking policies and their features:

Earlier major Educational Policies (Year)Key Features
1968Based on the report and recommendations of the Kothari Commission (1964–1966)India’s first National Policy which called for a “radical restructuring” and proposed equal educational opportunities gave the “three-language formula” to be implemented in secondary education
1986Introduced under Rajiv Gandhi’s Prime Ministership, expected to spend 6% of GDP on education for the 1st timeIt called for “special emphasis on the removal of disparities and to equalize educational opportunity” It called for a “child-centered approach” in primary education and launched “Operation Blackboard“Also called for the creation of the “rural university” model, based on the philosophy of Mahatma Gandhi
19921986 Policy modified in 1992 by the P.V. Narasimha Rao government laid down a Three – Exam Scheme: JEE/AIEEE/State EEE (Engineering Entrance Exam)

The National Education Policy, 2020

  • It marks the fourth major policy initiative in education since Independence.
  • The last one has undertaken a good 34 years ago and modified in 1992.
  • Based on two committee reports and extensive nationwide consultations, NEP 2020 is sweeping in its vision and seeks to address the entire gamut of education from preschool to doctoral studies, and from professional degrees to vocational training.

Salient features of the NEP 2020

School Education

(1) Ensuring Universal Access at all levels of school education

  • Ensuring universal access: NEP 2020 emphasizes on ensuring universal access to school education at all levels- preschool to secondary.
  • Bring back dropouts into the mainstream: Infrastructure support, innovative education centers to bring back dropouts into the mainstream, tracking of students and their learning levels, facilitating multiple pathways to learning involving both formal and non-formal education modes, association of counselors or well-trained social workers with schools, open learning for classes 3,5 and 8 through NIOS and State Open Schools, secondary education programs equivalent to Grades 10 and 12, vocational courses, adult literacy and life-enrichment programs are some of the proposed ways for achieving this.
  • About 2 crore out of school children will be brought back into main stream under NEP 2020.

(2) Early Childhood Care & Education with new Curricular and Pedagogical Structure

  • Emphasis on Early Childhood Care and Education: The 10+2 structure of school curricula is to be replaced by a 5+3+3+4 curricular structure corresponding to ages 3-8, 8-11, 11-14, and 14-18 years respectively.  
  • This will bring the hitherto uncovered age group of 3-6 years under school curriculum, which has been recognized globally as the crucial stage for development of mental faculties of a child.
  • The new system will have 12 years of schooling with three years of Anganwadi/ pre schooling.
  • NCERT will develop a National Curricular and Pedagogical Framework for Early Childhood Care and Education (NCPFECCE) for children up to the age of 8.
  • The planning and implementation of ECCE will be carried out jointly by the Ministries of HRD, Women and Child Development (WCD), Health and Family Welfare (HFW), and Tribal Affairs.

(3) Attaining Foundational Literacy and Numeracy

  • National Mission on Foundational Literacy and Numeracy: Recognizing Foundational Literacy and Numeracy as an urgent and necessary prerequisite to learning, NEP 2020 calls for setting up of a National Mission on Foundational Literacy and Numeracy by MHRD.
  • States will prepare an implementation plan for attaining universal foundational literacy and numeracy in all primary schools for all learners by grade 3 by 2025.
  • A National Book Promotion Policy is to be formulated.

(4) Reforms in school curricula and pedagogy

  • Aim: It aims for holistic development of learners by equipping them with the key 21st century skills, reduction in curricular content to enhance essential learning and critical thinking and greater focus on experiential learning.
  • Increased flexibility and choice of subjects with students: There will be no rigid separations between arts and sciences, between curricular and extra-curricular activities, between vocational and academic streams.
  • Vocational education will start in schools from the 6th grade, and will include internships.
  • National Curricular Framework for School Education, NCFSE 2020-21 will be developed by the NCERT.

(5) Multilingualism and the power of language

  • Emphasis on mother tongue as the medium of instruction: The policy has emphasized mother tongue/local language/regional language as the medium of instruction at least till Grade 5, but preferably till Grade 8 and beyond.
  • Convenience of optional language:
  • Sanskrit to be offered at all levels of school and higher education as an option for students, including in the three-language formula.
  • Other classical languages and literatures of India also to be available as options. No language will be imposed on any student.
  • Students to participate in a fun project/activity on ‘The Languages of India’, sometime in Grades 6-8, such as, under the ‘Ek Bharat Shrestha Bharat’ initiative.
  • Several foreign languages will also be offered at the secondary level.
  • Indian Sign Language (ISL) will be standardized across the country, and National and State curriculum materials developed, for use by students with hearing impairment.

(6) Assessment Reforms

  • Shift from summative assessment to regular and formative assessment which is more competency-based, promotes learning and development, and tests higher-order skills, such as analysis, critical thinking, and conceptual clarity.
  • Revamping Board Exams: Board exams for Grades 10 and 12 will be continued, but redesigned with holistic development as the aim.
  • A new National Assessment Centre, PARAKH (Performance Assessment, Review, and Analysis of Knowledge for Holistic Development), will be set up as a standard-setting body .

(7) Equitable and Inclusive Education

  • Ensuring complete coverage: NEP 2020 aims to ensure that no child loses any opportunity to learn and excel because of the circumstances of birth or background.
  • Special emphasis on Socially and Economically Disadvantaged Groups (SEDGs) which include gender, socio-cultural, and geographical identities and disabilities.  
  • Setting up of Gender Inclusion Fund and also Special Education Zones for disadvantaged regions and groups.
  • Enabling disables: Children with disabilities will be enabled to fully participate in the regular schooling process from the foundational stage to higher education.
  • It will be done withwith support of educators with cross disability training, resource centers, accommodations, assistive devices, appropriate technology-based tools and other support mechanisms tailored to suit their needs.
  • Bal Bhavans: Every state/district will be encouraged to establish “Bal Bhavans” as a special daytime boarding school, to participate in art-related, career-related, and play-related activities.
  • Free school infrastructure can be used as Samajik Chetna Kendras.

(8) Robust Teacher Recruitment and Career Path

  • Robust, transparent processes for teachers’ recruitment: Teachers will be recruited through robust, transparent processes.
  • Merit based promotions with a mechanism for multi-source periodic performance appraisals and available progression paths to become educational administrators or teacher educators.
  • National Professional Standards for Teachers (NPST) will be developed by the National Council for Teacher Education by 2022, in consultation with NCERT, SCERTs, teachers and expert organizations from across levels and regions.

(9) School Governance

  • Schools can be organized into complexes or clusters which will be the basic unit of governance and ensure availability of all resources including infrastructure, academic libraries and a strong professional teacher community.

(10) Standard-setting and Accreditation for School Education

  • NEP 2020 envisages clear, separate systems for policy making, regulation, operations and academic matters.  States/UTs will set up independent State School Standards Authority (SSSA).
  • The SCERT will develop a School Quality Assessment and Accreditation Framework (SQAAF) through consultations with all stakeholders.

Higher Education

(1) Increase GER to 50 % by 2035

  • NEP 2020 aims to increase the Gross Enrolment Ratio in higher education including vocational education from 26.3% (2018) to 50% by 2035. 3.5 Crore new seats will be added to Higher education institutions.

(2) Holistic Multidisciplinary Education

  • Broad based multi-disciplinary, holistic UG education with flexible curricula, creative combinations of subjects, integration of vocational education and multiple entry and exit points with appropriate certification.
  • An Academic Bank of Credit is to be established for digitally storing academic credits earned from different HEIs so that these can be transferred and counted towards final degree earned.
  • Multidisciplinary Education and Research Universities (MERUs), at par with IITs, IIMs, to be set up as models of best multidisciplinary education of global standards in the country.
  • The National Research Foundation will be created as an apex body for fostering a strong research culture and building research capacity across higher education.

(3) Regulation

  • Higher Education Commission of India (HECI) will be set up as a single overarching umbrella body the for entire higher education, excluding medical and legal education.
  • It will function through faceless intervention through technology, & will have powers to penalize HEIs not conforming to norms and standards.
  • Public and private higher education institutions will be governed by the same set of norms for regulation, accreditation and academic standards.

(4) Rationalized Institutional Architecture

  • Higher education institutions will be transformed into large, well resourced, vibrant multidisciplinary institutions providing high quality teaching, research, and community engagement.
  • The definition of university will allow a spectrum of institutions that range from Research-intensive Universities to Teaching-intensive Universities and Autonomous degree-granting Colleges. 
  • Affiliation of colleges is to be phased out in 15 years and a stage-wise mechanism is to be established for granting graded autonomy to colleges.

(5) Motivated, Energized, and Capable Faculty

  • Recommendations for motivating, energizing, and building capacity of faculty thorugh clearly defined, independent, transparent recruitment.
  • Freedom to design curricula/pedagogy, incentivizing excellence, movement into institutional leadership.

(6) Teacher Education

  • National Curriculum Framework for Teacher Education, NCFTE 2021: A new and comprehensive framework will be formulated by the NCTE in consultation with NCERT.
  • By 2030, the minimum degree qualification for teaching will be a 4-year integrated B.Ed. degree.

(7) Mentoring Mission

  • A National Mission for Mentoring will be established, with a large pool of outstanding senior/retired faculty – including those with the ability to teach in Indian languages – who would be willing to provide short and long-term mentoring/professional support to university/college teachers.

(8) Financial support for students

  • Efforts will be made to incentivize the merit of students belonging to SC, ST, OBC, and other SEDGs.
  • The National Scholarship Portal will be expanded to support, foster, and track the progress of students receiving scholarships.
  • Private HEIs will be encouraged to offer larger numbers of free ships and scholarships to their students.

(9) Open and Distance Learning

  • Measures such as online courses and digital repositories, funding for research, improved student services, credit-based recognition of MOOCs, etc., will be taken to ensure it is at par with the highest quality in-class programmes.

(10) Online Education and Digital Education

  • A dedicated unit for building of digital infrastructure, digital content and capacity building will be created in the MHRD to look after the e-education needs of both school and higher education.

(11) Technology in education

  • National Educational Technology Forum (NETF): An autonomous body will be created to provide a platform for the free exchange of ideas on the use of technology to enhance learning, assessment, planning, and administration.

(12) Professional Education

  • All professional education will be an integral part of the higher education system.
  • Stand-alone technical universities, health science universities, legal and agricultural universities etc will aim to become multi-disciplinary institutions.

(13) Adult Education

  • Policy aims to achieve 100% youth and adult literacy.

(14) Financing Education

  • The Centre and the States will work together to increase the public investment in Education sector to reach 6% of GDP at the earliest.

Positive Aspects of Higher Education in Regional Language

  • Subject-Specific Improvement: Several studies in India and other Asian countries suggest a positive impact on learning outcomes for students using a regional medium rather than the English medium.
  • Performance in science and math, in particular, has been found to be better among students studying in their native language compared to English.
  • Higher Rates of Participation: Studying in the native language results in higher attendance, motivation and increased confidence for speaking up among students and improved parental involvement and support in studies due to familiarity with the mother tongue.
  • Additional Benefits for the Less-Advantaged: This is especially relevant for students who are first-generation learners (the first one in their entire generation to go to school and receive an education) or the ones coming from rural areas, who may feel intimidated by unfamiliar concepts in an alien language.
  • Increase in Gross-Enrollment Ratio (GER): This will help provide quality teaching to more students and thus increase Gross Enrolment Ratio (GER) in higher education.
  • Promotes Linguistic Diversity: It will also promote the strength, usage, and vibrancy of all Indian languages.
  • It would also help prevent language-based discrimination.

Issues with the policy

1) Lack of integration

  • In both the thinking, and in the document, there are lags, such as the integration of technology and pedagogy.
  • There are big gaps such as lifelong learning, which should have been a key element of upgrading to emerging sciences.

2) Language barrier

  • There is much in the document ripe for debate – such as language. The NEP seeks to enable home language learning up to class five, in order to improve learning outcomes.
  • Sure, early comprehension of concepts is better in the home language and is critical for future progress. If the foundations are not sound, learning suffers, even with the best of teaching and infrastructure.
  • But it is also true that a core goal of education is social and economic mobility, and the language of mobility in India is English.

3) Multilingualism debate

  • Home language succeeds in places where the ecosystem extends all the way through higher education and into employment. Without such an ecosystem in place, this may not be good enough.
  • The NEP speaks of multilingualism and that must be emphasised. Most classes in India are de facto bilingual.
  • Some states are blissfully considering this policy as a futile attempt to impose Hindi.

4) Lack of funds

  • According to Economic Survey 2019-2020, the public spending (by the Centre and the State) on education was 3.1% of the GDP.
  • A shift in the cost structure of education is inevitable.
  • While funding at 6% of GDP remains doubtful, it is possible that parts of the transformation are achievable at a lower cost for greater scale.

5) A move in haste

  • The country is grappled with months of COVID-induced lockdowns.
  • The policy had to have parliamentary discussions; it should have undergone a decent parliamentary debate and deliberations considering diverse opinions.

6) Overambitious

  • All aforesaid policy moves require enormous resources. An ambitious target of public spending at 6% of GDP has been set.
  • This is certainly a tall order, given the current tax-to-GDP ratio and competing claims on the national exchequer of healthcare, national security and other key sectors.
  • The exchequer itself is choked meeting the current expenditure.

7) Pedagogical limitations

  • The document talks about flexibility, choice, experimentation. In higher education, the document recognizes that there is a diversity of pedagogical needs.
  • If it is a mandated option within single institutions, this will be a disaster, since structuring a curriculum for a classroom that has both one-year diploma students and four-year degree students’ takes away from the identity of the institution.

8) Institutional limitations

  • A healthy education system will comprise of a diversity of institutions, not a forced multi-disciplinarily one.
  • Students should have a choice for different kinds of institutions.
  • The policy risks creating a new kind of institutional isomorphism mandated from the Centre.

9) Issues with examinations

  • Exams are neurotic experiences because of competition; the consequences of a slight slip in performance are huge in terms of opportunities.
  • So the answer to the exam conundrum lies in the structure of opportunity. India is far from that condition.
  • This will require a less unequal society both in terms of access to quality institutions, and income differentials consequent upon access to those institutions.

 Way Forward

This ambitious policy has a cost to be paid and the rest of the things dwell on its implementation in letter and spirit.

  • Implementation of the spirit and intent of the Policy is the most critical matter.
  • It is important to implement the policy initiatives in a phased manner, as each policy point has several steps, each of which requires the previous step to be implemented successfully.
  • Prioritization will be important in ensuring optimal sequencing of policy points, and that the most critical and urgent actions are taken up first, thereby enabling a strong base.
  • Next, comprehensiveness in implementation will be key; as this Policy is interconnected and holistic, only a full-fledged implementation, and not a piecemeal one, will ensure that the desired objectives are achieved.
  • Since education is a concurrent subject, it will need careful planning, joint monitoring, and collaborative implementation between the Centre and States.
  • Timely infusion of requisite resources – human, infrastructural, and financial – at the Central and State levels will be crucial for the satisfactory execution of the Policy.
  • Finally, careful analysis and review of the linkages between multiple parallel implementation steps will be necessary in order to ensure effective dovetailing of all initiatives.

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Burning Issues

[Burning Issue] National Monetization Pipeline

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The government of India recently unveiled a four-year (FY 2022-25) National Monetization Pipeline (NMP) worth an estimated Rs 6 lakh crore. It aims to unlock value in brownfield projects by engaging the private sector, transferring to them revenue rights and not ownership in the projects, and using the funds so generated for infrastructure creation across the country.

The NMP has been announced to provide a clear framework for monetization and give potential investors a ready list of assets to generate investment interest.

What is monetization?

  • In a monetization transaction, the government is basically transferring revenue rights to private parties for a specified transaction period in return for upfront money, a revenue share, and commitment of investments in the assets.
  • Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are the key structures used to monetize assets in the roads and power sectors.
  • These are also listed on stock exchanges, providing investors liquidity through secondary markets as well.
  • While these are a structured financing vehicle, other monetization models on PPP (Public Private Partnership) basis include:
    1. Operate Maintain Transfer (OMT),
    2. Toll Operate Transfer (TOT), and
    3. Operations, Maintenance & Development (OMD).
  • OMT and TOT have been used in highways sector while OMD is being deployed in case of airports.

Global Instances

  • The monetisation of assets is not a new concept. A number of countries including the United States, Australia, Canada, France and China have effectively utilized this policy.

Indian Scenario

  • In India, the concept was suggested by a committee led by Vijay Kelkar on the roadmap for fiscal consolidation in 2012.
  • The committee had suggested that the government start monetization as a key instrument to raise resources for development.
  • It asked the government to use these resources for financing infrastructure needs


What is the difference between Greenfield and Brownfield projects?

  • Greenfield and brownfield investments are two types of foreign direct investment.
  • With greenfield investing, a company will build its own, brand new facilities from the ground up.
  • Brownfield investment happens when a company purchases or leases an existing facility.
  • In a greenfield investment, parent company opens a subsidiary in another country. Instead of buying an existing facility in that country, the company begins a new venture by constructing new facilities in that country.
  • Brownfield investments, an entity purchases or leases an existing facility to begin new production.
  • Companies may consider this approach a great time and money saver since there is no need to go through the motions of building a brand new building.

‘Infrastructure creation’

  • Unlike privatization, which seeks to sell state-owned companies to the private sector, or disinvestment, in which shares of public sector units are sold to non-state firms or individuals, the National Monetisation Pipeline seeks to do something else.
  • The NMP is talking about brownfield assets where investment has already been made, which are either languishing, not fully monetized or remaining underutilized.
  • So, by bringing in private participation, monetization gets better, and the resource can be put it into further infrastructure creation. The idea is also known as “asset recycling”.
  • Essentially, the government gives over operational duties and revenue rights to a private operator for assets like roads, power transmission lines, stadiums, warehouses and more.
  • This allows government to build an ambitious infrastructure plan, without adding to existing government debt.
  • A key aspect of this approach is that the government is not handing over ownership of the underlying asset.

Unlocking capital

Another difference from other privatization efforts, which often focus on loss-making public sector units, the effort here is to pick ones that aren’t necessarily struggling, on the assumption that the private sector can unlock efficiencies that the government cannot.

By keeping ownership and only transferring revenue rights for a set period of time, the government is essentially taking a fresh look at Public-Private Partnership model, commonly known as PPP.

What is the government’s plan?

  • Roads, railways and power sector assets will comprise over 66% of the total estimated value of the assets to be monetized.
  • The remaining upcoming sectors include telecom, mining, aviation, ports, natural gas and petroleum product pipelines, warehouses and stadiums.
  • In terms of annual phasing by value, 15% of assets with an indicative value of Rs 0.88 lakh crore are envisaged for rollout in the current financial year.
  • The NMP will run co-terminus with the National Infrastructure Pipeline of Rs 100 lakh crore announced in December 2019.
What is the National Infrastructure Pipeline (NIP)?

NIP includes economic and social infrastructure projects.
During the fiscals 2020 to 2025, sectors such as Energy (24%), Roads (19%), Urban (16%), and Railways (13%) amount to around 70% of the projected capital expenditure in infrastructure in India.
It has outlined plans to invest more than ₹102 lakh crore on infrastructure projects by 2024-25, with the Centre, States and the private sector to share the capital expenditure in a 39:39:22 formula.  
  • The estimated amount to be raised through monetization is around 14% of the proposed outlay for the Centre of Rs 43 lakh crore under NIP.
  • NMP aims to provide a medium term roadmap of the programme for public asset owners; along with visibility on potential assets to the private sector.
  • An empowered committee has been constituted to implement and monitor the Asset Monetization programme. The Core Group of Secretaries on Asset Monetization (CGAM) will be headed by the Cabinet Secretary.
  • Real time monitoring will be undertaken through the asset monetization dashboard. The government will closely monitor the NMP progress, with yearly targets and a monthly review by an empowered committee 
  •  The top 5 sectors (by estimated value) capture ~83% of the aggregate pipeline value. These include: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%)

What is the list of assets?

  • The assets on the NMP list include:
    1. 26,700 km of roads, railway stations, train operations and tracks,
    2. 2,8608 Ckt km worth of power transmission lines,
    3. 6 GW of hydroelectric and solar power assets,
    4. 2.86 lakh km of fiber assets and 14,917 towers in the telecom sector,
    5. 8,154 km of natural gas pipelines and
    6. 3,930 km of petroleum product pipelines.
  • In the roads sector, the government has already monetized 1,400 km of national highways worth Rs 17,000 crore. Another five assets have been monetised through a PowerGrid InvIT raising Rs 7,700 crore.
  • Also, 15 railway stations, 25 airports and the stake of central government in existing airports and 160 coal mining projects, 31 projects in 9 major ports, 210 lakh MT of warehousing assets, 2 national stadiums and 2 regional centres, will be up for monetization.
  • Redevelopment of various government colonies and hospitality assets including ITDC hotels is expected to generate Rs 15,000 crore.

What are the merits of the NMP?

  • Resource Efficiency: Resources are scarce with the government. Proper and effective channelization of them is very important. NMP leads to optimum utilization of government assets.
  • Keeping Fiscal Deficit at check: The revenue accrued by leasing out these assets to private sector will help fund new capital expenditure without pressuring government finances.
  • Streamlining the Process: Monetization of assets is not new, but the government has finally organized it in baskets, set targets, identified impediments, and put in place a framework. 
  • Mobilizing Private Capital: Since the assets are de-risked as it is brownfield projects, it will help in mobilizing private capital (both domestic & foreign). Global investors have revealed that they are keen to participate in projects to be monetized through a transparent/competitive bidding process.
  • Less Resistance from the opposition: The plan involves leasing to private sector without transferring ownership or resorting to fire sale of assets. Therefore, it is going to face less resistance from the opposition.
  • Cooperative Federalism: To encourage states to pursue monetization, the Central government has already set aside Rs 5,000 crore as incentive. 
    • If a state government divests its stake in a PSU, the Centre will provide a 100 per cent matching value of the divestment to the state. 
    • If a state lists a public sector undertaking in the stock markets, the Central government will give it 50 per cent of that amount raised through listing. 
    • If a state monetizes an asset, it will receive 33% of the amount raised from monetization from the Centre.
  • Promoting Public-Private Partnership: The end objective of NMP is to enable ‘Infrastructure Creation through Monetization’ wherein the public and private sector collaborate, each excelling in their core areas of competence, so as to deliver socio-economic growth and quality of life to the country’s citizens.

What are the challenges associated?

(1) Lack of identifiable revenue streams in various assets and low interest among investors in national highways below four lanes.

  • Monetization potential of toll road assets is limited by the percentage of stretches having four-lane and above configuration.

(2) Level of capacity utilization in gas and petroleum pipeline networks and regulated tariffs in power sector assets

(3) Dispute resolution mechanism

(4) Uncertainty of proper execution of the plan

(5) Slow pace of privatization in government companies including Air India and BPCL, and less-than-encouraging bids in the recently launched PPP initiative in trains, indicate that attracting private investors’ interest is not that easy.

(6) Asset-specific challenges such as the presence of an identifiable revenue stream. This is specifically relevant to the railway sector, which has seen limited PPP success as a mode of project delivery.

  • Konkan Railway, for instance, has multiple stakeholders, including state governments, which own stake in the entity. Creating an effective monetization transaction structure could be a bit challenging in this case.

Way Forward

  • Execution is the Key: While the government has tried to address many challenges, owing to infrastructure development in the NMP framework, execution of the plan remains key to its success.
  • Dedicated and effective Dispute Redressal Mechanism: Looking at the track record of previous efforts of government to lure the investors and history of long pending cases in courts, there is a need for an efficient dispute resolution mechanism.
  • Key to success lies in Multi-stakeholder approach: The success of the infrastructure expansion plan would depend on other stakeholders playing their due role. The role of State governments is going to be very important.

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Burning Issues

[Burning Issue] Gati Shakti Master Plan: Infra Boost for India

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On India’s 75th Independence Day, Prime Minister Narendra Modi announced that the Centre will launch ‘PM Gati Shakti Master Plan’, a Rs. 100 lakh-crore project for developing ‘holistic infrastructure’ and to and give an integrated pathway to country’s economy.

What are the focus areas of the project?

  • Gati Shakti will be a National Infrastructure Master Plan for our country
  • Leveling up local manufacturers: The Gati Shakti plan will help raise the global profile of local manufacturers and help them compete with their counterparts worldwide.
  • Economic zones: It also raises possibilities of new future economic zones. India needs to increase both manufacturing and exports.
  • Infrastructure development: Infrastructure development has the ability to create a multiplier effect with every rupee invested, yielding much higher returns.
  • Employment opportunity: To act as a source of employment opportunities for the youth in future.

Why need such a plan?

  • The push for infrastructure is in line with the government’s efforts to step up capital expenditure in infrastructure to promote economic growth.
  • Infrastructure development has the ability to create a multiplier effect with every rupee invested, yielding much higher returns.
  • A similar plan, called the National Infrastructure Pipeline was previously announced.

Let us learn about the National Infrastructure Pipeline in short.

What is the National Infrastructure Pipeline (NIP)?

  • NIP includes economic and social infrastructure projects.
  • During the fiscals 2020 to 2025, sectors such as Energy (24%), Roads (19%), Urban (16%), and Railways (13%) amount to around 70% of the projected capital expenditure in infrastructure in India.
  • It has outlined plans to invest more than ₹102 lakh crore on infrastructure projects by 2024-25, with the Centre, States and the private sector to share the capital expenditure in a 39:39:22 formula.

What are the key benefits of NIP?

  • Economic: Well-planned NIP will enable more infra projects, grow businesses, create jobs, improve ease of living, and provide equitable access to infrastructure for all, making growth more inclusive.
  • Government: Well-developed infrastructure enhances the level of economic activity, creates additional fiscal space by improving the revenue base of the government, and ensures the quality of expenditure focused in productive areas.
  • Developers: Provides a better view of project supply, provides time to be better prepared for project bidding, reduces aggressive bids/ failure in project delivery, ensures enhanced access to sources of finance as a result of increased investor confidence.
  • Banks/financial institutions (F1s)/investors: Builds investor confidence as identified projects are likely to be better prepared, exposures less likely to suffer stress given active project monitoring, thereby less likelihood of NPAs.

Why the infra sector is given more emphasis these days?

  • Pandemic induces Slowdown: Slowdown due to the pandemic is a good time to catch up on infrastructure capacity and increase the expenditure.
  • Multiplier effect on job creation and economy: Infrastructure spending is a critical component of the fiscal stimulus as it has multiplier effects on the economy and job creation.
  • Inclusive Growth: Quality infrastructure is important not only for faster economic growth but also to ensure inclusive growth and uplifting standard of living of people.
  • Easy access for essential Social Services: Lack of adequate infrastructure not only holds a lack of economic development, but it also causes additional costs in terms of time, effort and money of the people for accessing essential social services.

What are the recent projects included in the Infrastructural planning?

  • Sectors such as energy (24%), roads (18%), urban (17%) and railways (12%) amount to around 71% of the projected investments.
  • The projects will also be spread across sectors such as irrigation, mobility, education, health, water and the digital sector.

What are the key infrastructure sectors which have a massive role in India’s economic development?

(1) Green Infrastructure:

  • Green infrastructure refers to natural or semi-natural ecosystems that provide water resource management by introducing the natural water cycle into urban environments.
  • It provides effective measures to manage urban flooding, water supply and quantity regulation, at the same time generating multiple environmental benefits.
  • India will benefit if investments are steered towards green-infrastructure projects.
  • Green bonds can provide a long-term source of debt capital for renewable infrastructure projects.
  • Germany is one country that has been a nest for the innovation and application of green technologies. This can provide a useful lesson for India.
  • By reducing local temperatures and shading building surfaces, green infrastructure reduces the cooling demand of buildings, thus cutting energy needs.

(2) Logistics Sector:

  • The logistics sector needs to be improved because of its impact on improving competitiveness in the economy.
  • Improving logistics sector has huge implication on exports and it is estimated that a 10% decrease in indirect logistics cost can increase 5-8% of exports.
  • The Indian logistics sector provides livelihood to 22 million-plus people and improving the sector would facilitate a 10% decrease in indirect logistics cost, leading to a growth of 5-8% in exports.
  • The worth of Indian logistics market would be around US$ 215 billion in next two years compared to about US$ 160 billion currently. Today, the Indian logistics sector is a sunshine industry and is going through a phase of transformation.
  • key objectives for logistics in India, to be achieved in the next five years:
    1. Creating a single point of reference for all logistics and trade facilitation matters in the country which will also function as a knowledge and information sharing platform
    2. Driving logistics cost as a % of GDP down from estimated current levels of 13-14% to 10% in line with best-in-class global standards and incentivize the sector to become more efficient by promoting integrated development of logistics

(3) Social Infrastructure:

  • Social services include, education, sports, art and culture; medical and public health, family welfare, water supply and sanitation, housing; urban development; welfare of Schedule Castes (SCs), Schedule Tribes (STs) and Other Backward Castes (OBCs), labor and labor welfare; social security and welfare, nutrition, relief on account of natural calamities etc. Expenditure on ‘Education’ pertains to expenditure on ‘Education, Sports, Arts and Culture’.
  • India is committed to achieve these SDGs and a strong social infrastructure is key to achieve them.
  • The government has been focusing on provisioning of assets such as schools, institutes of higher learning, hospitals, access to sanitation, water supply, road connectivity, affordable housing, skills and livelihood opportunities.
  • This gains significance given the fact that India is home to the world’s youngest population as half of its population is below the age of 25.
  • It has also been estimated that demographic advantage in India is available for five decades from 2005-06 to 2055-56, longer than any other country in the world. This demographic advantage can be reaped only if education, skilling and employment opportunities are provided to the young population.
  • Being a developing economy “there is not enough fiscal space” to increase expenditure on critical social infrastructure.
  • India has made significant progress in quantitative indicators such as enrolment levels and physical infrastructure like construction of school buildings, drinking water facilities, toilet, etc.
  • India has been successful in achieving gender parity in the school sector and in higher education it is moving towards a better gender parity.
  • Growing expenditure on health is burdening the public in general and is one of the highest in South Asian countries as per Economic Survey 2020-21.

(4) Ports:

  • The major economies of the world have always realized the potential of shipping as a contributor to economic growth. For instance, control of the seas is a key component of China’s Belt and Road Initiative (BRI).
  • The entire shipping infrastructure in peninsular India only helps foreign shipping liners. Foreign ship owners carry our inbound and outbound cargo. This is the case in container shipping too.
  • India has unrealized potential in shipping, with 7,500 km of coastline and 14,500 km of navigable or potentially navigable waterways.
  • More than one billion tonnes of cargo was handled across over 200 ports in India in 2015 with maritime logistics accounting for 90 per cent of international trade by volume and 72 per cent by value.
  • As a country, we have still not optimized our carrying capacity. Much of foreign currency is drained as transshipment and handling costs every day.
  • As a result, there is a wide gap between carrying capacity and multi-folded cargo growth in the country.
  • India needs to revamp institutional and regulatory environment around ports.
  • Corporatization of ports is one way of achieving efficient and world class ports by the conversion of major port trusts into truly commercial organizations.
  • In terms of infrastructure, it is important to maintain draft to serve bigger vessels, ensure mechanization of ports through introduction of new equipment and procedures, build new facilities, upgrade existing facilities and automate systems/procedures.

(5) Transport infrastructure

  • India’s population growth and economic development requires improved transport infrastructure, including through investments in roads, railways, and aviation, shipping and inland waterways.
  • A key goal of India’s suite of regulatory reforms is to attract more foreign investment into the sector, including through new investment vehicles and innovative financial instruments. By 2030, transport is expected to attract over 60 per cent of infrastructure investment in India.
  • We need sound public transport infrastructure because if we do not have proper infrastructure we cannot have urbanization.
  • The Government of India has a range of projects to improve road infrastructure-
    • The National Highways Development Projects, which require investments of up to USD170 billion
    • The Bharatmala project, stretching from India’s western to eastern land borders which is unique and unprecedented in terms of its size and design.
    • The Northeast Express Highway (1,300 km express highway in northeast India).
  • Technologically sound projects which are engineering marvels such as the Dhola-Sadiya Bridge, Chenani Nashri Tunnel and Bogi-Beel bridge and world-class expressways such as the Eastern Peripheral Expressway and Western Peripheral Expressway are the recent key achievement showing India’s technological readiness in the sector.
Road Infrastructure in India

(6) RAIL

  • India’s railways play a major role in affordable transport of passengers and cargo across the country
  • It is one of the largest networks in the world with 7,216 stations; 92,000 km of track and 1.3 million employees.
  • Indian railways carried eight billion passengers and transported over one billion tonnes of freight in 2017–18
  • However, most major corridors are facing severe capacity constraints and there are safety issues.
  • The Ministry of Railways plans to improve and expand the rail network, renew the train fleet, and improve passenger safety.
  • It plans to invest up to $170 billion over the next five years, with the largest proportion aimed at network expansion and decongestion, and safety.64 Investments are also planned for station redevelopment and the dedicated freight corridor between Delhi and Mumbai.
  • The Government of India is seeking greater private investment through:
    • Allowing 100 per cent FDI in railways for construction, operation and maintenance of suburban corridor projects, high-speed train projects, railway electrification and signaling, among others.
    • Encouraging the development of new investment vehicles such as the Railways of India Development Fund to attract long term investment from global institutional investors.

What are the major constraints in the implementation of infrastructural projects?

The major implementation constraints that will be faced possibly in future are:

  • Revenue shortfall: Slippage in revenue estimates may not be ruled out on account of the realization of lower than anticipated increases in nominal GDP growth, direct tax buoyancy, and disinvestment targets.
  • Lesser funds with States: The Union government has accepted the 15th Finance Commission report recommendation, according to which vertical share of tax devolution from the center to states has been reduced 42% to 41%.
  • Increasing Fiscal Deficit: Infrastructure development in India will be funded by fiscal stimulus. This can be reflected as the Centre has indicated taking the fiscal deficit to 4.5% of GDP by 2025-26.
    • However, the rising fiscal deficit can cause macro-economic stability issues like high inflation, crowding out, a downgrade of international ratings, etc.
  • Structural Problems: Due to the lengthy processes in land acquisition and payment of compensation, the rate of implementation of projects is very slow on global standards.
    • Getting approvals are very difficult in terms of land access, environmental clearances; impending litigation in court delays the infrastructure projects.
    • Time and cost overruns due to delays in project implementation and procedural
    • Delays and lesser traffic growth than expected to increase the riskiness of the projects
    • Stalled or languishing projects and a shortfall in funds for maintenance

Conclusion

  • Infrastructure development is the key to economic growth and well-being of the country’s people, as it will propel economic growth, improve quality of life contribute to GDP nationally.
  • It is seen that investments in infrastructure equal to 1% of GDP will result in GDP growth of at least 2% as infrastructure has a “multiplier effect” on economic growth across sectors.
  • Capacity creation and expansion in important segments like roads and highways, power, railways, renewable sector, ports, airports, metros etc, is a must for delivering impressive results.
  • Over the period, formalization of the economy has taken place and any growth now onwards once projects like Gati Shakti Master Plan, NIP is in place will be more sustainable, rather than a boom-and-bust process.
  • Therefore, massive infrastructure development is a sure way of achieving the government’s $5 trillion economy target.
  • This is will give a boost to several sectors, create new jobs directly and indirectly, and eventually boost the commercial market, thereby propelling the country’s economic growth.
  • Huge fiscal stimulus, provided by the government in the Budget 2021 is a step in the right direction. However, it needs to address structural and macroeconomic stability concerns, emanating from high public expenditure.

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Burning Issues

[Burning Issue] MSMEs – The lifeline of the Indian Economy

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The Prime Minister’s dream of a $5-trillion Indian economy by 2025 along with effective financial inclusion and sustainable economic outcomes is premised on investment from both domestic and foreign investors. Government expenditure can only provide a stimulus, but cannot alone take India to PM’s goal.

For domestic private investments to happen, the role of timely, adequate, and quality (low cost) credit cannot be overstated, particularly during the current times when Covid induced stress is maximum on almost all industries.

With the recent change in the definition, more than 95 percent of Indian companies are bought under the definition of MSMEs. So what ails the MSME sector largely reflects the credit eco-system for more or less the entire industry in this country. So it is very important to identify the issues the MSME sector face today and how we can rectify them.

But before that, let us look at various aspects of the MSME sector.

India’s MSME Sector

  • The Indian MSME sector is the backbone of the national economic structure and has unremittingly acted as the bulwark for the Indian economy, providing it resilience to ward off global economic shocks and adversities.
  • With around 63.4 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India’s manufacturing output.
  • They have been able to provide employment to around 120 million persons and contribute around 45% of the overall exports from India.

What are MSMEs? How are they defined?

Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 which was notified on October 2, 2006, deals with the definition of MSMEs. The MSMED Act, 2006 defines the Micro, Small and Medium Enterprises based on:

  1. the investment in plant and machinery for those engaged in manufacturing or production, processing or preservation of and
  2. the investment in equipment for enterprises engaged in providing or rendering of services.

The significance of MSMEs:

The significance of MSMEs is attributable to their caliber for employment generation, low capital, and technology requirement.

  • They are also important for the promotion of industrial development in rural areas, use of traditional or inherited skill, use of local resources, mobilization of resources and exportability of products.
  • According to the estimates of the Ministry of MSME, Government of India, the sector generates around 100 million jobs through over 46 million units situated throughout the geographical expanse of the country.
  • With 38% contribution to the nation’s GDP and 40% and 45% share of the overall exports and manufacturing output, respectively, it is easy to comprehend the salience of the role they play in social and economic restructuring of India.
  • Besides the wide range of services provided by the sector, the sector is engaged in the manufacturing of over 6,000 products ranging from traditional to hi-tech items.

Why the MSME sector is important especially for India?

  • Employment: The Indian MSME sector provides maximum opportunities for both self-employment and wage-employment outside the agricultural sector.
  • Help building inclusive and sustainable society: It contributes to building an inclusive and sustainable society in innumerable ways through the creation of non-farm livelihood at low cost, balanced regional development, gender and social balance, environmentally sustainable development, etc.
  • For example: Khadi and Village industries require low per capita investment and employs a large number of women in rural areas.
  • Contribution to GDP: With around 36.1 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities.
  • MSME ministry has set a target to up its contribution to GDP to 50% by 2025 as India becomes a $5 trillion economy.
  • Exports: It contributes around 45% of the overall exports from India.

How many MSMEs does India have, who owns them?

  • According to the latest available (2018-19) Annual Report of Department of MSMEs, there are 6.34 crore MSMEs in the country.
  • Around 51 per cent of these are situated in rural India.
  • Together, they employ a little over 11 crore people but 55 per cent of the employment happens in the urban MSMEs.
  • The numbers suggest that, on average, less than two people are employed per MSME.
  • At one level that gives a picture of how small these really are. But a breakup of all MSMEs into micro, small and medium categories is even more revealing.

What are the issues MSMEs face?

(1) Access to Credit: Most of the MSMEs are in rural and semi-urban areas where access to credit is extremely limited.

  • They are vulnerable to predatory moneylenders and often fall into a cycle of debt.
  • Lack of access to finance and timely credit support in business has been a long-standing issue for these MSMEs.

(2) Under Severe Debt: Due to difficulties faced in seeking loans and working capital from banks and delays in receiving government payments and tax refunds, most of the MSMEs are under severe debt.

(3) Under financing by formal institutions: There is an overall debt demand of ₹69.3 trillion of which 84 percent is financed by informal sources such as moneylenders, family, friends, and chit funds (IFC study).

  • Formal sources such as commercial banks, NBFCs and government institutions cater to a mere 16 per cent.
  • The failure of traditional lending mechanisms to guide credit towards these MSMEs has led to a scenario where financing is often not reliable, and steady.
  • This has been particularly exacerbated by the pandemic, as well as the poor state of micro financing in the country, highlighted by India’s estimated credit gap of over $330 billion.

(4) Small size of the majority of firms: More these 80 percent of these MSMEs are in the micro and small category and are depending on informal sources of credit.

  • The usefulness of the government’s emergency line credit stressed asset relief, equity participation and fund of funds operation make very little meaning and contribution to the sector.

(5) Insufficient financing by banks due to fear of NPAs: Banks employ various methods to limit risk by better assessment of the creditworthiness of individuals or firms, MSMEs included. To keep NPAs down, many credit-worthy individuals are denied loans by banks.

  • While determining creditworthiness, there are two errors that are common — False Acceptance of a bad applicant and False Rejection of a good applicant.
  • The former error is detrimental for banks and increases risk while the latter impacts financial inclusion and economic growth itself.
  • While there are number of punitive actions prescribed against commissions of irregular loan financing, there is complete absence of punitive action against omissions of genuine credit financing of businesses, particularly the MSMEs.
  • Thus, there is no incentive for bank managers to take risks and finance genuine credit requirements.
  • This kind of approach to credit adversely impacts both growth and financial inclusion.

(6) Lack of paperwork or digital footprint for small MSMEs, a factor that holds them back from being integrated into the formal economy and deprives the MSMEs to take advantage of the formal credit system.

  • They continue to gain access to credit against assets such as land, etc. when much of the MSME development has started to follow a digital model.

(7) Technological Disruption: India‘s MSME sector is based on obsolete technology, which hampers its production efficiency.

  • The emergence of new technologies like Artificial Intelligence, Data Analytics, Robotics, and related technologies (collectively called as Industry Revolution 4.0) is a bigger challenge for MSMEs than for organized large-scale manufacturing.

Other problems

  • Long receivables cycles make a mess of working capital management.
  • Limited access to trained labour, technical progress and management support limit their growth.
  • Other common problems faced by small enterprises are related to the availability of technology, infrastructure and managerial competence, and limitations posed by labour laws, taxation policy, market uncertainty and imperfect competition.

Opportunity areas for MSMEs in India

Telecommunications

  • Domestic manufacturing of low-cost mobile phones, handsets, and devices;
  • Manufacturing of telecom networking equipment, including routers and switches;
  • Manufacture of base transceiver station equipment;
  • Mobile customer data analytics – services oriented toward analytical solutions; and
  • Development of value-added services

Healthcare

  • Manufacturing of personal protective equipment (PPE) and face masks, as the COVID-19 pandemic has fundamentally changed social behaviour, public health and hospital needs, and created new demand;
  • Manufacturing of low-cost medical devices, and medical accessories such as surgical gloves, scrubs, and syringes;
  • Low-cost surgical procedures to reduce the cost of healthcare;
  • Telemedicine; and
  • Diagnostic labs.

Electronics

  • Domestic manufacturing of low-cost consumer electronics, consumer durables;
  • Nano-electronics and microelectronics;
  • Electronic Systems Design and Manufacturing including semiconductor design, electronic components design and hi-tech manufacturing under India’s ‘National Electronics Mission; and
  • Strategic electronics, as the government is keen on encouraging the domestic manufacturing of products needed by the security forces.

Others

  • Other areas that offer opportunities for MSMEs include information technology, pharmaceutical, chemical, automotive, renewable, gems and jewellery, textile, and food and agriculture.

COVID-19 and MSMEs

  • The MSMEs were already struggling — in terms of declining revenues and capacity utilization — in the lead-up to the Covid-19 crisis.
  • The total lockdown has raised a question mark on workers payment primarily because these firms mostly transact on cash. That explains the job losses.
  • The problem with most small Indian businesses is that they operate on thin margins and don’t have the deep financial resources to survive a significant dip in cash flows.
  • So, when an unexpected event like a lockdown happens and MSMEs can’t sell/produce their goods or services, it also means for many they can’t meet their monthly expenses – this includes costs like paying salaries to their employees.

Fiscal stimulus package to MSMEs under Atmanirbhar Bharat Abhiyan

Finance Minister has announced the first tranche of the Atmanirbhar Bharat Abhiyan economic package. The main thrust of the announcements was a relief to Medium, Small, and Micro Enterprises (MSMEs) in the form of a massive increase in credit guarantees to them.

What is the package about?

Instead of directly infusing money into the economy or giving it directly to MSMEs in terms of a bailout package, the government has resorted to taking over the credit risk of MSMEs.

1) 100% credit guarantee

  • Firstly, it will give a 100% credit guarantee for Rs 3 lakh crore worth of collateral-free loans to MSMEs that were doing fine before the pandemic hit and are now in trouble.
  • This deal will only apply to small businesses that already had an outstanding loan of Rs 25 crore or those with a turnover of less than Rs 100 crore.
  • Thus, banks don’t have to worry about potential NPAs – that headache is transferred to the government.

2) Subordinate debt scheme

  • The second measure is a ‘subordinate debt scheme’ worth Rs 20,000 crore and is mainly for MSMEs who are already struggling with debt and are unlikely to get fresh funding by themselves.
  • This scheme will allow banks and NBCs to give loans to MSMEs which are already deemed as ‘stressed’ and are thus less credit-worthy.

3) Availability of Funds

  • The final step involves the government creating a Rs 50,000-crore fund which will infuse equity into “viable” MSMEs, thus helping them to expand and grow.
  • The basic idea behind this is that MSMEs will keep their businesses afloat until they are able to operate at pre-pandemic levels.
  • By doing this, the government also hopes to protect the employment that MSMEs create and thus save jobs.

Government schemes to promote MSMEs

  1. Udyami Mitra Portal: launched by SIDBI to improve accessibility of credit and handholding services to MSMEs.
  2. MSME Sambandh: To monitor the implementation of the public procurement from MSMEs by Central Public Sector Enterprises.
  3. MSME Samadhaan: MSME Delayed Payment Portal –– will empower Micro and Small entrepreneurs across the country to directly register their cases relating to delayed payments by Central Ministries/Departments/CPSEs/State Governments.
  4. Digital MSME Scheme: It involves usage of Cloud Computing where MSMEs use the internet to access common as well as tailor-made IT infrastructure
  5. Revamped Scheme of Fund for Regeneration Of Traditional Industries (SFURTI): organizes traditional industries and artisans into clusters and make them competitive by enhancing their marketability & equipping them with improved skills.
  6. A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE): creates new jobs & reduce unemployment, promotes entrepreneurship culture, facilitates innovative business solution etc.
  7. Micro & Small Enterprises Cluster Development Programme (MSE-CDP) – adopts cluster development approach for enhancing the productivity and competitiveness as well as capacity building of MSEs.
  8. Credit Linked Capital Subsidy Scheme (CLCSS) is operational for upgradation of technology for MSMEs.

Way Forward

  • Focused regulatory and structural changes which will improve access, ease the transition to the formal sector and increase consumer education and protection are necessary.
  • In the long term, once these regulatory issues are addressed, sanctioned loans will be disbursed more easily and private investment will be boosted, creating a virtuous cycle for MSMEs in the country.
  • To minimize the false rejections of good applicants, routine audits of all loan applications on random sampling basis must be undertaken by RBI and administrative action taken against malafide omissions resulting in unethical denial of loans to deserving MSMEs.
  • The problems faced by MSMEs need to be considered in a disaggregated manner for successful policy implementation as they produce very diverse products, use different inputs and operate in distinct environments.
  • In general, there is a need for tax provisions and laws that are not only labor-friendly but also entrepreneur-friendly.
  • More importantly, there is a need for skill formation and continuous upgrade both for labor and entrepreneurs.

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Burning Issues

[Burning Issue] The fall of Kabul and implications for the India and world

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The Taliban entered Afghanistan’s capital Kabul, following a week of rapid territorial gains from retreating government forces battling to hold off the Islamist militant group. President Ashraf Ghani has fled the war-torn country.

Afghanistan being rugged and mountainous, ethnically heterogeneous, and poorly developed; foreign powers are now intervening on both sides of the conflict. Its leadership was demoralized by the unseemly haste of the US troops’ withdrawal.

Let us learn some key facts about the Taliban’s history and ideology.

Who are the Taliban?

The Taliban (literally meaning “students”) or Taleban, who refer to themselves as the Islamic Emirate of Afghanistan (IEA) are a Sunni Islamic fundamentalist political movement and military organization in Afghanistan currently waging war (an insurgency, or jihad) within that country.

A history of the Taliban

  • The Taliban emerged in 1994 around the southern Afghan city of Kandahar.
  • It was one of the factions fighting a civil war for control of the country following the withdrawal of the Soviet Union and subsequent collapse of the government.
  • It originally drew members from so-called “mujahideen” fighters who, with support from the United States, repelled Soviet forces in the 1980s.
  • About 90,000 Afghans, including several bountied terrorists, were trained by Pakistan’s ISI during the 1980s.
  • Hence it can be concluded that the Taliban have arisen from those US-Saudi-Pakistan-supported Mujahedeen: The West helped the Taliban to fight the Soviet takeover of Afghanistan.

What is its ideology?

At the core of its diplomacy lies the untenable violent extremism based on radical religious ideology.

  • During its five years in power, the Taliban enforced a strict version of Sharia law.
  • Women were predominantly barred from working or studying, and were confined to their homes unless accompanied by a male guardian.
  • Public executions and floggings were common, Western films and books were banned, and cultural artifacts seen as blasphemous under Islam were destroyed.

International recognition of the Taliban

  • Only four countries, Bangladesh, Pakistan, Russia and Saudi Arabia, recognized the Taliban government when it was in power.
  • The vast majority of other countries, along with the United Nations, instead recognized a group holding provinces to the north of Kabul as the rightful government-in-waiting.
  • The United States and the United Nations imposed sanctions on the Taliban, and most countries show little sign it will recognize the group diplomatically.
  • Other countries such as China have begun cautiously signaling they may recognize the Taliban as a legitimate regime.

The 9-11

  • The United States invasion of Afghanistan occurred after the September 11 attacks in late 2001 and was supported by close US allies.
  • Its public aims were to dismantle al-Qaeda and deny it a safe base of operations in Afghanistan by removing the Taliban from power.
  • US President George W. Bush demanded that the Taliban hand over Osama bin Laden and expel al-Qaeda; bin Laden had already been wanted by the FBI since 1998.
  • The Taliban declined to extradite him unless given what they deemed convincing evidence of his involvement in the 9/11 attacks and ignored demands to shut down terrorist bases and hand over other terrorist suspects apart from bin Laden.
  • The US demand was dismissed by the Taliban with meaningless delaying tactics. Disgusted with it, the US launched Operation Enduring Freedom on October 7, 2001.

Afghan Peace Process

  • The Afghan peace process comprises the proposals and negotiations in a bid to end the ongoing war in Afghanistan.
  • This ‘US-Taliban deal signed in February 2020 was seen in India as a “victory for Taliban and Pakistan”.
  • Besides the US, major powers such as China, India, Russia, as well as NATO play a part that they see as facilitating the peace process.
  • The peace process has not made much headway mainly because violence by the Taliban continues unabated.
  • The Taliban now view this as an important milestone and is busy trying to establish their military superiority on the ground.

Why did the US quit?

  1. Huge cost: The Afghan war is estimated to have cost $2-trillion, with more than 3,500 American and coalition soldiers killed. Afghanistan lost hundreds of thousands of people, both civilians and soldiers.
  2. Failure in curbing insurgency: After all these, the Taliban is at its strongest moment since the U.S. launched the war. The insurgents’ control or contest the government control in half of the country, mainly in its hinterlands.
  3. Face saving: The US better recognized its defeat and considered not to sacrifice more American soldiers and inflict more suffering on the Afghan people.
  4. Global recognition to Taliban: Taliban is now more organized as an organization with diplomats on par with modern democratic nations with state apparatus propaganda.

What are the implications of the deal for India?

  • India has been backing the Ghani-led government and was among very few countries to congratulate Ghani on his victory.
  • There has not been formal contact with top Taliban leaders, the Indian mission has a fair amount of access to the Pashtun community throughout Afghanistan through community development projects of about $3 billion.
  • Due to so, although the Pakistan military and its ally Taliban have become dominant players in Kabul’s power circles, South Block insiders insist that it is not all that grim for New Delhi.
  • These high-impact projects, diplomats feel India has gained goodwill among ordinary Afghans, the majority of whom are Pashtuns and some may be aligned with the Taliban as well.

What are India’s key investments in Afghanistan?

India’s contribution has been phenomenal in every area in Afghanistan since India built the Afghan Parliament. India has been a major military and developmental assistance partner for Afghanistan. Let us have a look at various projects India has built across Afghanistan.

A soft corner

  • Afghanistan is vital to India’s strategic interests in the region.
  • It is also perhaps the only SAARC nation whose people have much affection for India.
  • Taliban takeover would mean a reversal of nearly 20 years of rebuilding a relationship that goes back centuries.

Projects across the country

(1) Salma Dam:

  • It is one of India’s high-visibility projects is located — the 42MW Salma Dam in Herat province.

(2) Zaranj-Delaram Highway:

  • The other high-profile project was the 218-km Zaranj-Delaram highway built by the Border Roads Organisation.
  • India had transported 75,000 tonnes of wheat through Chabahar to Afghanistan during the pandemic.

(3) Parliament building:

  • The Afghan Parliament in Kabul was built by India at $90 million. It was opened in 2015.

(4) Stor Palace:

  • It is the restored Stor Palace in Kabul, originally built in the late 19th century, and which was the setting for the 1919 Rawalpindi Agreement by which Afghanistan became an independent country.

(5) Power Infrastructure:

  • Other Indian projects in Afghanistan include the rebuilding of power infrastructure such as the 220kV DC transmission line from Pul-e-Khumri, to the north of Kabul. 

(6) Health Infrastructure:

  • India has reconstructed a children’s hospital it had helped build in Kabul in 1972 —named Indira Gandhi Institute for Child Health in 1985 — that was in shambles after the war.
  • ‘Indian Medical Missions’ have held free consultation camps in several areas. Thousands who lost their limbs after stepping on mines left over from the war have been fitted with the Jaipur Foot.

(7) Transportation:

  • India gifted 400 buses and 200 mini-buses for urban transportation, 105 utility vehicles for municipalities, 285 military vehicles for the Afghan National Army, and 10 ambulances for public hospitals in five cities.
  • It also gave three Air India aircraft to Ariana, the Afghan national carrier, when it was restarting operations.

 (8) Ongoing Projects:

  • Shatoot Dam: India had concluded with Afghanistan an agreement for the construction of the Shatoot Dam in Kabul district, which would provide safe drinking water to 2 million residents.

Bilateral trade

  • The India-Afghanistan trade has grown with the establishment of an air freight corridor in 2017.
  • In 2019-20, bilateral trade crossed $1.3 billion. The balance of trade is heavily tilted — exports from India are worth approximately $900 million, while Afghanistan’s exports to India are about $500 million.
  • Afghan exports are mainly fresh and dried fruit.
  • Exports include pharmaceuticals, medical equipment, computers and related materials, cement, and sugar.
  • Trade through Chabahar started in 2017 but is restricted by the absence of connectivity from the port to the Afghan border.

India and the Taliban

  • A Qatari official revealed that there was a “quiet visit by Indian officials to speak with the Taliban”.
  • India wants to play a positive role and sabotage those countries that support other terror groups in Afghan.
  • India is pressing on a peace process all around Afghanistan so that all countries shall be peaceful.

Why Taliban’s control over Afghanistan is a matter of concern for India and the world?

(1) Border issues and export of terrorism:

  • The Taliban is occupying the border areas with other countries instead of central Afghanistan and have taken control of the districts bordering Iran, Turkmenistan, Tajikistan, Pakistan and Uzbekistan.
  • The Taliban is only 400 km away from the Line of Control in Jammu and Kashmir. The Taliban have captured the Badakhshan province of Afghanistan, which borders PoK.
  • If Taliban establish their government by capturing all the districts of Afghanistan, then they will be able to easily send their terrorists to Jammu and Kashmir and help Pakistan.

(2) China factor:

  • Apart from Pakistan, China can also become a challenge for India. That is because while Pakistan has influence over the Taliban, China is currently the biggest investor for Afghanistan.
  • At present, there are big Chinese projects going on in Afghanistan and the Taliban knows that if it wants to keep its position strong then it will need Chinese money the most.

(3) Violence and loss of lives:

  • India is concerned over the violence and loss of lives in Afghanistan. Violence has increased manifold after peace talks have started.
  • It supports zero tolerance against violence.

(5) India’s investments are at stake:

  • India, which has committed $3 billion in development aid and reconstruction activities, backs the Ashraf Ghani government in the war-torn country.

(6) Democracy:

  • New Delhi wants an all-inclusive “Afghan-led, Afghan-owned and Afghan-controlled” peace process—not one that is remote-controlled by Pakistan, seen as the backers of the Taliban.

(7) Neighborhood first:

  • Afghanistan is a part of India’s extended neighborhood and a link to Central Asia.

(8) Pakistan controlling Afghan policy on India:

  • Taliban’s extremist ideology leans heavily towards Pakistan’s official foreign policy towards India. A Taliban-controlled government in Kabul would mean Pakistan controlling Afghan policy on India.

Reasons for Taliban’s success in Afghanistan:

1. Lack of national sentiment in the Afghan army:

  • The Afghan national army could never exist. The United States spent billions of dollars on their build-up and salaries, but there were several allegations of corruption in reaching out to those salaries soldiers.
  • Many soldiers did not exist – they were only on paper and their salaries were being eaten by the officer.
  • Many soldiers from various gangs lacked national spirit. So they started running away as soon as they saw the enemy.

2. The Taliban have a close understanding of local geography:

  • The Afghan army had sophisticated weapons and aircraft, but it was difficult to maintain them. Also, the Taliban tracked down and killed their pilots.
  • The American weapons of Afghan soldiers who had fled the war were easily available to those who fought for the Taliban. The Taliban already had weapons from the Soviet invasion.
  • The Taliban had a close knowledge of local geography. There was also the help of many locals. Therefore, even though the weapons were slightly less, the deficiency was filled with this information.

3. Taliban gets revenue from drug trafficking:

  • The Taliban generates huge revenue from drug trafficking. They closed each border and tightened the financial pulses of the government in Kabul.

4. Government fails to instill confidence in soldiers to fight:

  • Although the United States had formed a democratic government in Afghanistan, the local people had a similar image of the Western rule. Therefore, the army and the people also did not trust the government.
  • When the Taliban troops arrived to Kabul, it was President Ashraf Ghani who stepped out.
  • Therefore, the national army was in a state of disrepair. The government failed to instill confidence in the soldiers to fight.

5. Efficient propaganda and intelligence:

  • The Taliban are a revolutionary movement, deeply opposed to the Afghan tribal system and focused on the rebuilding of the Islamic Emirate.
  • Their propaganda and intelligence are efficient, and the local autonomy of their commanders in the field allows them both flexibility and cohesion.

6. Use of local sentiments:

  • They have made clever use of ethnic tensions, the rejection of foreign forces by the Afghan people, and the lack of local administration to gain support in the population.
  • Doing so, they have achieved their objectives isolating the local Afghan administration, and establishing a parallel administration.

Pakistan’s affinity with the Taliban

  • The Pakistani security and political establishment is now savoring the Taliban victory.
  • While this is not possible to verify, Pakistan’s has undeniable in providing the Taliban shelter on its territory.
  • The safe havens had existed from virtually the start of the US “war on terror” in 2001.
  • The US was aware of this, but because its need for Pakistan as a logistics back end for the war in Afghanistan was greater.
  • Concerns: An immediate fallout would be an influx of refugees, which would be a drain on Pakistan’s slender resources.

Taliban as a proxy

Over the last three decades, Pakistan has viewed the Taliban as serving a two-fold purpose:

  1. First, a Taliban regime in Kabul and its umbilical connection with Pakistan would ensure the Pakistan military a free pass over Afghanistan, territory that it has coveted for “strategic depth” in its enmity with India.
  2. Second, ensuring Pakistan agency over Afghan routes into Central Asia.

Why China is supporting the Taliban?

  • Security of CPEC projects in Pakistan is the prime Chinese concern.
  • China today commands an economy worth $14.7 trillion — more than 17 times its size in 1996 — and a massive trade-and-infrastructure initiative that stretches across the Eurasian landmass.
  • Beijing’s fears about Islamist extremism among its own Uyghur minority have also deepened in recent years, leading it to build a vast police state adjacent to Afghanistan.

What next for India

  • As India considers its options, it is fairly certain that while India will lose influence in Afghanistan, the India-Pakistan relationship will acquire one more layer of difficulty due to the Taliban comeback.
  • Like all radical groups, the Taliban will have trouble balancing its religious ideology with the imperatives of state interests.
  • India would want to carefully watch how this tension plays out. Equally important is the nature of the relationship between the Taliban and Pakistan.
  • India must fully prepare for a renewal of cross-border terror, but there is a lot less global acceptance of terrorism today than in the permissive 1990s.

Way forward

  • In the short-term, the Afghan people—especially women—must be spared violence and brutality arising from the Taliban regime’s assumption of power.
  • Over the longer term, they must be allowed to live under the broad norms of the 21st century, assured of their safety, dignity and liberty.
  • Taliban have several sections that are both radical and some want talks with the international community.
  • So international organizations like the UN must come forward to stop the sponsor of terrorism.
  • Nations should come together against the Taliban so that it can’t move forward without any foreign aid.
  • Aid and developmental cooperation through the UN, India, USA must be done simultaneously for the restoration of democracy.
  • Tangible demonstration of commitment is required from all stakeholders for a political settlement and to have a permanent ceasefire in Afghanistan.

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Burning Issues

[Burning Issue] Thawing Permafrost and its effects

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The Earth faces a looming crisis. Globally, temperatures are rising. Heatwaves, droughts, ocean acidification, and rising sea levels are on the horizon. Around 90% of the world lives in the northern hemisphere with major population centers in the tropical and subtropical regions. These regions will be severely affected.

Let us look at this issue in detail.

What is permafrost?

  • Permafrost is ground that remains completely frozen at 0 degrees Celsius or below for at least two years and is defined solely based on temperature and duration.
  • It is composed of rock, sediments, sand, dead plant and animal mattersoil, and varying degrees of ice and is believed to have formed during glacial periods dating several millennia.
  • It is mainly found near the polar zones and regions with high mountains covering parts of Greenland, Alaska, Russia, Northern Canada, Siberia and Scandinavia. 
  • Its thickness reduces progressively towards the south and is affected by a number of other factors, including the Earth’s interior heat, snow and vegetation cover, presence of water bodies, and topography.

How does permafrost form?

  • Just as a puddle of water freezes on a frigid winter night, water that is trapped in sediment, soil, and the cracks, crevices, and pores of rocks turns to ice when ground temperatures drop below 32°F (0°C).
  • When the earth remains frozen for at least two consecutive years, it’s called permafrost. If the ground freezes and thaws every year, it’s considered “seasonally frozen.”

What is the composition of permafrost?

  • Permafrost is made of a combination of soil, rocks and sand that are held together by ice. The soil and ice in permafrost stay frozen all year long.
  • Near the surface, permafrost soils also contain large quantities of organic carbon—a material leftover from dead plants that couldn’t decompose, or rot away, due to the cold.
  • Lower permafrost layers contain soils made mostly of minerals.
  • A layer of soil on top of permafrost does not stay frozen all year. This layer, called the active layer, thaws during the warm summer months and freezes again in the fall.

Permafrost thawing

  • When permafrost thaws, water from the melted ice makes its way to the caves along with ground sediments, and deposits on the rocks.
  • In other words, when permafrost thaws, the rocks grow and when permafrost is stable and frozen, they do not grow.

Why thawing?

  • The link between the Siberian permafrost and Arctic sea ice can be explained by two factors:
  • One is heat transport from the open Arctic Ocean into Siberia, making the Siberian climate warmer.
  • The second is moisture transport from open seawater into Siberia, leading to thicker snow cover that insulates the ground from cold winter air, contributing to its warming.
  • This is drastically different from the situation just a couple of decades ago when the sea ice acted as a protective layer, maintaining cold temperatures in the region and shielding the permafrost from the moisture from the ocean.
  • If sea ice (in the summer) is gone, permafrost starts thawing.

How much of the earth’s surface is permafrost?

  • In the northern hemisphere, permafrost covers an estimated 9 million square miles—nearly the size of the United States, China, and Canada combined. However, that footprint is rapidly shrinking.
  • While global warming is upping temperatures around the world, the Arctic is warming twice as fast as anywhere else—and faster than it has in the past 3 million years.
  • And when surface air temperatures rise, below-ground temperatures do, too, thawing permafrost along the way.
  • Scientists estimate there is now 10 percent less frozen ground in the northern hemisphere than there was in the early 1900s. With every additional 1.8°F (1°C) of warming, an additional 1.5 million square miles of permafrost could eventually disappear.
  • Even if we meet the climate targets laid out during the 2015 Paris climate talks, the world may still lose more than 2.5 million square miles of frozen turf.

Associated issues with the Thawing of Permafrost

Worsen the effects of the climate crisis

  • In the Arctic, temperatures are rising twice as fast in other parts of the world. As a result, the thick layer of soil called permafrost that has remained frozen throughout the year is thawing.
  • The Permafrost contains vast amounts of carbon. Roughly about 60% of the world’s soil carbon is held in just 15% of the global soil area. This is estimated to be about 1.5 trillion metric tons of carbon.
  • The thawing of permafrost will worsen the effects of the climate crisis, because stored carbon will be released in the process.
  • Likewise, the loss of sea ice and ice sheets covering land will accelerate the rise in temperatures. White ice reflects sunlight keeping the planet cooler, whereas darker seawater absorbs heat.
  • Experts believe this process may have already begun. Giant craters and ponds of water (called ‘thermokarst lakes’) formed due to thawing have been recorded in the Arctic region. Some are so big that they can be seen from space.
  • Scientific estimates suggest that the Arctic Ocean could be largely sea ice-free in the summer months by as early as 2030, based on observational trends, or as late as 2050, based on climate model projections.
  • A study has shown that every 1 degree Celsius rise in temperature can degrade up to 39 lakh square kilometer due to Permafrost thawing ( the ice inside the permafrost melts, leaving behind water and soil).

Higher latitudes will face challenges hitherto faced by tropical areas

  • Increase of average temperatures is modifying the environment in other ways too.
  • Diseases that have typically afflicted the equatorial belt are spreading up into higher latitudes. Mosquitoes, ticks, and other insects spread many of these diseases.
  • The West Nile virus causes hundreds of deaths every year in the United States, where it was first reported in 1999. With rising temperatures, West Nile will become more prevalent in Canada, including parts of the Arctic.
  • Warming temperatures are also causing changes in the habitats of wild birds such as ducks and geese that can carry avian flu.
  • Earlier this year, Russia reported the first case of the H5N8 avian flu passing from birds to humans. Changes in habitats of other wild animals such as foxes might also increase the geographic distribution of rabies.

Rise of viruses and bacteria

  • Scientists are also concerned about the rise of viruses and bacteria from thawing permafrost and ice. In the summer of 2016, there was an outbreak of anthrax in a remote part of Siberia.
  • Dozens of people were infected, and a young boy was killed. Around 2,300 reindeer perished in the outbreak.
  • Spread:
    • Anthrax is a serious infectious disease caused by bacteria that can remain dormant as spores. Spores of anthrax can remain viable for at least a few decades in frozen soil and ice.
    • A plausible idea of how the outbreak started is that record temperatures that year caused a frozen reindeer carcass infected with anthrax spores to thaw.
    • And as carcasses of other animals (including those of extinct mammoths) thaw, we might see more disease outbreaks.

Potential to cause epidemics

  • Another concern is the emergence of viruses and bacteria with the potential to cause epidemics. These disease-causing microbes might be dormant for hundreds or even thousands of years.
  • Genetic material from the H1N1 influenza virus that caused the Spanish Flu pandemic of 1918, as well as that of smallpox have been recovered from permafrost.
  • The reemergence of a virus like smallpox (which is the only human disease to have been eradicated) would be disturbing since humans are no longer routinely vaccinated.
  • Infectious viruses and bacteria can be resurrected from frozen ice, soil, animal carcasses, and human corpses.
  • In 2014, researchers reported the discovery of giant viruses that had been dormant in Siberian permafrost for around 30,000 years.

Tibetan Plateau and the virus samples

  • These conditions are not restricted to the Arctic alone either. Glacial ice that has persisted for thousands of years is melting.
  • Recently, the journal Microbiome reporting 15,000-year-old-viruses (including 28 different kinds identified for the first time) that they found in glacial ice from the Tibetan Plateau.

 The threat to infrastructure

  • Thawing permafrost is also ominous for man-made structures overhead.
  • The Russian oil leak occurred recorded temperatures in Siberia at more than 10 degrees Celsius above average, and called them “highly anomalous” for the region where the power plant is located.
  • As temperatures rise, the binding ice in permafrost melts, making the ground unstable and leading to massive potholes, landslides, and floods.
  • The sinking effect causes damage to key infrastructure such as roads, railway lines, buildings, power lines and pipelines.
  • These changes also threaten the survival of indigenous people, as well as Arctic animals.

Altered landscapes

  • Thawing permafrost alters natural ecosystems in many ways as well. It can create thermokarsts, areas of sagging ground and shallow ponds that are often characterized by “drunken forests” of askew trees.
  • It can make soil—once frozen solid—more vulnerable to landslides and erosion, particularly along coasts.
An aerial view of the forest fire in the Nulato Hills in Koyukuk National Wildlife Refuge Alaska
  • As this softened soil erodes, it can introduce new sediment to waterways, which may alter the flow of rivers and streams, degrade water quality (including by the introduction of carbon), and impact aquatic wildlife.
  • Wetlands also deteriorate along with permafrost, as the water sinks further underground without a frozen buffer to keep it in place.
  • This can create drier terrain more susceptible to wildfires, which expose even more permafrost to warming.

How Can We Stop Permafrost from Thawing?

Greenhouse gas emissions need to be arrested

  • In order to curtail climate change and save the permafrost, it is indispensable that global CO2 emissions be reduced by 45% over the next decade, and that they fall to zero after 2050.
  • To mitigate climate change, there is a need to take a global collective action. If one country cuts its emissions, that is going to be of little use if the others do not follow suit.

Slow down erosion

  • The scientific journal Nature suggested building a 100-metre-long dam in front of the Jakobshavn glacier (Greenland), the worst affected by Arctic melting, to contain its erosion.

Refreeze the Arctic

  • Indonesian architect has won an award for his project Refreeze the Arctic, which consists of collecting water from melted glaciers, desalinating it and refreezing it to create large hexagonal ice blocks.
  • Thanks to their shape, these icebergs could then be combined to create frozen masses.

Strengthening their consistency

  • Some researchers propose a solution to manufacture more ice. Their proposal consists of collecting ice from below the glacier through pumps driven by wind power to spread it over the upper ice caps, so that it will freeze, thus strengthening the consistency.

People’s awareness and policy intervention

  • The tundra and the permafrost beneath it may seem far away, but no matter where we live, the everyday choices we make contribute to climate change.
  • By reducing our carbon footprint, investing in energy-efficient products, and supporting climate-friendly businesses, legislation, and policies, we can help preserve the world’s permafrost and avert a vicious cycle of an ever-warming planet.

Conclusion

  • For most of us, the tundra and the permafrost beneath it may seem a million miles away. But no matter where we live, the everyday choices we make that contribute in some small way to climate change collectively can add up to a big impact on the world’s coldest climes.
  • By reducing our carbon footprint, investing in energy-efficient products, and supporting climate-friendly businesses, legislation, and policies, we can help preserve the world’s permafrost and avert a vicious cycle of an ever-warming planet.
  • To be clear, the chances of an epidemic originating from microbes originating from permafrost or ice is low. But as the Covid-19 pandemic has demonstrated, even low probability events with major consequences need to be taken seriously.

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