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GS Paper: GS3

  • Asset monetisation — execution is the key

    Context

    The government has announced an ambitious programme of asset monetisation. It hopes to earn ₹6 trillion in revenues over a four-year period.

    About Asset monetisation

    • Unlike in privatisation, no sale of government assets is involved.
    • The government parts with its assets — such as roads, coal mines — for a specified period of time in exchange for a lump sum payment.
    • Asset monetisation will happen mainly in three sectors: roads, railways and power.
    • Other assets to be monetised include: airports, ports, telecom, stadiums and power transmission.
    • Two important statements have been made about the asset monetisation programme.
    • The focus will be on under-utilised assets.
    • Monetisation will happen through public-private partnerships (PPP) and Investment Trusts.

    Challenges

    1) Investors would prefer property utilised assets over underutilised assets

    • Suppose an asset is not being used adequately because it has not been properly developed or marketed well enough.
    • A private party may judge that it can put the assets to better use.
    • It will pay the government a price equal to the present value of cash flows at the current level of utilisation.
    • This is a win-win situation for the government and the private player.
    • The government gets a ‘fair’ value for its assets.
    • The private player gets its return on investment.
    • Increase in efficiency: The economy benefits from an increase in efficiency.
    • Monetising under-utilised assets thus has much to commend it.
    • However, in case of an asset that is being properly utilised, the private player has little incentive to invest and improve efficiency.
    • It simply needs to operate the assets as they are.
    • The private player may value the cash flows assuming a normal rate of growth.
    •  The cost of capital for a private player is higher than for a public authority.
    • The higher cost of capital for the private player could offset the benefit of any reduction in operating costs.
    • The government earns badly needed revenues but these could be less than what it might earn if it continued to operate the assets itself.
    • There is no improvement in efficiency.
    • The benefits to the economy are likely to be greater where under-utilised assets are monetised.
    • However, private players will prefer well-utilised assets to assets that are under-utilised.
    • That is because, in the former, cash flows and returns are more certain.

    2) Valuation challenges

    • It is very difficult to get the valuation right over a long-term horizon, say, 30 years.
    •  For a road or highway, growth in traffic would also depend on factors other than the growth of the economy.
    • . If the rate of growth of traffic turns out to be higher than assessed by the government in valuing the asset, the private operator will reap windfall gains.
    • Alternatively, if the winning bidder pays what turns out to be a steep price for the asset, it will raise the toll price steeply.
    • The consumer ends up bearing the cost.
    • It could be argued that a competitive auction process will address these issues and fetch the government the right price while yielding efficiency gains.
    • But that assumes, among other things, that there will be a large number of bidders for the many assets that will be monetised.

    3) Life of the returned asset may not be long

    • There is no incentive for the private player to invest in the asset towards the end of the tenure of monetisation.
    • The life of the asset, when it is returned to the government, may not be long.
    • In that event, asset monetisation virtually amounts to sale.
    • Monetisation through the PPP route is thus fraught with problems.

    Way forward: InvIT route

    • Infrastructure Investment Trusts (InvIT) are mutual fund-like vehicles in which investors can subscribe to units that give dividends.
    •  Monetisable assets will be transferred to InvITs.
    • The sponsor of the Trust is required to hold a minimum prescribed proportion of the total units issued.
    • InvITs offer a portfolio of assets, so investors get the benefit of diversification.
    • In the InvIT route to monetisation, the public authority continues to own the rights to a significant portion of the cash flows and to operate the assets.
    • So, the issues that arise with transfer of assets to a private party — such as incorrect valuation or an increase in price to the consumer — are less of a problem.

    Key takeaways

    • Low cost of capital for public authority: In general, due to the low cost of capital for public authority, the economy is best served when public authorities develop infrastructure and monetise these.
    • InvIT route: Monetisation through InvITs is likely to prove less of a problem than the PPP route.
    • Monetise under utilised assets: We are better off monetising under-utilised assets than assets that are well utilised.
    • Monitoring authority should be set up: To ensure proper execution, there is a case for independent monitoring of the process.
    • The government may set up an Asset Monetisation Monitoring Authority staffed by competent professionals.

    Consider the question “How asset monetisation is different from privatisation? What are the challenges in asset monetisation? Suggest the ways forward.”

    Conclusion

    Government must pay attention to the challenges in asset monetisation and use it in the proper way to increase the efficiency in the economy.

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  • Govt’s clarifications on CSR Expenditure

    The Ministry of Corporate Affairs has clarified that companies have to ensure that funds transferred to implementing agencies are actually utilized for them to be counted towards mandatory CSR expenditure.

    What is Corporate Social Responsibility (CSR)?

    • CSR is a type of business self-regulation that aims to contribute to the societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically-oriented practices.
    • It rests on the ideology of “give and take” i.e. to take scarce resources from the environment for running a business, and in turn to contribute towards economic, social, and environmental development.

    CSR in India

    • India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to the Companies Act, 2013 in April 2014.
    • Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.

    All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, are required to spend 2 per cent of their average profits of the previous three years on CSR activities every year.

    What is the recent clarification?

    • The MCA has clarified that excess Corporate Social Responsibility (CSR) expenditure prior to FY21 cannot be set off against future CSR expenditure requirements.
    • Corporate donations to government schemes cannot be counted as CSR.
    • The ministry has also clarified that companies have to ensure that funds transferred to implementing agencies are actually utilized for them to be counted towards mandatory CSR expenditure.

    Impact of the move

    • This clarification may impact donations to state government schemes which are often done for the sake of managing relationships with the government.

    Earlier changes

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  • [pib] Bharat Series (BH-series) for Vehicles

    The Ministry of Road Transport & Highways has rolled out a new series for vehicles registration ‘BH’ to avoid re-registration of vehicles while moving to another state.

    Bharat series (BH-series)

    • There was a procedure of re-registration of a vehicle while moving to another state.
    • A vehicle bearing BH registration mark shall not require assignment of a new registration mark when the owner of the vehicle shifts from one State to another.
    • Format of Bharat series (BH-series) Registration Mark –

    Registration Mark Format:

    1. YY BH #### XX
    2. YY – Year of first registration
    3. BH- Code for Bharat Series
    4. ####- 0000 to 9999 (randomized)
    5. XX- Alphabets (AA to ZZ)

    Why such move?

    • Station relocation occurs with both Government and private sector employees.
    • Such movements create a sense of unease in the minds of such employees with regard to transfer of registration from the parent state to another state.
    • Under section 47 of the Motor Vehicles Act, 1988, a person is allowed to keep the vehicle for not more than 12 months in any state other than the state where the vehicle is registered.

    Who can get this BH series?

    • BH-series will be available on voluntary basis to Defense personnel, employees of Central Government/ State Government/ Central/ State PSUs and private sector companies/organizations.
    • The motor vehicle tax will be levied for two years or in multiple of two.
    • This scheme will facilitate free movement of personal vehicles across States/UTs of India upon relocation to a new State/UT.
    • After completion of the fourteenth year, the motor vehicle tax shall be levied annually which shall be half of the amount which was charged earlier for that vehicle.

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  • Places in news: Pantanal Wetlands

    Pantanal, the world’s largest tropical wetlands is facing a severe crisis due to wildfires and climate change.

    Pantanal Wetlands

    • The Pantanal is a natural region encompassing the world’s largest tropical wetland area, and the world’s largest flooded grasslands.
    • It is located mostly within the Brazilian and extends to some portions of Bolivia and Paraguay.
    • It sprawls over an area estimated at between 140,000 and 195,000 square kilometer.
    • Roughly 80% of the Pantanal floodplains are submerged during the rainy seasons, nurturing a biologically diverse collection of aquatic plants and helping to support a dense array of animal species.

    Risks faced

    • Unlike the Amazon rainforest, vegetation in the Pantanal has evolved to coexist with fire — many plant species there require the heat from fires to germinate.
    • Often caused by lightning strikes, those natural fires spring up at the end of the dry season, but the surrounding floodplains prevent them from spreading.
    • What’s different now is the drought, contributing further to the unusually dry conditions and exacerbating the fire risk.

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  • Places in news: Deepar Beel Wildlife Sanctuary

    The Ministry of Environment, Forest and Climate Change has notified the eco-sensitive zone of the Deepar Beel Wildlife Sanctuary on the south-western edge of Guwahati.

    Deepar Beel

    • Deepar Beel is one of the largest freshwater lakes in Assam and the State’s only Ramsar site besides being an Important Bird Area.
    • It is located to the south-west of Guwahati city, in Kamrup Metropolitan district.
    • It is a permanent freshwater lake, in a former channel of the Brahmaputra River, to the south of the main river.
    • It is also called a wetland under the Ramsar Convention which has listed the lake in November 2002, as a Ramsar Site for undertaking conservation measures on the basis of its biological and environmental importance.

    Major threats

    • Deepar Beel has long been used as a sponge for Guwahati’s sewage via a couple of streams.
    • The wetland has also suffered from seepage of toxins from a garbage dump at Boragaon adjoining it.
    • It has for decades been threatened by a railway track — set to be doubled and electrified — on its southern rim, a garbage dump, and encroachment from human habitation and commercial units.
    • The water has become toxic and it has lost many of its aquatic plants that elephants would feed on.

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  • Animal Discoveries 2020 report by ZSI

    India has added 557 new species to its fauna reveals Animal Discoveries 2020, a document published recently by the Zoological Survey of India (ZSI).

    Major species discovered

    The number of faunal species in India has climbed to 1,02,718 species. Among the new species, some interesting species discovered in 2020 are:

    • Trimeresurus salazar, a new species of green pit viper discovered from Arunachal Pradesh;
    • Lycodon deccanensis, the Deccan wolf snake discovered from Karnataka; and
    • Sphaerotheca Bengaluru, a new species of burrowing frog named after the city of Bengaluru.
    • Xyrias anjaalai, a new deep-water species of snake eel from Kerala;
    • Glyptothorax giudikyensis, a new species of catfish from Manipur; and
    • Clyster galateansis, a new species of scarab beetles from the Great Nicobar Biosphere.

    Visitor species

    • Myotis cf. frater, a bat species earlier known from China, Taiwan and Russia, has been reported for the first time from Uttarakhand in India
    • Zoothera citrina gibsonhilli, an orange-headed thrush earlier known from southern Myanmar to south Thailand (central Malay peninsula) was reported for the first time from India based on a collection made from the Narcondam island in the Andaman & Nicobar Islands.

    Significance

    • The ZSI publication shows that India is a mega biodiverse country, rich in biodiversity, with 23.39% of its geographical area under forest and tree cover.
    • India is positioned 8th in mega biodiversity countries in the world with 0.46 BioD index which is calculated by its percentage of species in each group relative to the total global number of species in each group.

    About Zoological Survey of India

    • The ZSI was set up by British zoologist Thomas Nelson Annandale, in 1916.
    • It is the premier taxonomic research organization in India.
    • It was established to promote surveys, exploration and research leading to advancement of our knowledge of various aspects of the exceptionally rich animal life of India.
    • The ZSI had its genesis as the Zoological Section of the Indian Museum at Calcutta in 1875.
    • Since its inception, the ZSI has been documenting the diversity and distribution of the fauna of India towards carrying out its mandate of conducting exploration-cum-taxonomic-research programmes.
    • The ZSI has published an extremely large amount of information on all animal taxa, from Protozoa to Mammalia.

    Try answering this PYQ:

    Q.With reference to India’s Biodiversity, Ceylon frogmouth, Coppersmith barbet, Gray-chinned minivet and White-throated redstart are: (CSP 2020)

    (a) Birds

    (b) Primates

    (c) Reptiles

    (d) Amphibians

     

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  • Understanding the importance of vultures in our ecosystem

    Context

    India lost more than 95% of its vulture population through the 1990s and by the mid-2000s. Today, the country requires urgent conservation efforts to save vultures from becoming extinct.

    About vultures

    • Vultures belong to the Accipitridae family whose members include eagles, hawks and kites.
    • They are relatively social birds with an average lifespan of 10-30 years in the wild.
    • Vultures are slow breeders and so the survival of every individual is very crucial.
    • Generally, vultures rely on other carnivores to open carcasses.
    • Their powerful bills and long slender necks are designed to help them tear off the meat chunks from inside the carcass.
    • India has nine species of vultures. Many are critically endangered.
    • Vultures have a highly acidic stomach that helps them digest rotting carcass and kill disease-causing bacteria.

    Role played by vultures in ecosystem

    • Removing vultures from the ecosystem leads to inefficient clearing of carcasses and contaminates water systems.
    • If dead animals are left to rot for long durations, it may give rise to disease-causing pathogens.
    • The animals that consume such flesh become further carriers of disease.
    • Thus, they play a crucial role in maintaining the health of the ecosystem.

    Factors responsible for decline in future population

    • India has nine species of vultures. Many are critically endangered.
    • Use of diclofenac: The main reason for the decline in the vulture population is the use of the drug, diclofenac.
    • Diclofenac, which relieves cattle of pain, is toxic to vultures even in small doses and causes kidney failure and death.
    • Hunting: Myths about the medicinal healing powers of vultures’ body parts has led to the hunting of vultures.
    • Quarrying: Quarrying and blasting of stones where vultures nest have also caused their decline.

    Steps to increase numbers

    • India banned diclofenac for veterinary use in 2006.
    • Five States are to get vulture breeding centres under the Action Plan for Vulture Conservation for 2020-2025, approved in October 2020.
    • Vulture ‘restaurants’, which exist in some countries, are also a way of preserving the population.
    •  In these ‘restaurants’, diclofenac-free carcasses of cattle are dumped in designated areas where vultures gather to feed.

    Conclusion

    Awareness and action must go hand in hand. With International Vulture Awareness Day coming up on September 4, it is important for us to spread awareness about the importance of vultures in our ecosystem.

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  • How to read the state of the economy

    Context

    GDP growth estimates range from a high of 11 per cent, as per the government, to 9.5 per cent as per RBI. The variation is stark. So, what should one look at to evaluate the state of the economy?

    Things to consider while evaluating the economy

    • First, since the economy contracted by 7.3 per cent in 2020-21, all numbers will be exaggerated in the upward direction.
    • Second, beware of interpretations based on single-month data.
    • Cumulative numbers are better at times, but can be misleading too.
    • Third, what is more important is how things will play out during September-December as this is the festival-cum-harvest season which engenders spending normally.
    • Several indicators are used as leading signals of the economy, but here, too, we need to be careful.
    • PMIs for manufacturing and services tell us if we are better off than the previous month.
    • But that is not how data is normally presented as we usually talk of year-on-year growth.
    • But it is an early signal for sure. The IIP and core sector numbers will be influenced by base numbers and come with a lag.

    Indicators to look at as signs of recovery

    • Credit growth: Bank credit is a good indicator of whether companies are producing more as all activity requires working capital.
    • Here, the picture is not good as growth is (-) 0.4 per cent as of July end, indicating that activity has not picked up yet.
    •  Therefore, credit growth is in the negative territory.
    • Investment:  Debt issuances are lower in the first four months at around Rs 1.25 lakh crore, which is half of the Rs 2.57 lakh crore mobilised last year.
    • Therefore, the investment scenario is still one where companies are watchful.
    • There is surplus capacity in industry with utilisation rate being at 69.4 per cent in March 2021.
    • Rural demand: Rural demand is an integral part of the story and presently progress on the kharif crop is satisfactory.
    • A good crop is also necessary to generate spending power besides augmenting supplies in the market as well as food processing industry.
    • The second wave has pushed back rural households with more expenditure on health care.
    • Employment generation: Employment generation is a trigger for higher income and spending and while the battle between CMIE and EPFO data remains unresolved, the market will finally reveal if people have more money.

    Inflation concern

    • Inflation is high and though there is a view that it is transient.
    • Several households, who are living on a fixed income have witnessed a double whammy in the form of lower returns on deposits and cumulative inflation of 6 per cent last year, and a similar number this year.

    Conclusion

    Investment will trail consumption and while the Centre has a good capex plan, it is only one piece in the overall puzzle. The private sector must get involved and with the banks being hesitant, the road can get longer.

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  • Liberalized Drone Rules, 2021

    The central government has notified the Drone Rules 2021, a much more liberalised regime for unmanned aircraft systems than what existed previously.

    Key features of Drone Rules 2021

    These rules are built on a premise of trust, self-certification and non-intrusive monitoring. The policy is designed to usher in an era of super-normal growth while balancing safety and security considerations.

    • Several approvals abolished: Unique authorisation number, unique prototype identification number, certificate of manufacturing and airworthiness, certificate of conformance, certificate of maintenance, import clearance, acceptance of existing drones, operator permit, authorisation of R&D organisation, student remote pilot licence, remote pilot instructor authorisation, drone port authorisation etc.
    • Number of forms reduced: from 25 to 5.
    • Types of fees: reduced from 72 to 4.
    • Quantum of fee: reduced to nominal levels and delinked with size of drone. For instance, the fee for a remote pilot license fee has been reduced from INR 3000 (for large drone) to INR 100 for all categories of drones; and is valid for 10 years.
    • Digital sky platform: It shall be developed as a user-friendly single-window system. There will be minimal human interface and most permissions will be self-generated.
    • Interactive airspace map: with green, yellow and red zones shall be displayed on the digital sky platform within 30 days of publication of these rules.
    • No permission required in green zones: Green zone means the airspace upto a vertical distance of 400 feet or 120 metre that has not been designated as a red zone or yellow zone in the airspace map; and the airspace upto a vertical distance of 200 feet or 60 metre above the area located between a lateral distance of 8 and 12 kilometre from the perimeter of an operational airport.
    • De-licensing: No remote pilot licence required for micro drones (for non-commercial use) and nano drones. No requirement for security clearance before issuance of any registration or licence. Nano and model drones (made for research or recreation purposes) are exempt from type certification.
    • Foreign ownership: No restriction on foreign ownership in Indian drone companies.
    • Import: Import of drones to be regulated by DGFT. Requirement of import clearance from DGCA abolished.
    • Size of drones: Coverage of drones under Drone Rules, 2021 increased from 300 kg to 500 kg. This will cover drone taxis also.
    • Testing of drones: for issuance of Type Certificate to be carried out by Quality Council of India or authorised testing entities.
    • UID: Manufacturers and importers may generate their drones’ unique identification number on the digital sky platform through the self-certification route. Drones present in India on or before 30 Nov 2021 will be issued a unique identification number through the digital sky platform provided, they have a DAN, a GST-paid invoice and are part of the list of DGCA-approved drones.
    • Penalties: Maximum penalty for violations reduced to INR 1 lakh.
    • Permission: Safety and security features like ‘No permission – no takeoff’ (NPNT), real-time tracking beacon, geo-fencing etc. to be notified in future. A six-month lead time will be provided to the industry for compliance.
    • Drone corridors: will be developed for cargo deliveries.
    • Drone promotion council: to be set up by Government with participation from academia, startups and other stakeholders to facilitate a growth-oriented regulatory regime.

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  • [pib] Merging of three Supermassive Black Holes

    Indian researchers have discovered three supermassive black holes from three galaxies merging together to form a triple active galactic nucleus, a compact region at the centre of a newly discovered galaxy that has a much-higher-than-normal luminosity.

    What are Supermassive black holes?

    • A supermassive black hole is the largest type of black hole, with mass on the order of millions to billions of times the mass of the Sun.
    • Black holes are a class of astronomical objects that have undergone gravitational collapse, leaving behind spheroidal regions of space from which nothing can escape, not even light.
    • They are difficult to detect because they do not emit any light. But they can reveal their presence by interacting with their surroundings.

    Active galactic nuclei (AGN) from such black holes

    • When the dust and gas from the surroundings fall onto a supermassive black hole, some of the mass is swallowed by the black hole, but some of it is converted into energy.
    • This is emitted back as electromagnetic radiation that makes the black hole appear very luminous.
    • They are called active galactic nuclei (AGN) and release huge amounts of ionized particles and energy into the galaxy and its environment.
    • Both of these ultimately contribute to the growth of the medium around the galaxy and ultimately the evolution of the galaxy itself.

    How does merger of black holes occur?

    • A major factor impacting galaxy evolution is galaxy interactions, which happen when galaxies move close by each other and exert tremendous gravitational forces on each other.
    • During such galaxy interactions, the respective supermassive black holes can get near each other.
    • The dual black holes start consuming gas from their surroundings and become dual AGN.

    What happens when galaxies collide?

    • If two galaxies collide, their black hole will also come closer by transferring the kinetic energy to the surrounding gas.
    • The distance between the blackholes decreases with time until the separation is around a parsec (3.26 light-years).
    • The two black holes are then unable to lose any further kinetic energy in order to get even closer and merge.
    • This is known as the final parsec problem.

    Here comes the third black hole

    • Many AGN pairs have been detected in the past, but triple AGN are extremely rare, and only a handful has been detected before using X-ray observations.
    • The presence of a third black hole can solve this problem.
    • The dual merging blackholes can transfer their energy to the third blackhole and merge with each other.

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