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GS Paper: GS3

  • EASE Banking Reforms Index

    Union Minister of Finance & Corporate Affairs has felicitated best performing banks on EASE Banking Reforms Index.

    Note the various themes under which the index works.

    EASE Banking Reforms Index

    • EASE stands for ‘Enhanced Access and Service Excellence’. The index is prepared by the Indian Banking Association (IBA) and Boston Consulting Group.
    • It is commissioned by the Finance Ministry.
    • It is a framework that was adopted last year to strengthen public sector banks and rank them on metrics such as responsible banking, financial inclusion, credit offtake and digitization.

    Various themes and performance by the states

     

  • Pradhan Mantri Matsya Sampada Yojana

    PM will digitally launch the PM Matsya Sampada Yojana (PMMSY) today.

    PM Matsya Sampada Yojana

    • The PMMSY aims to bring about the Blue Revolution through sustainable and responsible development of the fisheries sector in India.
    • It has an estimated investment of Rs. 20,050 crores for its implementation during a period of 5 years from FY 2020-21 to FY 2024-25 in all States/UTs, as a part of AatmaNirbhar Bharat Package.
    • PMMSY aims at enhancing fish production by an additional 70 lakh tonne by 2024-25, increasing fisheries export earnings to Rs.1,00,000 crore by 2024-25.
    • Thus it aims doubling of incomes of fishers and fish farmers, reducing post-harvest losses from 20-25% to about 10% and generation of gainful employment opportunities in the sector.

    Aims and objectives of PMMSY

    • Harnessing of fisheries potential in a sustainable, responsible, inclusive and equitable manner
    • Enhancing of fish production and productivity through expansion, intensification, diversification and productive utilization of land and water
    • Modernizing and strengthening of the value chain – post-harvest management and quality improvement
    • Doubling fishers and fish farmers incomes and generation of employment
    • Enhancing contribution to Agriculture GVA and exports
    • Social, physical and economic security for fishers and fish farmers
    • Robust fisheries management and regulatory framework

    Implementation strategy

    The PMMSY will be implemented as an umbrella scheme with two separate components namely:

    (a) Central Sector Scheme and

    (b) Centrally Sponsored Scheme

    • Majority of the activities under the Scheme would be implemented with the active participation of States/UTs.
    • A well-structured implementation framework would be established for the effective planning and implementation of PMMSY.
    • For optimal outcomes, ‘Cluster or area-based approach’ would be followed with requisite forward and backward linkages and end to end solutions.

    Other inaugurations: e-Gopala App

    • e-Gopala App is a comprehensive breed improvement marketplace and information portal for direct use of farmers.
    • At present no digital platform is available in the country for farmers managing livestock including buying and selling of disease-free germplasm in all forms (semen, embryos, etc); availability of quality breeding services and guiding farmers for animal nutrition etc.
    • There is no mechanism to send alerts (on the due date for vaccination, pregnancy diagnosis, calving etc) and inform farmers about various government schemes and campaigns in the area.
    • The e-Gopala App will provide solutions to farmers on all these aspects.

  • Coordinated strategy between government and RBI

    The article analyses the relation between the response of fiscal authority and monetary authority to get the maximum payoff in the normal circumstance. But the pandemic would require different approach.

    Coordination between monetary and fiscal authority in India

    • Coordination between monetary and fiscal authorities has been a thorny issue globally in recent years.
    • If there is perfect coordination between the monetary and fiscal policy then there should be statistically significant negative correlation between the two. 
    • In the Indian context, for the 30-year period till FY2020, relation between the change in the consolidated fiscal deficit and the change in the growth rate of broad money reveals no coordination, substantiating the dominance of fiscal over monetary policy.
    •  Non-coordination between the two in India is also constrained by several policy targets and fewer instruments.

    Optimal combination of monetary and fiscal strategy

    • Both the government and the RBI have two options between them — either a contraction or an expansion.
    • Thus, we effectively have four policy options, and each of the options will have a particular benefit.
    • Our endeavour is to find out which policy option can result in a Nash Equilibrium.
    • A Nash equilibrium occurs when neither the government nor the RBI can increase its benefit by unilaterally changing its action.
    • The payoff scenarios are hypothesised as benefits accruing to the government and the RBI separately when they are deciding on either of the policy options: Contraction or expansion.
    •  The government favour an expansionary policy and gets maximum payoffs from a fiscal expansion, either with monetary expansion or contraction.
    • The monetary authority ideally wants to contract the economy to fight inflation and gets maximum payoffs from a monetary contraction.

    So, what is optimal combination of fiscal and monetary strategy

    •  If the RBI opts for monetary expansion, the government also opts for expansion as the payoff is higher.
    • But this will compel the RBI to then opt for contraction, since that gives it a higher payoff.
    • Knowing this, the government’s best strategy will be then an expansion — so the outcome will always be a fiscal expansion with a simultaneous monetary contraction.
    •  This is the only Nash equilibrium for this game.

    Responding to the pandemic

    • The current pandemic is resulting in behavioural changes of individuals in terms of risk-taking.
    • In the Indian context too, there are behavioural changes in terms of risk-taking.
    • Many of the current companies were also born during the financial crisis, like Uber (2009), Microsoft (1975), Disney (1923), General Motors (1908) and General Electric (1890).
    • Echoing such “procedural rationality” in the current unprecedented circumstances, we thus believe fiscal expansion and monetary expansion is the desirable outcome.

    Conclusion

    The RBI has been largely successful in communicating to the market about its intentions and we now expect the government to manage expectations with coordinated communication and leave matters of financing the fiscal deficit, through measures like monetisation, to the RBI.

    B2BASICS

    NASH EQUILBRIUM

    Simply put, it is a situation where no player can increase his payoff by deviating alone (from the situation). That is,it is a situation where both players are involved in mutual best replies.

  • Green-Blue Infrastructure Policy

    The Delhi Development Authority (DDA) is holding public consultations for the preparation of the Master Plan for Delhi 2041 with special focus on water bodies and the land.

    Try this question:      

    Q.Urban water resources management is an uphill task for Indian cities. Discuss.

    What is Green-Blue infrastructure?

    • ‘Blue’ infrastructure refers to water bodies like rivers, canals, ponds, wetlands, floodplains, and water treatment facilities; while ‘Green’ stands for trees, lawns, hedgerows, parks, fields, and forests.
    • The concept refers to urban planning where water bodies and land are interdependent, and grow with the help of each other while offering environmental and social benefits.

    How does DDA plan to go ahead with it?

    • In the first stage, the DDA plans to deal with the multiplicity of agencies, which because of the special nature of the state, has plagued it for several years.
    • DDA wants the first map out the issues of jurisdiction, work being done by different agencies on drains and the areas around them.
    • Thereafter, a comprehensive policy will be drawn up, which would then act as the common direction for all agencies.

    Why such a policy?

    • Delhi has around 50 big drains (blue areas) managed by different agencies, and due to their poor condition and encroachment, the land around (green areas) has also been affected.
    • DDA, along with other agencies, will integrate them and remove all sources of pollution by checking the outfall of untreated wastewater as well as the removal of existing pollutants.
    • A mix of mechanized and natural systems may be adopted, and dumping of solid wastes in any of these sites will be strictly prohibited by local bodies, through the imposition of penalties.

    Major features

    • The land around these drains, carrying stormwater, will be declared as special buffer projects.
    • The network of connected green spaces would be developed in the form of green mobility circuits of pedestrian and cycling paths.
    • It will be developed along the drains to serve functional as well as leisure trips.

    Challenges ahead

    • The biggest challenge is the multiplicity of agencies.
    • Secondly, cleaning of water bodies and drains has been a challenge for agencies in Delhi for years now.

  • Hypersonic Technology Demonstrator Vehicle (HSTDV)

    The DRDO has successfully demonstrated the hypersonic air-breathing scramjet technology with the flight test of the Hypersonic Technology Demonstration Vehicle (HSTDV).

    Take note of close dissimilarities between Ramjet and Scramjet engines.

    About HSTDV

    • HSTDV is an unmanned scramjet vehicle with a capability to travel at six times the speed of sound.
    • The scramjets are a variant of a category of jet engines called the air-breathing engines.
    • The ability of engines to handle airflows of speeds in multiples of the speed of sound gives it a capability of operating at those speeds.
    • Hypersonic speeds are those which are five times or more than the speed of sound.
    • The unit tested by the DRDO can achieve upto six times the speed of sound or Mach 6, which is well over 7000 km per hour or around two km per second.

    Its development

    • The DRDO started on the development of the engine in the early 2010s.
    • The ISRO has also worked on the development of the technology and has successfully tested a system in 2016. DRDO too has conducted a test of this system in June 2019.
    • The special project of the DRDO consisted of contributions from its multiple facilities including the Pune headquartered Armament and Combat Engineering Cluster.

    Back2Basics: Ramjet V. Scramjet

    • A ramjet is a form of air-breathing jet engine that uses the vehicle’s forward motion to compress incoming air for combustion without a rotating compressor.
    • Fuel is injected in the combustion chamber where it mixes with the hot compressed air and ignites.
    • A ramjet-powered vehicle requires an assisted take-off like a rocket assist to accelerate it to a speed where it begins to produce thrust.
    • Ramjets work most efficiently at supersonic speeds around Mach 3 (three times the speed of sound) and can operate up to speeds of Mach 6.
    • However, the ramjet efficiency starts to drop when the vehicle reaches hypersonic speeds.
    • A scramjet engine is an improvement over the ramjet engine as it efficiently operates at hypersonic speeds and allows supersonic combustion. Thus it is known as Supersonic Combustion Ramjet or Scramjet.

  • Assam Rifles and the tussle between MoD and MHA

    The Delhi High Court has granted 12 weeks to the Union government to decide on whether to scrap or retain the dual control structure for Assam Rifles. Presently it comes under both the Ministry of Home Affairs (MHA) and the Ministry of Defence (MoD).

    What is the Assam Rifles?

    • Assam Rifles is one of the six central armed police forces (CAPFs) under the administrative control of Ministry of Home Affairs (MHA).
    • The other forces being the Central Reserve Police Force (CRPF), the Border Security Force (BSF), the Indo-Tibetan Border Police (ITBP), the Central Industrial Security Force (CISF) and the Sashastra Seema Bal (SSB).
    • It is tasked with the maintenance of law and order in the North East along with the Indian Army and also guards the Indo-Myanmar border in the region.
    • It has a sanctioned strength of over 63,000 personnel and has 46 battalions apart from administrative and training staff.

    Making of the regiment

    • Assam Rifles is the oldest paramilitary force raised way back in 1835 in British India with just 750 men.
    • Since then it has gone on to fight in two World Wars, the Sino-Indian War of 1962 and used as an anti-insurgency force against militant groups in the North East.
    • Raised as a militia to protect British tea estates and its settlements from the raids of the NE tribes, the force was first known as Cachar Levy.
    • It was reorganized later as Assam Frontier Force as its role was expanded to conduct punitive operations beyond Assam borders.

    How is it unique?

    • It is the only paramilitary force with a dual control structure. While the administrative control of the force is with the MHA, its operational control is with the Indian Army, which is under the MoD.
    • This means that salaries and infrastructure for the force is provided by the MHA, but the deployment, posting, transfer and deputation of the personnel is decided by the Army.
    • All its senior ranks, from DG to IG and sector headquarters, are manned by officers from the Army. The force is commanded by Lt. General from the Indian Army.
    • The force is the only central paramilitary force (CPMF) in a real sense as its operational duties and regimentation are on the lines of the Indian Army.
    • However, its recruitment, perks, promotion of its personnel and retirement policies are governed according to the rules framed by the MHA for CAPFs.

    Why do both MHA and MoD want full control?

    • MHA has argued that all the border guarding forces are under the operational control of the ministry and so Assam Rifles coming under MHA will give border guarding a comprehensive and integrated approach.
    • MHA sources also say that Assam Rifles continues to function on the pattern set during the 1960s and the ministry would want to make guarding of the Indo-Myanmar border on the lines of other CAPFs.
    • The Army, for its part, has been arguing that there is no need to fix what isn’t broken.
    • Sources say the Army is of the opinion that the Assam Rifles has worked well in coordination with the Army and frees up the armed forces from many of its responsibilities to focus on its core strengths.
    • It has argued that giving the control of the force to MHA or merging it with any other CAPF will confuse the force and jeopardize national security.

  • State Reforms Action Plan Rankings 2019

    Andhra Pradesh has bagged the first rank among all the states in the country in the state business reforms action plan-2019 (BRAP-2019), representing ease of doing business for Atmanirbhar Bharat.

    About the Ranking

    • It is the annual ease of doing business index of states and UTs of India based on the completion percentage scores of action items points of annual Business Reforms Action Plan (BRAP) under the Make in India initiative.
    • This ranking is based on the implementation of the business reform action plan.
    • Some of the key focus areas are access to information and technology, the setting up of a single-window system, construction permit enablers and land administration, according to DPIIT.
    • It based on the progress of states in completing annual reform action plan covering 8 key areas.

    The top ten states under the State Reform Action Plan 2019 are:

    1. Andhra Pradesh
    2. Uttar Pradesh
    3. Telangana
    4. Madhya Pradesh
    5. Jharkhand
    6. Chhattisgarh
    7. Himachal Pradesh
    8. Rajasthan
    9. West Bengal
    10. Gujarat

  • Reforming tax system

    The article discusses two recent measures announced by the government to bring in the transparency in the tax system.

    Issue of lower tax collection and way out

    • An economic contraction this year will severely impact tax collections.
    • Changing tax rates or the tax base in response is difficult and a hurried approach can have wider consequences.
    • So, the only tool available is to urge voluntary compliance.
    • Compliance is achieved through a fine balance between enforcement and encouragement.
    • Despite enforcement-driven measures in the past the taxpaying population has remained at only 6 per cent.
    • Thus, the only way to boost collections is to build trust between the administration and the taxpayer.

    Relation between complexity of system and compliance

    • A taxpayer has to interact with the tax system at numerous instances.
    • While interacting, if the taxpayer perceives the system to be complex, such perception affects compliance.
    • Perceived complexity can discourage individuals from filing returns.
    • This could reflect simply in the difference between the number of taxpayers and the returns filed: which is around 20 million.
    • Such behaviour is bound to impact tax collection.

    Recent government measures to bring transparency

    1) New taxpayer’s charter with some new features

    • The charter is a document that lists a taxpayer’s rights and obligations.
    • A taxpayer’s charter is often perceived as a means to build taxpayer’s trust.
    • The rights and obligations mentioned in India’s new charter are in line with global practices.
    • There are 3 interesting additions in the new charter: 1) commitment to reducing compliance costs 2) holding its authorities accountable 3) publishing a periodic report of service standards.
    • A tax ombudsman can ensure that some of these standards are met, however, in 2019, the cabinet approved the abolition of the quasi-judicial post.

    2) Faceless assessment

    • This relates to the frequent complaint of taxpayers about corruption and delay.
    • To end personal interface, e-assessment was introduced in 2019.
    • Developing this idea further, faceless assessment now seeks to further automate the case selection and the distribution function of the assessing officer.
    • The intent is to divest and distribute the functions of a single assessing officer so that assessment is carried out in a fair manner.

    Consider the question “What are the factors responsible for low tax compliance in India? What are the steps taken by the government to increase compliance?

    Conclusion

    If the commitment to a fair and impartial system and a time-bound resolution of matters is to be met, the new processes, with reviews and anonymity, must ensure efficiency in case selection and consistency in assessment.

  • Priority Sector Lending (PSL)

    The RBI has released a revised priority sector lending guidelines to augment funding to segments including start-ups and agriculture.

    New Priority Sector Lending (PSL) guidelines

    • Bank finance of up to â‚č50 crores to start-ups, loans to farmers both for installation of solar power plants for Solarization of grid-connected agriculture pumps and for setting up compressed biogas (CBG) plants have been included as fresh categories eligible for finance under the priority sector.
    • This has come to align it with emerging national priorities and bring a sharper focus on inclusive development, after having wide-ranging discussions with all stakeholders.
    • It will enable better credit penetration to credit deficient areas, increase the lending to small and marginal farmers and weaker sections, boost credit to renewable energy, and health infrastructure
    • The targets prescribed for ‘small and marginal farmers’ and ‘weaker sections’ are being increased in a phased manner.
    • Higher credit limit has been specified for farmer producer organisations (FPOs)/farmers producers companies (FPCs) undertaking farming with assured marketing of their produce at a pre-determined price.

    Back2Basics: Priority Sector Lending

    • PSL is an important role given by the (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low-income groups and weaker sections.
    • This is essentially meant for an all-round development of the economy as opposed to focusing only on the financial sector.
    • The broad categories of priority sector for all scheduled commercial banks are as under:
    1. Agriculture and Allied Activities (Direct and Indirect finance)
    2. Small Scale Industries (Direct and Indirect Finance)
    3. Small Business / Service Enterprises
    4. Micro Credit
    5. Education loans
    6. Housing loans

  • What counts as ‘Act of God’?

    Amid disruptions caused by Covid-19, the Finance Minister has referred to an Act of God while businesses are looking at a legal provision, force majeure, to cut losses.

    Note the key differences between the Act of God and Force Majeure.

    Evoking “Act of God”

    • The force majeure or “Act of God” clause has its origins in the Napoleonic Code.
    • The finance ministry had issued an office memorandum inviting attention to the force majeure clause (FMC) in the 2017 Manual for Procurement of Goods issued by the Department of Expenditure.
    • It clarified that the pandemic should be considered a case of natural calamity and FMC may be invoked, wherever considered appropriate.

    What is a force majeure clause?

    • The law of contracts is built around a fundamental norm that the parties must perform the contract.
    • When a party fails to perform its part of the contract, the loss to the other party is made good.
    • However, the law carves out exceptions when the performance of the contract becomes impossible for the parties.
    • A force majeure clause is one such exception that releases the party of its obligations to an extent when events beyond their control take place and leave them unable to perform their part of the contract.
    • FMC is a clause that is present in most commercial contracts and is a carefully drafted legal arrangement in the event of a crisis.
    • When the clause is triggered, parties can decide to break from their obligations temporarily or permanently without necessarily breaching the contract.
    • Companies in such situations use the clause as a safe exit route, sometimes in opportunistic ways, without having to incur the penalty of breaching the contract.

    Difference between the two

    • Both concepts elicit the same consequences in law.
    • Generally, an “Act of God” is understood to include only natural unforeseen circumstances, whereas force majeure is wider in its ambit and includes both naturally occurring events and events that occur due to human intervention.

    What situations legally qualify for use of force majeure?

    • While some contracts have clauses with standard circumstances, some contracts would have specific circumstances that are more focused.
    • For example, a shipping contract would have a force majeure clause that could cover a natural disaster like a tsunami.
    • If an event is not described, then it is interpreted in a way that it falls in the same category of events that are described.
    • An FMC is negotiated by parties, and events that could potentially hamper the performance of the contract are catalogued.
    • It is not invoked just by expressing that an unforeseen event has occurred.
    • In case a contract does not have a force majeure clause, there are some protections in common law that can be invoked by parties.
    • For example, the Indian Contract Act, 1872 provides that a contract becomes void if it becomes impossible due to an event after the contract was signed that the party could not prevent.

    Global precedents dealing with COVID-19 pandemic

    • In China, where the Covid-19 outbreak originated, the Council for Promotion of International Trade is issuing force majeure certificates to businesses.
    • China’s Supreme People’s Court had recognised the 2002 SARS outbreak as a force majeure event.
    • Singapore enacted the Covid-19 (Temporary Measures) Act in April to provide relief to businesses that could not perform their contractual obligations due to the pandemic.
    • The Paris Commercial Court in July ruled that the pandemic could be equated to a force majeure event.
    • In the UK, the Financial Conduct Authority has brought in a test case before the High Court to look into business insurance contracts and interpret the standard wordings in such contracts.
    • The International Chamber of Commerce has developed a Model Code on the force majeure clause reflecting current international practice.