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GS Paper: GS3

  • What are Social Stock Exchanges?

    A working group constituted by the Securities and Exchange Board of India (SEBI) on Social Stock Exchanges (SSEs) has recommended allowing non-profit organisations to directly list on such platforms.

    Practice questions for mains:

    Q. What are Social Stock Exchanges? Discuss how it will help finance social enterprises in India.

    What are Social Stock Exchanges (SSEs)?

    • An SSE is a platform which allows investors to buy shares in social enterprises vetted by an official exchange.
    • The Union Budget 2019 proposed setting up of first of its kind SSE in India.
    • The SSE will function as a common platform where social enterprises can raise funds from the public.
    • It will function on the lines of major stock exchanges like BSE and NSE. However, the purpose of the Social Stock Exchange will be different – not profit, but social welfare.
    • Under the regulatory ambit of SEBI, a listing of social enterprises and voluntary organizations will be undertaken so that they can raise capital as equity, debt or as units like a mutual fund.

    Why SSEs?

    • India needs massive investments in the coming years to be able to meet the human development goals identified by global bodies like the UN.
    • This can’t be done through government expenditure alone. Private enterprises working in the social sector also need to step up their activities.
    • Currently, social enterprises are very active in India. However, they face challenges in raising funds.
    • One of the biggest hurdles they face is, apparently, the lack of trust from common investors.

    Benefits

    • There is a great opportunity to unlock funds from donors, philanthropic foundations and CSR spenders, in the form of zero-coupon zero principal bonds. These bonds will be listed on the SSE.
    • At first, the SSE could become a repository of social enterprises and impact investors.
    • The registration could be done through a standard process.
    • The SEs could be categorized into different stages such as- Idea, growth stage and likewise, investors can also be grouped based on the type of investment.

  • Kisan Credit Cards (KCC) for 1.5 crore dairy farmers

    The Union Govt. is set to provide Kisan Credit Card (KCC) to 1.5 crore dairy farmers belonging to Milk Unions and Milk producing Companies within the next two months under a special drive.

    We can expect multiple statements based prelim question here. Note the following features of the KCC from the newscard:

    1. Year of its introduction (in rarest case)

    2. Types of banks issuing KCC

    3. Credit types extended under KCC

    4. Sectors covered under KCC

    What is Kisan Credit Card (KCC)?

    • KCC is a credit scheme introduced in August 1998 by banks to extend credit facilities to farmers.
    • This model scheme was prepared by the NABARD on the recommendations of R.V. GUPTA committee to provide term loans for agricultural needs
    • Participating institutions include all commercial banks, Regional Rural Banks, and state co-operative banks. The scheme has short term credit limits for crops and term loans.
    • KCC offering credit to the farmers is of two types: 1. Cash Credit 2. Term Credit (for allied activities such as pump sets, land development, plantation, drip irrigations).

    Facilities under KCC

    • Credit card and passbook or credit card cum passbook provided to eligible farmers facilitate revolving cash credit facility.
    • Any number of withdrawals and repayments within a limit, which is fixed on the basis of operational land holding, cropping pattern and scale of finance can be made.
    • Each withdrawal has to be repaid within a maximum period of 12 months and the Card is valid for 3 to 5 years subject to annual review.
    • Conversion/reschedulement of loans is permissible in case of damage to crops due to natural calamities.
    • Crop loans disbursed under KCC Scheme for notified crops are covered under Rashtriya Krishi Bima Yojana, to protect farmers against loss of crop yield caused by natural calamities, pest attacks etc.

    What’s’ in the bucket for Dairy Farmers?

    • Under the dairy cooperative movement, approximately 1.7 crore farmers are associated with 230 Milk Unions in the country.
    • In the first phase of this campaign, the target is to cover all farmers who are members of dairy cooperative societies and associated with different Milk Unions and who do not have KCC.
    • Although the general limit for KCC credit without collateral is Rs. 1.6 lakh, but for dairy farmers, it can be upto Rs.3 lakh.
    • This will ensure more credit availability for dairy farmers associated with Milk Unions as well as assuring repayment of loans to banks.

  • CHAMPIONS Platform to empower MSMEs

    Recently PM has launched the technology platform CHAMPIONS as a one-stop-shop solution of MSME Ministry.

    At the very first sight, the name CHAMPIONS creates a delusion. It looks more of an HRD initiative. Here lies the risk! Please cautiously make a personal note here. Demarcate all such initiatives on an A4 page.

    CHAMPIONS Platform

    • CHAMPIONS stand for Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength.
    • The portal is basically for making the smaller units big by solving their grievances, encouraging, supporting, helping and handholding.
    • It is a technology-packed control room-cum-management information system.
    • It is also fully integrated on a real-time basis with GOI’s main grievances portal CPGRAMS and MSME Ministry’s own other web-based mechanisms.
    • This ICT based system is set up to help the MSMEs in a present difficult situation and also to handhold them to become national and international champions.

    Detailed objectives

    • Grievance Redressal: To resolve the problems of MSMEs including those of finance, raw materials, labour, regulatory permissions etc particularly in the COVID created a difficult situation;
    • To help them capture new opportunities: including manufacturing of medical equipment and accessories like PPEs, masks, etc and supply them in National and International markets;
    • To identify and encourage the sparks:e. the potential MSMEs who are able to withstand the current situation and can become national and international champions.

  • Is India prepared for crude oil eventualities?

    The era we are living in is reigned by the uncertainties. And the oil market is not immune to these uncertainties. Against this background, India’s energy security is discussed in this article. Switching to the “just in case” needs with respect to crude oil is suggested by the author. But, that would require capital. So, how could the problem of capital be solved? Read the article to know…

    Switching from just in time to just in case

    • The post-COVID “world (will be) switching from just in time to just in case”  said economist Alan Kirman.
    • This is more so for the Indian petroleum sector.
    • The decision-makers of this sector should switch to a “just in case” policy mode.

    Oil market: Land full of uncertainties

    • The oil market is in no man’s land. Few speak with conviction about its future trajectory.
    • Last month, it dropped into negative territory for a day in the USA.
    • But today the price of the same crude quality is above $30/barrel.
    • If one reads the commentary of experts, some predict that prices will soon cross $50/barrel while some predict price-crash to below $20/barrel.
    • The fine print of these reports is always caveated with the disclaimer, “it all depends” on one or more of the comparably uncertain variables.
    • These variables include economic growth, geopolitics — US-China relations, the timing of the development of an anti-COVID vaccine or a combination of all these variables.
    • The fact is no one really knows how the petroleum sector will fare in the “new normal” of the post-COVID world.

    The problems policy-makers face: some known, some unknown

    • Policy-makers know that irrespective of the twists and turns in the petroleum market, India will need fossil fuels (coal, oil and gas) to drive its economic growth for at least the next decade, if not longer.
    • And that a sizeable percentage of these requirements will have to be imported.
    • The country does not have the geology to expect gushers especially in an environment of volatile (and relatively low) oil prices.
    • What must also be discomforting is the “known unknown” of the post-COVID stress.
    • They know that COVID has knocked the props from under the Indian economy.
    • They also know that every petroleum company, irrespective of whether it is in the private or public sector, will face an increasingly uncertain and challenging future business environment.
    • What they do not know is the nature of these challenges, and therefore, the conditions, sine qua non, for managing them.

    Let’s look at some facts and figures of India’s crude oil requirements

    • India consumes around 50,00,000 barrels of crude oil every day.
    • Of that, it imports approximately 45,00,000 barrels/day making the country the third-largest crude market in the world.
    • Every month, on average, 70 loaded VLCC (very large crude carriers ) — accounting for 10 per cent of the global tanker market — bring crude oil to India.
    • Approximately 60 per cent of this oil is discharged in and around the Jamnagar area and then carried by pipelines to refineries in Jamnagar, Mathura, Panipat, Bina and Bhatinda.
    • And 50 per cent or so is sourced from Saudi Arabia, Kuwait, Abu Dhabi, Iran and Iraq.
    • It is against this background of post-COVID uncertainties and above facts India should consider switching to “just in case” policy mode.

    Why should India consider switching to “just in case” policy mode?

    We should analyse this by considering two scenarios

    • ONGC/OIL are strategically important PSUs.
    • Few have questioned the support to these two companies and the importance of harnessing our indigenous oil and gas reserves.
    • Until now, this support has been premised on the view that oil supplies are relatively scarce and that prices will trend upwards.

    1) Low oil prices scenario

    • 1) We now need to ask: What if, “just in case” the oil market is structurally oversupplied and prices fall to such low levels that it makes no commercial sense for ONGC/OIL to expend public resources on “ high risk, high cost” exploration?
    • Oil and gas are, after all, tradables and can be purchased on the high seas.
    • Should they not, given this possibility, contemplate redefining their core purpose and perhaps pivot away from oil and gas towards clean energy?

    2) Choking of supply lines scenario

    • Looked at through a different lens but with a “just in case” mindset, the preponderance of crude supplies sourced from countries facing deep political, economic and social tensions raises the question:
    • What if these domestic problems choked our access?
    • How would we manage the disruption?
    • Our decision-makers have worried about supply security for decades.
    • But the circumstances created by COVID are new.
    • The issue of strategic reserves could, for instance, acquire a different hue.
    • We have currently 11 days of reserve cover (5.33 million tonnes) with plans to increase it to 24 days (11.83 million tonnes).
    • Were we to decide to build up these reserves to levels comparable to other countries of between 70 to 100 days of import cover, the issue would be capital.
    • Given the slowdown of the economy and the pressures on the exchequer, the government would not have the financial resources to invest in the creation of additional facilities.
    • The only way this financial hurdle could be overcome is if the government and the private sector invest jointly.
    • This collaborative option would have to be considered to counter the “just in case” contingency of prolonged and major disruption.
    • And if indeed such an option were acceptable, it could be extended to cover trading, crude purchases, co-freighting, subject of course to anti-trust and competition rules.

    Consider the example to understand the importance of “just in case” thinking

    • An example to embed the importance of “just in case” thinking can be drawn from the geopolitics of our neighbourhood.
    • What if the relations between India/Pakistan/China took an ugly turn?
    • What security measures should we contemplate to protect the petroleum assets located in Mumbai and Jamnagar?

    Consider the question “Over the decades, India has been grappling with the issue of energy security. With the rising uncertainties around the world, the issue has gained more prominence. In light of this, suggest the ways to tide over the disruption in oil supplies.”

    Conclusion

    In the backdrop of COVID, when all hands on decks are needed to tackle the “urgent” task of reviving the economy, the government must not, in the process, lose sight of the “importance” of creating, if nothing else, the mindset of preparedness to respond to “just in case outcomes”.

  • Using COVID crisis to reorient India towards reforms

    Following the announcement of relief and stimulus package, the debate began over its various aspects. This article assesses the various aspects of the package and draws comparison with the package announced by the other countries. So, how does India fare compared with other countries?

    Fiscal component of  stimulus package

    • According to the IMF-PT (policy tracker), the fiscal component of the Indian package is estimated to be at least 3.5 per cent of GDP as expenditure for poor households, migrant workers and agriculture.
    • There is an additional 0.5 per cent of GDP for states to spend unconditionally, bringing the fiscal package excluding loans to businesses to at least 4 per cent of GDP.
    • The support for businesses (MSMEs) is estimated to be 2.7 per cent of GDP.
    • Of this, at least 2 per cent of GDP is in the form of 100 per cent credit guarantees and equity infusion.

    Comparison with major emerging economies

    • Among major developing economies, only Brazil -8 per cent of GDP– and Peru -7 per cent of GDP– have a fiscal stimulus higher than the 5 per cent level for India.
    • The Brazil estimate includes about 3 per cent of GDP as working capital loans to businesses and households.
    • The fiscal support level for some important emerging economies is — China 2.5 per cent of GDP and Indonesia 3.5 per cent.

    Why it is difficult to segregate the stimulus package?

    • While comparing the fiscal stimulus packages across countries, it is important to understand that such packages are in the nature of additional spending and tax reliefs.
    • Which can work directly through aggregate demand or indirectly by mitigating risk and enhancing access to fund.
    • Access to fund is ensured in the nature of credit guarantees to financial institutions and non-financial enterprises
    • A large number of fiscal stimulus packages announced by different countries contain credit guarantees to financial institutions, SMEs, and agriculture.
    • Hence, it is difficult to segregate fiscal stimulus into its pure and impure components.
    • Most economists, and international organisations, recognise that fiscal stimulus consists of both the pure and impure.
    • And includes three broad items — a direct “above-the-line” component, a “below-the-line” component and guarantees of various forms primarily credit.
    • The choice of using only one component of the fiscal stimulus is selective and highly inappropriate.

    India as a positive fiscal stimulus outlier

    • To put the packages into perspective, the average of all fiscal measures in the G24 developing economies is equal to 3.6 per cent.
    • No matter how the calculation is done, India is a positive fiscal stimulus outlier; by IMF-PT calculations.
    • The stimulus is close to the largest among major emerging market economies.

    So, how much rich countries are spending?

    • The rich nations are spending more — they can afford to. Japan announced what may be the upper limit to the expansion — 21.1 per cent of GDP.
    • However, this does include large elements of loans and credit guarantees.
    • Through a combination of several fiscal measures (tax deferrals, credit guarantees, etc.) the US has pledged close to 13 per cent of GDP.
    • The European Union, on average, has pledged 4 per cent of GDP.
    • The average for advanced countries is around 6 per cent of GDP.

    Significance of monetary policy change made by RBI

    • The monetary policy change in India is quite significant.
    • The change paves the way for internationally competitive monetary policy.
    •  That is, real interest rates comparable to those prevalent in competitor economies.
    • The repo rate now stands at 4 per cent, with inflation well contained.
    • This is substantially a much different, and much-improved RBI response than that what occurred in 2008-09.
    • At that time, as a monetary counter to the financial crisis, the RBI reduced the repo rate by 425 basis points to 4.75 per cent.
    • This was done over seven months and the prevailing CPI inflation rate was 10 per cent.

    Economic reforms as a part of stimulus package

    • India has announced several economic reforms as a part of the stimulus package.
    • These are long-awaited — freeing up of the labour market, allowing farmers to sell their produce and land to who they choose, removal of archaic laws like the Essential Commodities Act, with the promise of more to come.
    • This is not an empty promise — the Centre will advance another 1.5 per cent of GDP to states to expand spending.
    • This advance will be conditional on them for undertaking long-pending reforms.
    • The Indian fiscal package is reformist, well-disciplined and provides focused support; and if needed, there is still room for additional measures.

    Conclusion

    The Indian fiscal package is reformist, well-disciplined and provides focused support; and if needed, there is still room for additional measures. We should use the crisis to re-orient India towards its long-awaited destiny.

  • THAAD defence system

    China has issued a statement reiterating its long-standing objections to the presence of the US THAAD missile defence system in South Korea.

    Try this question from CSP 2018:

    Q. What is “Terminal High Altitude Area Defense (THAAD)”, sometimes seen in the news?

    (a) An Israeli radar system

    (b) India’s indigenous anti-missile programme

    (c) An American anti-missile system

    (d) A defence collaboration between Japan and South Korea

    What is THAAD?

    • THAAD is an acronym for Terminal High Altitude Area Defense, a transportable, ground-based missile defence system.
    • It is coupled with space-based and ground-based surveillance stations, which transfer data about the incoming missile and informs the THAAD interceptor missile of the threat type classification.
    • THAAD is alarmed about incoming missiles by space-based satellites with infrared sensors.
    • This anti-ballistic missile defence system has been designed and manufactured by the US company Lockheed Martin. South Korea is not the only country with the THAAD missile defence system.
    • It has been previously deployed in the UAE, Guam, Israel and Romania.

    The South Korea-China controversy over THAAD

    • In South Korea, the THAAD missile defence system is operated by the US army stationed in the country.
    • The US had previously announced that the deployment of this missile defence system was a countermeasure against potential attacks by North Korea, particularly after the country had engaged in testing ballistic missiles.
    • In 2017, matters escalated in the Korean Peninsula after North Korea test-fired a few missiles in the direction of US bases in Japan.
    • Following this incident, the US amended its plans and moved the systems to its army base in Osan, South Korea while the final deployment site was being prepared.
    • These moves by the US and by extension, South Korea, particularly angered China.

    China’s reservations against THAAD

    • China’s opposition has little to do with the missiles itself and is more about the system’s inbuilt advanced radar systems that could track China’s actions.
    • The controversy also has much to do with the geopolitics and complex conflicts in East Asia, with the US having a presence in the region particularly through its many military bases in Japan and South Korea.
    • According to some observers of East Asia, China believes the US exerts influence over South Korea and Japan and may interfere with Beijing’s long-term military, diplomatic and economic interests in the region.
    • The US and South Korea have consistently maintained that these missiles are only to counter potential threats by North Korea.
    • South Korea also issued a statement saying the number of missiles had not increased but had only been replaced with newer versions.

  • In news: Dibru-Saikhowa National Park (DSNP)

    The Oil India Ltd (OIL) leak in Assam has contaminated water bodies that flow into the Maguri Motapung Beel, a large wetland, and the Dibru-Saikhowa National Park (DSNP).

    Try this PYQ from CSP 2019:

    Q. Which of the following are in Agasthyamala Biosphere Reserve?

    (a) Neyyar, Peppara and Shendurney Wildlife Sanctuaries; and Kalakad Mundanthurai Tiger Reserve

    (b) Mudumalai, Sathyamangalam and Wayanad Wildlife Sanctuaries; and Silent Valley National Park

    (c) Kaundinya, Gundla Brahme-swaram and Papikonda Wildlife Sanctuaries; and Mukurthi National Park

    (d) Kawal and Sri Venkateswara Wildlife Sanctuaries; and Nagarjunasagar-Srisailam Tiger Reserve

    About Dibru-Saikhowa National Park

    • DSNP is a national park in Assam located in Dibrugarh and Tinsukia districts.
    • It was designated a Biosphere Reserve in July 1997 with an area of 765 sq.km.
    • The park is bounded by the Brahmaputra and Lohit Rivers in the north and Dibru river in the south.
    • It mainly consists of moist mixed semi-evergreen forests, moist mixed deciduous forests, canebrakes and grasslands.
    • It is the largest Salix swamp forest in north-eastern India, with a tropical monsoon climate with a hot and wet summer and cool and usually dry winter.

  • Species in news: Band-tail Scorpionfish

    A rare band-tail scorpionfish was recently found in the Gulf of Mannar.

    A stand-alone species being mentioned in the news for the first time (and that too from Southern India) find their way into the prelims. Make special note here. Usually, note the species and its habitat location (IUCN status if available), in the purview of a generic prelims question.

    Band-tail scorpionfish

    • The band-tail scorpionfish (Scorpaenospsis neglecta) camouflages within the seagrass meadows.
    • It is well-known for its stinging venomous spines and ability to change colour.
    • The fish has the ability to change colour and blend with its surrounding environment to escape from predators and while preying.
    • The fish is called ‘scorpionfish’ because its spines contain neurotoxic venom.

  • Missile Park ‘AGNEEPRASTHA’

    Foundation Stone for a Missile Park “AGNEEPRASTHA” was recently laid at INS Kalinga, Vizag.

    Caution: Agneeprastha is a missile park of the eastern naval command of the Indian Navy. It has nothing to do with the Agni missiles.

    Missile Park ‘Agneeprastha’

    • ‘Agneeprastha’ aims to capture glimpses of Missile History of INS Kalinga since 1981 till date.
    • The Missile Park has been set up with a replica of missiles and Ground Support Equipment (GSE) that showcase the evolution of missiles handled by the unit.
    • The exhibits have been created from scrap / obsolete inventory which have been reconditioned in-house.
    • The main attraction is P-70 ‘Ametist’, an underwater launched anti-ship missile from the arsenal of the old ‘Chakra’ (Charlie-1 submarine) which was in service with IN during 1988-91.
    • It will also provide a one-stop arena for motivation and stimulation of inquisitive minds regarding the missiles and related technologies, from school children to naval personnel and their families.

  • Species in news: Amaltas or Indian Laburnum

    The Amaltas or Indian laburnum has begun blooming this summer.

    Try this PYQ from CSP 2018:

    Q. Why is a plant called Prosopis juliflora often mentioned in news?

    (a) Its extract is widely used in cosmetics.

    (b) It tends to reduce the biodiversity in the area in which it grows

    (c) Its extract is used in the pesticides.

    (d) None of the above

    Amaltas Tree

    • The Amaltas (Cassia fistula linn), native to South-East Asia is one of the most widespread trees in India and South-East Asia, with their presence both in cities as well as in moist and dry forests.
    • It has drooping clusters of bright fragrant yellow flowers with five petals and characteristic cylindrical fruits.
    • The Amaltas is known by so many names — Indian Laburnum, Golden Shower, Purging Fistula, Pudding-pipe tree, Girmala, Rajbrikh, Alash, Kiar, Kirwara, Ali — showing us how common and loved it is.
    • It is both the national tree and the national flower of Thailand and is also the state flower of Kerala.

    Features of Amaltas

    • This middle-sized deciduous tree is leafless only for a brief time, between March and May.
    • The new leaves are glossy, a trait that they lose on maturing, and are mostly bright green, though sometimes a rich copper too.
    • It flowers from April to June, partly alongside the emergence of new leaves, but it’s not uncommon to find the Amaltas in flower as late as September.
    • The bark is yellowish at first, slowly coarsens with age and turning dark grey.

    Significance

    • The tree is mostly known to be ornamental and few know of its benefits as a medicinal plant, and one that’s loved by some mammals, bees, and butterflies.
    • The bark is used to make dye and the pulp in the fruit pod also serves as a strong purgative agent, which also helps animals that feed on it.
    • A medicinal preparation with the roots of the tree is used to cure leprosy and skin diseases and the leaves are used to get rid ulcers, in traditional medicine.