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GS Paper: GS3

  • Missed call

    Context

    As the dust settles after the Union budget and the Supreme Court’s decision to not provide relief to telcos from their licence fee liabilities, it is an appropriate moment to step back and examine how we got here.

    The issue over the definition of AGR (Aggregate Gross Revenue)

    • What is AGR issue: Since the New Telecom Policy of 1999 (NTP 1999), operators were required to pay a percentage of their AGR to the government as licence fees instead of a one-time licence fee.
      • License fee based on earnings: This was done in exchange for moving operators from fixed licence fee-based on irrationally exuberant bids they had made in the mid-nineties-to a regime that determined licence fee based on revenue earned, thereby de-risking the obligation.
      • Why it matters? What constitutes AGR is important for the purpose of the computing licence fee and thousands of crore are dependent on this.
    • Consequences of ambiguity over the definition of AGR: Bundling – a pervasive phenomenon in most telecom markets have not taken off in India.
      • What is bundling? Product bundling is a marketing strategy that involves offering several products and/or services for sale as one combined product.
      • The fear is that handset sales will also come under the purview of AGR. Handsets, it could still be argued are part of the service offering.
      • Dividend on earning is considered as the part of AGR: Interest and dividend earnings on investments have also been included in AGR.

    Unfair practices and cancellation of licences by the court

    • Controversy over conversion charges: In 2003, “limited” mobility service was converted into a fully mobile service with a one-time payment of Rs 1,658 crore as “conversion” charges, generating controversy. It was labelled as a “back door entry” to full mobility.
    • Disguising international calls as domestic: Around the same time, the DoT used to levy a fee of Rs 4.75 per minute on international calls known as “access deficit charge” (ADC) to fund universal coverage. It is well known that an operator disguised international calls as domestic to bypass ADC.
    • Showing call revenue as internet services revenue: For some time, internet services attracted lower or no licence fee and it became expedient for operators to indulge in license fee “arbitrage” by showing more revenue from internet services.
    • Inflating subscriber numbers: Another manoeuvre was to inflate subscriber numbers to gain access to scarce spectrum in the days when fresh spectrum was administratively assigned based on subscriber numbers.
    • First come first serve policy: Finally, the shameful spectacle was the battle fought by operators to jump the queue to deposit earnest money for gaining rights over the spectrum that was oddly sought to be assigned by a method called “first come first served” and whose definition itself was quite elastic.
    • Cancellation of licence by the Court: Thereafter, in the litigation that inevitably followed, the Court cancelled 122 telecom licences and mandated allocation of spectrum by auction.

    Conclusion

    • Erosion of trust between the public and private sector in general and in the telecom sector, in particular, has been a negative externality of the reform process.
    • Restoration of trust between public and private sector is necessary: In this context, the appeal made by the finance minister during her budget speech for the restoration of “vishwaas” between the public and private sectors and between citizens and government is critical

  • Conviction of Hafiz Saeed

    The Lashkar-e-Taiba founder (LeT) and Jamat-ud Dawa (JuD) chief Hafiz Saeed was convicted by a Pakistan court in two terror-financing cases and sentenced to five-and-a-half years in prison concurrently.

    Why such move?

    • With pressure from the international community building up, Pakistan has been trying to convince the Financial Action Task Force (FATF) to prevent it getting blacklisted.
    • Saeed’s conviction is perhaps a reflection of Pakistan’s changing approach towards its treatment of terror groups, given the FATF’s actions and warnings.

    Who is Hafiz Saeed?

    • Hafiz Saeed is the founder and leader of the fundamentalist terrorist organisation Lashkar-e-Taiba (LeT), which is a group that follows an extreme interpretation of religious texts.
    • It was founded in 1990 and its goals include conducting jihad, preaching the true religion and training the new generation along true religious lines.
    • Some of its goals are aligned with that of Pakistan, including the liberation of Kashmir from India.

    Why his conviction matters?

    • Saeed is also the mastermind of the 2008 Mumbai terrorist attacks.
    • Other attacks that LeT has been involved in include the 2001 shootout at Parliament House in New Delhi, and, most recently, the 2016 attack on the military headquarters in Uri.
    • In 2012, in order to support India in its attempt to extradite Saeed, the US State Department offered a bounty of up to $10 million for information that could lead to his arrest or conviction.
    • Moreover, the US Department of the Treasury has marked Saeed as a Specially Designated Global Terrorist since 2012.
    • ISI and the Pakistani government too help the LeT bring in funds, and it is believed to have fund-raising offices in Bangladesh, Nepal, Maldives and the Gulf region.

    A shield against FATF actions

    • The FATF placed Pakistan in the grey list in July 2018 nonetheless.
    • Before Saeed’s arrest, the FATF had warned Pakistan to deliver on its commitments to curb terror financing. Pakistan feared being a part of FATF’s “Grey List”.
    • Significantly, if Pakistan did not follow up on FATF’s warnings, it could potentially be downgraded to the Black List, which would make things more difficult for the country.
    • FATF is de facto run by the US Treasury Department.

  • New Umbrella Entity (NUE) for Retail Payment Systems

    The Reserve Bank of India (RBI) has proposed to set up a new pan-India new umbrella entity (NUE) or entities focussing on retail payment systems with a minimum paid-up capital of Rs 500 crore.

    New Umbrella Entity (NUE)

    • The proposed entity will set up, manage and operate new payment systems especially in the retail space.
    • It would comprise of but not limited to ATMs, white label PoS, Aadhaar-based payments and remittance services, develop payment methods, standards and technologies, monitor related issues and internationally.
    • It would take care of developmental objectives like enhancement of awareness about the payment systems.
    • The RBI retains the right to approve the appointment of directors as also to nominate a member on the board of the NUE.
    • The NUE should conform to the norms of corporate governance along with ‘fit and proper’ criteria for persons to be appointed on its board.

    Functions

    It will:

    • operate clearing and settlement systems
    • identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the system
    • monitor retail payment system developments and related issues in the country and internationally to avoid shocks, frauds and contagions that may adversely affect the system and the economy in general

    Terms of reference

    • The entity eligible to apply as promoter or the promoter group for the NUE should be ‘owned and controlled by residents’ with 3 years’ experience in the payments ecosystem as Payment System Operator (PSO) or Payment Service Provider (PSP) or Technology Service Provider (TSP).
    • The shareholding pattern should be diversified.
    • Any entity holding more than 25 per cent of the paid-up capital of the NUE will be deemed to be a promoter.

  • In news: Yaravirus

    In a lake in Brazil, researchers have discovered a virus that they find unusual and intriguing.

    Yaravirus

    • The Yaravirus infects amoeba and has genes that have not been described before, something that could challenge how DNA viruses are classified.
    • It has a puzzling origin and phylogeny (evolutionary relationship).
    • Because of the Yaravirus’s small size, it was unlike other viruses that infect amoeba and they named it as a tribute to Yara, the “mother of waters” in the mythological stories of the Tupi-Guarani indigenous tribes.
    • The virus does not infect human cells, according to the researchers.

  • A new approach on investment

    Context

    When Prime Minister Narendra Modi welcomes U.S. President Donald Trump to India this month the two leaders are expected to sign a first-ever trade agreement.

    What will be on the agenda of the trade deal?

    • GSP issues: The restoration of India’s Generalised System of Preferences benefits,
    • Pricing of medical devices.
    • And agriculture trade are all important.
    • Incremental outcomes: If the two sides continue efforts to achieve incremental outcomes, the start of negotiations on a comprehensive free trade agreement (FTA) could even be a credible scenario. Presently, this is not the case.

    What could be the incremental outcomes?

    • The most obvious candidates are-
      • Intellectual property rights (IPR).
      • IPR has historically been an area of contention between the two, but discussions on IPR have progressed well in recent years.
      • Digital trade.
      • Both are grappling with the appropriate scope and approach for regulating electronic commerce issues in this digital age.
      • Ideally, there should be room to seriously consider better ways to encourage skilled professionals to work in the other’s economy.
    • Progress on the investment

    There are already some shared interests in the area of investment.

    • For example, India invests in the U.S. and continues to seek U.S. investment in India.
    • FDI issue: Foreign direct investment (FDI), this is an important moment to do more to encourage it than simply welcoming it.
    • Need to negotiate o investment: Ideally, the two sides should move ahead to negotiate an agreement on investment matters that can provide greater transparency, predictability, and regulatory certainty to investors from the other country.
    • Negotiation on FDI off the table: It appears that the traditional approach through which countries pursue commitments on FDI, bilateral investment treaties, or ‘BITs’ (bilateral investment treaties) is off the table.
    • The Trump administration has put a hold on negotiating additional BITs and appears to be suspicious of how well they balance U.S. interests.
    • The Indian government is similarly sceptical of BITs, having cancelled all existing ones soon after it came into office.

    Need for the new approach on the investment issues

    • Until they resume their work on BITs, the two sides may find common ground in devising a new approach to investment issue.
    • What the new approach involve?
    • Taking cues from their respective FTAs: A starting point should be to review what they have done in their recent FTAs.
    • Abandonment of investor-state dispute settlement: The recently concluded U.S.-Mexico-Canada Agreement contains a novel approach on investment notably its abandonment of investor-state dispute settlement with respect to the U.S. and Canada.
      • Similarly, the Regional Comprehensive Economic Partnership, which India had been negotiating with ASEAN, Australia, China, Japan, Korea, and New Zealand, does not include investor-state dispute settlement.
      • While India chose not to join the Regional Comprehensive Economic Partnership when it was concluded at the end of last year, it appears to have been on board with the FTA’s investment provisions.
    • Where the agreement focus as of now? For now, however, both countries should focus on what is doable. A U.S.-India investment agreement could focus on-
      • Fair treatment for investors from the other country.
      • Regulatory transparency and predictability.
      • And approaches for resolving concerns short of investor-state dispute settlements.
    • At a later stage: At a later stage-
      • Most likely when the two are prepared to negotiate a more comprehensive bilateral FTA, they can go further on investment matters.

    Conclusion

    A new, hybrid approach on investment would be a substantial step in the right direction. It will be critical to sustaining momentum coming out of a first trade deal when the two leaders meet in Delhi. If India and the U.S. fail this test, the trade relationship is more likely to languish than blossom.

     

  • Shun fiscal adventurism

    Context

    In the run-up to the budget, there was enormous pressure on the finance minister to launch a fiscal stimulus so as to pump-prime the economy. That she did not succumb to the temptation is a big relief.

    Why fiscal stimulus is unwarranted?

    • There is already considerable stimulus in the system. 
    • Excessive fiscal deficit: To her credit, the finance minister took a step towards transparency by admitting to off-balance-sheet borrowings of 0.8 per cent of GDP for both the current and next fiscal year.
      • Acknowledging that the fiscal deficit would actually be higher at 4.6 per cent and 4.3 per cent of GDP respectively. This is already excessive.
    • Unrealistic projection of revenue growth: Add to this the unrealistic projections of revenue growth and disinvestment proceeds for next year and we have a potentially unsustainable fiscal situation.
      • Any stimulus on top of this would have been clearly

    Possibility of undermining the RBI’s efforts

    Fiscal pressure could harm the RBI’s efforts to revive the economy in the following ways-

    • Harming long term investment rates: Fiscal pressures will undermine the Reserve Bank of India’s struggle to revive investment by bringing down long-term interest rates.
    • Rating downgrades: It could result in a sovereign rating downgrade and jeopardise efforts to attract foreign capital.
    • Increase in inflationary pressure: It can stoke inflationary pressures, something we cannot afford when inflation is above the RBI’s target rate.
    • Pressure on the external sector: And most importantly, it can lead to pressures on the external sector.
    • Past experiences: The balance of payments crisis of 1991 and the near crisis of 2013 in the wake of taper tantrums were, at their heart, a consequence of extended fiscal profligacy.

    Counter-arguments of the supporters of the stimulus and fallacies in it

    • Low Debt-to-GDP ratio: It is argued that our debt-to-GDP ratio is low in international terms.
      • Misleading comparison: The data don’t bear this out. In any case, our experience, as well as research, shows that international comparisons of debt-to-GDP ratios, without reference to other parameters, are misleading.
    • Debt in domestic currency: It is also argued that we do not need to worry because our debt is mostly in domestic currency unlike that of many emerging economies.
      • The fallacy in this argument: Our debt in the domestic market didn’t protect us from previous crises, and there is no reason to believe that it will protect us from the next one, especially as our foreign debt is proportionally higher than before.
    • Robust foreign exchange reserves: It is argued that our foreign exchange reserves are robust and a balance of payments crisis is improbable. Such complacency is misplaced.
      • Fallacy- No forex is large enough in bad times: We should not forget the lesson that in good times any amount of forex reserves looks like it is too large, but in bad times no amount of reserves is large enough.

    Quality of fiscal consolidation

    • Quality a cause for concern: As much as the headline fiscal deficit numbers are a cause for concern, the underlying quality of fiscal consolidation is a bigger concern.
    • Increasing revenue deficit: Conveniently off the radar, the revenue deficit, far from coming down, is actually going up.
      • Two-third borrowing to finance revenue expenditure: This year, more than two-thirds of what the government is borrowing is going to finance current expenditures like salaries, pensions, interest payments and subsidies.
      • That ratio will rise to three-quarters next year.
      • Crowding out of the expenditure: This debt-financed revenue expenditure is simply unsustainable as it will increasingly crowd out capital expenditure.
    • Red flags on the state finances.
      • Another dimension of the quality of fiscal consolidation is the combined fiscal position of states which is, in fact, the big elephant in the room.
      • Together, states spend one-and-a-half times more than the Centre.
      • Larger development impact than Centre: Studies show that how efficiently states spend their money has a much greater development impact as compared to the Centre.
      • Red flags by the RBI on states finances: The states are not doing a good job. In its latest annual report on state finances, the RBI raised several red flags on state finances-
      • states’ increasing weakness in their own revenue generation.
      • Their unsustainable debt burdens.
      • And their tendency to retrench capital expenditures in order to accommodate fiscal shocks such as farm loan waivers, power sector loans under UDAY and a host of income transfer schemes.
      • Consequences in the market: The market will penalise mismanagement of public finances; it does not care who is responsible — the Centre or states — for an unsustainable fiscal stance.

    Conclusion

    • The fear of one-off fiscal stimulus becoming permanent: By far the biggest fear about a fiscal stimulus is that it is tempting to plunge into a spending programme saying it is a one-off and will be withdrawn when the pressure eases. Experience shows that it is very difficult to bail out. It is good that the finance minster avoided doing any such thing.
      • As Milton Friedman famously said, there is nothing more permanent than a temporary government programme.
    • Need to kick-start the private investment: What the economy needs for a sustained turnaround is kick-starting private investment.
      • Implementation of reforms: A necessary condition for inspiring investor confidence is the implementation of structural and governance reforms. This will be a long-haul.
      • That the budget did not launch the journey is a big disappointment. But, at least, the budget did not make a bad situation worse by embarking on fiscal adventurism.
      • It’s better, as Keynes said, to be roughly right than precisely wrong.

     

     

  • SuperCam on Mars Rover 2020

     

    In its mission to Mars this summer, NASA is sending a new laser-toting robot called SuperCam as one of seven instruments aboard the Mars 2020 rover.

    SuperCam

    • Called SuperCam, the robot is used for studying mineralogy and chemistry from up to about 7 metres away.
    • It might help scientists find signs of fossilized microbial life on Mars.
    • SuperCam packs what would typically require several sizable pieces of equipment into something no bigger than a cereal box.
    • It fires a pulsed laser beam out of the rover’s mast to vaporise small portions of rock from a distance, providing information that will be essential to the mission’s success.

    NASA lists five things to know

    • From more than 7 m away, SuperCam can fire a laser to study rock targets smaller than a pencil point. That lets the rover study spots it can’t reach with its arm.
    • SuperCam looks at rock textures and chemicals to find those that formed or changed in water on Mars long ago.
    • SuperCam looks at different rock and “soil” types to find ones that could preserve signs of past microbial life on Mars — if any ever existed.
    • For the benefit of future explorers, SuperCam identifies which elements in the Martian dust may be harmful to humans.
    • Scientists can learn about how atmospheric molecules, water ice, and dust absorb or reflect solar radiation. This helps predict Martian weather better.

  • Protected Special Agriculture Zone

    The Cauvery delta region in Tamil Nadu will be declared as ‘Protected Special Agricultural Zone’ (PSAZ) by the TN govt.

    Cauvery delta PSAZ

    • Declaring PSAZ ensures that particular region will not be granted permission for any new projects like those related to hydrocarbons.
    • Only Agro based Industries would be given permission to be built.
    • The special protection will be bestowed on Cauvery Delta districts such as Thanjavur, Tiruvarur, Nagappattinam, Pudukottai, Cuddalore, Ariyalur, Karur and Tiruchirappalli districts.

    Significance of the move

    • The Cauvery Delta Region is Tamil Nadu’s rice bowl comprising above eight districts.
    • It is just and reasonable that projects like hydrocarbon exploration have raised concerns among farmers and other agriculture-based labourers.
    • Drilling for extraction of oil and gas in these regions that hampers agriculture and posing much environmental impact or health hazards will be stopped immediately.

  • Solar Orbiter (SolO) Probe

     

    Yesterday, the Solar Orbiter, a collaborative mission between the European Space Agency and NASA to study the Sun, took off from Cape Canaveral in Florida.

    What is the Solar Orbiter?

    • Carrying four in situ instruments and six remote-sensing imagers, the Solar Orbiter (called SolO) will face the sun at approximately 42 million kilometres from its surface.
    • Before SolO, all solar imaging instruments have been within the ecliptic plane, in which all planets orbit and which is aligned with the sun’s equator.
    • The new spacecraft will use the gravity of Venus and Earth to swing itself out of the ecliptic plane, passing inside the orbit of Mercury, and will be able to get a bird’s eye view of the sun’s poles for the first time.

    Objectives of the mission

    • The Orbiter will take pictures using telescopes through a heat shield that is partly made of baked animal bones, to help it withstand temperatures of up to 600 degree Celsius.
    • By understanding the behaviour of the sun, the Orbiter aims to provide information on how the former would affect technology such as satellites, navigation systems, power grids, and telecommunication services.
    • The Orbiter will help scientists understand the sun’s dynamic behaviour, and solve mysteries such as the sunspot cycle, or why the star spews out high velocity charged particles through the solar system.
    • With more data on the global magnetic field of the star, scientists would be able to forecast space weather events.

    Earlier missions

    • In 1990, NASA and ESA had sent the Ulysses mission, which also passed over the sun’s poles but at much farther distances, and did not carry a camera.

  • [pib] 13th COP of the Convention on the Conservation of Migratory Species of Wild Animals (CMS)

     

    The 13th Conference of Parties (COP) of the Convention on the Conservation of Migratory Species of Wild Animals (CMS) is going to be hosted by India at Gandhinagar in Gujarat.

    13th COP of CMS

    • The theme of CMS COP13 in India is, “Migratory species connect the planet and we welcome them home.
    • The CMS COP 13 logo is inspired by ‘Kolam’, a traditional artform from southern India.
    • In the logo of CMS COP-13, Kolam art form is used to depict key migratory species in India like Amur falcon, humpback whale and marine turtles.
    • The mascot for CMS COP13, “Gibi – The Great Indian Bustard” is a critically endangered species which has been accorded the highest protection status under the Wildlife Protection Act, 1972.

    About CMS

    • CMS is an international treaty concluded under aegis of UN Environment Programme (UNEP), concerned with conservation of wildlife and habitats on a global scale.
    • It is commonly abbreviated as Convention on Migratory Species (CMS) or the Bonn Convention.
    • It aims to conserve terrestrial, marine and avian migratory species throughout their range.
    • It was signed in 1979 in Bonn (hence the name), Germany and entered into force in 1983.
    • Its headquarters are in Bonn, Germany.
    • CMS is only global and UN-based intergovernmental organization established exclusively for conservation and management of terrestrial, aquatic and avian migratory species throughout their range.

    Prospects for India

    • As the host, India shall be designated the President for the next three years.
    • India is Signatory to the CMS since 1983.
    • India has been taking necessary actions to protect and conserve migratory marine species.
    • Seven species that include Dugong, Whale Shark, Marine Turtle (two species), have been identified for preparation of Conservation and Recovery Action Plan.

    Other facts

    • The Indian sub-continent is also part of the major bird flyway network, i.e, the Central Asian Flyway (CAF) that covers areas between the Arctic and Indian Oceans, and covers at least 279 populations of 182 migratory water bird species, including 29 globally threatened species.
    • India is home to several migratory species of wildlife including snow leopard, Amur falcons, bar headed Geese, black necked cranes, marine turtles, dugongs, humpbacked whales, etc.
    • It has signed non legally binding MOU with CMS on the conservation and management of Siberian Cranes (1998), Marine Turtles (2007), Dugongs (2008) and Raptors (2016).