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GS Paper: GS3

  • Insolvency code should be suspended for six months to help companies recover

    This article argues the suspension of IBC for six months. The issues arising out of suspension like damage to the creditors are also dealt with here. Reading of this article will help us understand the finer details of IBC that are relevant from the UPSC point of view. We have also covered one article from livemint dealing with the same issue, but that article covered the issue in a broader sense.

    Who are operational and financial creditors?

    • After the lockdown is over, several companies are likely to default on their dues to both operational and financial creditors.
    • Who is a financial creditor? The financial creditors include banks and others who have given financial assistance to a company in the form of loans and debentures.
    • According to a 2018 amendment to the Insolvency and Bankruptcy Code (IBC) 2017, flat purchasers are also deemed as financial creditors.
    • An operational creditor is just about anyone who has to receive money from a company.
    • The IBC provides a fast-track mechanism to deal with companies which are unable to repay their creditors and have become financially unviable.
    • Section 22 of the Code mandates the appointment of a Resolution Professional (RP) who is expected to miraculously turn around the company in 330 days.
    • If this attempt fails, the company goes into liquidation.

    The two types of creditors were in the news, so pay attention to these terms.

    Increase in threshold limit to file an insolvency petition

    • The IBC’s provisions have been extensively used by various creditors whose dues were not paid.
    • What was the threshold limit? Initially, the threshold limit was just Rs 1 lakh and the IBC became an effective recovery mechanism for all operational creditors.
    • What is the limit now? Just before the lockdown, the finance minister raised the threshold for invoking the insolvency provisions to Rs 1 crore.
    • This limit was raised to prevent proceedings being initiated against small and medium enterprises.

    Possibility of the domino effect after the lockdown is over

    • After the lockdown, several enterprises, large, medium and small, might not be able to pay their dues, at least in the short-term.
    • The easiest way for a creditor to recover money is to initiate insolvency proceedings against the debtor company and threaten it with liquidation.
    • The shutdown of business after the lockdown could have a domino effect.
    • How would the domino effect come into play? If an auto-manufacturer has shut down its operations, the ancillary units will not get their dues.
    • This would then lead to non-payment to downstream vendors and service providers as well.
    • It might take at least three to four months for the situation to stabilise.

    Steps that should be taken to avoid the domino effect

    • Moratorium on the IBC: The most important, and immediate, step that needs to be taken is to have a six-month moratorium on the IBC.
    • It may be necessary to promulgate an ordinance suspending the prospective operation of Sections 7 and 9 of the IBC so that no fresh petition is filed against a company.
    • Impact on creditors: While this could hurt some of the creditors, the damage that could be done to the corporate sector by invoking the IBC is likely to be far greater.
    • A distressed creditor is not without a remedy as he can always approach the civil courts for relief, which will not be so severe on a defaulting company.
    • If an insolvency petition is filed and the RP appointed, it is difficult to stop the insolvency process.
    • The IBC requires a financially-stressed company to be taken over by a financially-sound
    • For example, Essar Steel was taken over by ArcelorMittal and Bhushan Steel was taken over by Tata Steel.
    • In the current scenario, it will be difficult, if not impossible, for an RP to find a suitable buyer and the only option would be to liquidate the company.
    • Using the insolvency process to recover dues is contrary to the IBC’s objectives.

    The objective of the IBC is not just insolvency but the reorganisation of companies, maximisation of value of assets and the need to balance the interests of all stakeholders. Pay attention to this point.

    How the suspension of the IBC will be beneficial?

    • Suspending the IBC for a short period would enable several companies to return to normalcy.
    • It will help them function without the constant threat of an insolvency application and its Board of Directors and management being taken over by the RP.
    • Moreover, the National Company Law Tribunal benches will simply be unable to take any additional workload.

    Conclusion

    Suspending the IBC for six months would be a much-needed step to prevent further damage to the economy. It would be in the larger public interest. Indeed, at this critical stage, permitting the legal remedy of insolvency could be the last nail in the coffin of many companies.

    Back2Basics: What is the Insolvency and Bankruptcy Code?

    • IBC provides for a time-bound process to resolve insolvency.
    • When a default in repayment occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency.
    • Under IBC debtor and creditor both can start ‘recovery’ proceedings against each other.
    • Insolvency and Bankruptcy Code 2016 was implemented through an act of Parliament.
    • It got Presidential assent in May 2016.
    • The law was necessitated due to huge pile-up of non-performing loans of banks and delay in debt resolution.
    • Insolvency resolution in India took 4.3 years on an average against other countries such as United Kingdom (1 year) and United States of America (1.5 years), which is sought to be reduced besides facilitating the resolution of big-ticket loan accounts.

  • Anastomosis surgery for re-implantation

    The chopped off-hand of a Punjab Police officer has been successfully re-implanted after hours of surgery.

    Anastomosis is a general term in surgical sciences used to join amputated limbs or organs. The term has made headline due to its recent application. A piece of general information regarding novelties of medical sciences should be known to the aspirants.

    Anastomosis Surgery

    • A surgical Anastomosis is a surgical technique used to make a new connection between two body structures that carry fluid, such as blood vessels or bowel.
    • It involves conjoining various parts of the arm and the hand — bones, muscles, tendons, arteries, veins as well as nerves.
    • Both radial and ulnar arteries, accompanying nerves and the dorsal vein were anastomosed successfully, allowing for the hand to receive adequate circulation.
    • The bones are attached using K wires (used for orthopaedic surgery) which can be removed once the bones conjoin organically.

    In which cases is re-implantation possible?

    • When a surgeon makes that decision, the factors that he or she considers include how much time has elapsed since the injury.
    • The condition of the severed organ and the nature of the injury are also taken into account.

    Can a reattached hand get its function restored?

    • That is the goal of doing such surgery. The extent of restored function, however, can vary from case to case.
    • While a successful surgery can result in the good return of motor function, studies have shown that sensory recovery can often be poor.
    • Whether the blood circulation is optimum after surgery can only be observed within the next few days.
    • The patient also needs to attend regular physiotherapy sessions for total restoration of motor movement and sensation in his hand.

  • Species in news: Trimeresurus Salazar

    The new species, Trimeresurus Salazar is a snake been discovered in Arunachal Pradesh.

    Another specie spotted with one more peculiarity, the name Salazar 🙂 Such species are most likely to be asked in prelims to match the columns with their habitat state.

    Trimeresurus Salazar

    • Salazar’s pit viper belongs to the genus Trimeresurus Lacépède comprising “charismatic venomous serpents with morphologically as well as ecologically diverse species”.
    • Pit vipers are venomous snakes distinguished by their heat-sensing pit organs between the eye and the nostril.
    • The name was inspired by Salazar Slytherin, the co-founder of J.K. Rowlings’ fictional Hogwarts School of Witchcraft and Wizardry.

  • [pib] Plasmonic Semiconductor Nanomaterials

    Researchers are exploring ways to develop plasmonic semiconductor nanomaterials for removal of toxic organic compounds from water by harvesting solar light.

    Nanotechnology is a pathbreaking technology which can create many new materials and devices with a wide range of applications, such as in nanomedicine, nanoelectronics etc.  PSN is one such application. Topics like PSN are most likely to be asked in the competitive examinations.

    Plasmonic Semiconductor Nanomaterials

    • PSN are metal-like materials with free electrons on the surface that oscillate collectively when hit by light.
    • It uses solar light to increase the photocatalytic efficiency to degrade pollutants as well as generate renewable Hydrogen.
    • These materials can easily adsorb toxic ions like arsenic and fluoride, which are often found in water in North East India and convert it to its not toxic forms when they are exposed to sunlight.
    • PSN can be used for hydrogen energy generation, a process which has shown high photon to hydrogen conversion efficiency under visible and near infra-red light.

    What are Semiconductors?

    • Semiconductors are materials which have a conductivity between conductors (generally metals) and nonconductors or insulators (such as most ceramics).
    • Its resistance falls as its temperature rises; metals are the opposite.
    • They can be pure elements, such as silicon or germanium, or compounds such as gallium arsenide or cadmium selenide.

    Back2Basics: Nanomaterials

    • Nanomaterials are materials of which a single unit small-sized (in at least one dimension) between 1 and 100 nm (the usual definition of nanoscale).
    • Materials with structure at the nanoscale often have unique optical, electronic, or mechanical properties.
    • They are created from the gas phase by producing a vapour of the product material using chemical or physical means.
    • Examples of nanomaterials include carbon nanotube, nanoparticles, metal rubber, quantum dots, nanopores and many more.

  • Can the insolvency code handle the aftermath of the corona crisis?

    The article is about the aftermath of Covid-19 for the Indian business. Though the government has announced the slew of relief packages, one expects a significant spike in the number of bankruptcies. Will India’s Insolvency and Bankruptcy Code be able to deal with this new normal? Some pressing issues that could arise and solutions are discussed here.

    Rise in the pending cases with NCLT

    • Since the commencement of the IBC and setting up of the National Company Law Tribunal (NCLT), 12,000 cases have been filed.
    • Around 4,500 cases have been settled before resolution, with a settlement amount of almost ₹2 trillion.
    • 1,500 cases have been admitted and 6,000 cases are waiting in the queue.
    • The covid-19 epidemic will only increase this traffic jam.
    • Increasing the capacity of NCLT: The pile-up of cases needs to be addressed by increasing capacity of the NCLT, and by ensuring that as many cases as possible are settled without going to the IBC.

    Every issue mentioned here is important from Mains point of view. IBC has been a significant step by the government to streamline the process of insolvency and bankruptcy.

    Need for a relook at section 29A(c) of IBC

    • What is section 29A(c) of IBC? This provision makes ineligible the defaulting person (promoter) from bidding for the asset (buying back) if it has been NPA for a year or more.
    • What was the purpose of section 29A(c): The intent of section 29A is to prevent persons who, by their misconduct or fraudulent motives contributed to the default of the corporate debtor, from “buying back” the corporate debtor from the creditors, potentially at steep discounts.
    • What’s the issue? While this is clearly a justifiable objective, the short window of one year has prevented even genuine promoters who faced major setbacks on account of unforeseen circumstances from being given a second chance.
    • Even though such promoters are often in good the best position to revive their businesses.
    • In view of the current force majeure, we recommend that the grace period of one year under section 29A(c) be extended to two years.
    • And further extensions should be made possible on the approval of a supermajority (i.e. 75%) of the Committee of Creditors.
    • Further, the newly introduced Section 12A allows the bank, which was the insolvency applicant, to exit the insolvency process.
    • Which brings the promoter back in control—provided 90% of the Committee of Creditors agrees and the public bidding process has not commenced.
    • The requirement for exit should be reduced to 75% of the committee.

    Extension of timelines

    • Recently, the Supreme Court did well by passing a suo-moto order on the extension of limitation generally.
    • Based on these SC orders, the National Company Law Appellate Tribunal has ordered that such extension also apply to the outer limit of 330 days for the resolution of corporate insolvency cases.
    • This could be further extended once the gravity of the situation becomes clear over the next few months.
    • The moratorium period on debt financing recently announced by RBI should also be extended to cover money market instruments.

    Need for providing more financing options to corporate debtors

    • While the IBC does provide for interim finance with a preferential position for a corporate debtor, there are known limitations and residual risks on the provision of such finance.
    • The government would do well to look at expanding the market by making changes.
    • The changes could include permitting interim funding by asset reconstruction companies even without being creditors.
    • And making provisions for a minimum return even in case of liquidation, and extending the enhanced priority standing given to interim financiers in the IBC phase to the pre-IBC phase.
    • Post the lockdown, incremental working capital support upto, say, 25% of existing working capital exposure could be allowed in deserving cases even if the account is in default or NPA.
    • This can be deemed to be priority lending to also protect bankers’ interests.
    • The provision could also be made for the extension of concessional finance within limits based on demonstrated export potential.
    • For example- order, short lead-time business, margin adjustments) in order to contribute to the recovery of exporting industries.

    Equitable treatment of operational creditor

    • In the Swiss Ribbons judgment, the Supreme Court urged equitable, though not equal, treatment of operational creditors.
    • The need to protect the interests of operational creditors in bankruptcy proceedings is all the more critical in difficult market conditions where credit would be hard to obtain.
    • Some broad guidelines appear to be desirable.
    • For instance, one could stipulate that in the absence of quality issues, two operational creditors belonging to the same sub-class in terms of the type of product or service sold, should be treated equally.
    • This should be irrespective of group relationships or continuity in the business of the resolved entity.

    Facilitating resolution outside the corporate insolvency resolution process

    • On the issue of closing a case before the onset of insolvency proceedings, there was a case for doing this even before the corona outbreak, and even without the paucity of processing capacity.
    • The labelling of a company as insolvent or bankrupt has a chilling effect on its already dim prospects.
    • Vendors, customers and employees start having second thoughts about associating with this company.
    • Certain rules get triggered—for instance, the rule barring an infrastructure company from accepting new orders.
    • The current outbreak amplifies the case for facilitating resolution outside the corporate insolvency resolution process.
    • At the same time, there is a need to streamline the process to ensure enhanced proceeds.

    Conclusion

    All institutions of the economy will need to fire together in order to maximize the prospects of recovery. A suitably modified bankruptcy framework has a crucial role to play.

    Back2Basics: Difference between financial and operational creditors

    • Financial and operational creditors are different in the sense that their liabilities arise from different origins.
    • Where a financial creditor is liable because of a contract such as a loan or debt and operational creditor is liable because of operational transactions.
    • The difference between a financial creditor and an operational creditor is that a financial creditor is an individual whose relationship with the entity is solely based on financial contracts, such as a loan or debt security.
    • Whereas, an operational creditor is an individual whose liabilities from the entity comes in the form of future payments in exchange for goods or services already delivered.

  • [pib] Amendment to the Environment Impact Assessment (EIA) Notification, 2006

    To address unprecedented situation arising from the global outbreak of COVID-19 and to ramp up availability or production of various drugs, the MoEFCC has made an amendment to EIA Notification 2006.

    EIA is a process of evaluating the likely environmental impacts of a proposed project or development, taking into account inter-related socio-economic, cultural and human-health impacts, both beneficial and adverse.  Its a hot topic for mains.

    What is the amendment about?

    • All projects or activities in respect of bulk drugs and intermediates, manufactured for addressing various ailments, have been re-categorized from the existing Category ‘A’ to ‘B2’ category.
    • Projects falling under Category B2 are exempted from the requirement of collection of Baseline data, EIA Studies and public consultation.
    • The re-categorization of such proposals has been done to facilitate decentralization of appraisal to State Level so as to fast track the process.

    Projects Categorization and Clearance under EIA

    • Environmental clearance is required in respect of all new projects or activities listed in the Schedule to the 2006 notification and their expansion and modernization, including any change in product –mix.
    • Since EIA 2006 the various developmental projects have been re-categorised into category ‘A’ and category ‘B’ depending on their threshold capacity and likely pollution potential.
    • They require prior EC respectively from MOEFCC or the concerned State Environmental Impact Assessment Authorities (SEIAAs).
    • Where state-level authorities have not been constituted, the clearance would be provided by the MOEFCC.

    Back2Basics: Environmental Impact Assessment (EIA) in India

    • EIA is a management tool to minimize adverse impacts of developmental projects on the environment and to achieve sustainable development through timely, adequate, corrective and protective mitigation measures.
    • The MoEFCC uses EIA Notification 2006 as a major tool for minimizing the adverse impact of rapid industrialization on the environment and for reversing those trends which may lead to climate change in the long run.
    • EIA has now been made mandatory under the Environmental (Protection Act, 1986 for 29 categories of developmental activities involving investments of Rs. 50 crores and above.

    EIA stages

    • Screening: This stage decides which projects a full or partial assessment need study.
    • Scoping: This stage decides which impacts are necessary to be assessed. This is done based on legal requirements, international conventions, expert knowledge and public engagement. This stage also finds out alternate solutions that avoid or at least reduce the adverse impacts of the project.
    • Assessment & evaluation of impacts and development of alternatives: This stage predicts and identifies the environmental impacts of the proposed project and also elaborates on the alternatives.
    • EIA Report: In this reporting stage, an environmental management plan (EMP) and also a non-technical summary of the project’s impact is prepared for the general public. This report is also called the Environmental Impact Statement (EIS).
    • Decision making: The decision on whether the project is to be given approval or not and if it is to be given, under what conditions.
    • Monitoring, compliance, enforcement and environmental auditing: This stage monitors whether the predicted impacts and the mitigation efforts happen as per the EMP.

  • What are MK 54 torpedoes, AGM-84L Harpoon missiles that US has cleared for sale to India?

    The US has approved a military sale to India of 16 MK 54 all round up lightweight torpedoes and ten AGM-84L Harpoon Block II air-launched missiles. India plans to use the equipment requested in both the deals on the Indian Navy’s Boeing P-8I maritime aircraft.

    What is “Terminal High Altitude Area Defense (THAAD)” , sometimes seen in the news? (CSP 2018) .

    MK 54 lightweight torpedo

    • The MK 54 lightweight torpedo is known as the Lightweight Hybrid Torpedo (LHT).
    • It weighs around 608 pounds, while its warhead weighs around 96.8 pounds and is highly explosive.
    • The primary use of this equipment is for offensive purposes when deployed by anti-submarine warfare aircraft and helicopters, and for defensive purposes when deployed by ships and against fast, deep-diving nuclear submarines and slow-moving, quiet, diesel-electric submarines.

    AGM-84L Harpoon Block II air-launched missiles

    • The Harpoon missile system will be integrated into the P-8I aircraft to conduct anti-surface warfare missions in defence of critical sea lanes.
    • It uses GPS-aided inertial navigation to hit the designated target.
    • Its warhead weighs over 500 pounds and is capable of delivering lethal firepower against targets, including land-based targets, coastal defence sites, surface-to-air missile sites, exposed aircraft and industrial or port facilities.

    About P-8I aircraft

    • Boeing’s P-8s are designed for long-range anti-submarine warfare, anti-surface warfare and intelligence, surveillance and reconnaissance missions.
    • The P-8s India version is called the P-8I, and helps the Indian Navy carry out important maritime operations.
    • According to Boeing, the aircraft can surpass 25,000 flight hours, and gives the Navy a significant edge in the strategically important Indian Ocean.
    • India currently has eight of these aircraft and is scheduled to receive four more by 2022.

  • Economic liberalisation and its faults

    The article describes the problems economic liberalisation has created. Covid-19 has exposed these problems even as developed countries faced shortages of masks and ventilators. The focus is on China’s dominance as a manufacturing hub and its implication for the world and India.

    Background of the end of the ‘Licence Raj’ in India

    • Manmohan Singh’s 1991-92 Budget speech marked the beginning of the end of the ‘Licence Raj’ in India.
    • The Budget also announced the reduction of import duties and paved the way for foreign-manufactured goods to flow into India.
    • Following this, most of the manufacturing sector was opened up to foreign direct investment.
    • India’s industrial policy was virtually junked, and policymakers and the political leadership became contemptuous of the idea of self-reliance.

    Shifting of the base in developing countries

    • In the late 1980s, transnational corporations started shifting the production base to smaller companies in developing countries, especially Asia.
    • The reason for this shift was cheap labour and raw materials.
    • Developed countries supported the move because shifting the polluting and labour-intensive industries suited them as long as ownership remained with their companies.
    • Development of global supply chains: The world witnessed the development of global supply chains in many products starting with garments.

    The dominance of China in the global supply chain is at the root of trade war between the US and China. The outbreak of Covid-19 has added it a new dimension and has forced many countries to reframe their trade policies. And India is no different. This makes it an important topic for UPSC. A question can be framed from an impact angle or the US-China trade war angle.

    The emergence of China as a global manufacturing hub

    • Though many developing countries participated in the global production/value/supply
    • The substantial value addition in developing countries happened in a few production hubs, of which China emerged to be a major one.
    • Decentralised to localised production: Manufacturing shifted from a decentralised production system spread across different counties to just a few locations.
    • The countries like China defied the logic of supply/value chains ensuring substantial value addition for themselves.
    • They even carried out backward integration and thus emerged as global manufacturing hubs for certain products.
    • In the case of health products, China became the global supplier of active pharmaceutical ingredients (API), personal protective equipment (PPE), and medical devices diagnostics.

    What were the implications of China’s dominance in a fight against Covid-19?

    • China’s dominance has major implications for the  COVID-19 outbreak.
    • The resultant loss of manufacturing base has affected the ability of many governments, including of developed countries, to put up an effective response to the crisis.
    • The U.K. Prime Minister asked the country’s manufacturers to produce ventilators in order to provide care for critical COVID-19 patients.
    • Similarly, the U.S. President invoked the Defense Production Act of 1950 to ramp up N95 mask production.
    • Under this legislation, the U.S. President can direct U.S. manufacturers to produce goods according to the directions of the government.
    • Similarly, the French Health Minister stated that the country may nationalise vaccine companies if necessary.
    • Spain nationalised all its private hospitals.
    • Israel and Chile issued compulsory licences to ensure that medicines are affordable.
    • Lack of preparedness and dependence: This exposes the poor state of preparedness and dependence on imports for essential goods required to meet the challenge of any major disease outbreak.
    • This shows that what is good for the company may not be good the country in all circumstances.
    • So, the overwhelming objective of private sector-led economic growth has proved to be disastrous.

    Pay attention to the impact on India. The following two points are very important.

    How economic liberalisation affected India’s ability?

    • In India, economic liberalisation has damaged the government’s capacity in two ways.
    • 1. It incapacitated the government to respond to emergencies based on credible information.
    • The dismantling of the ‘Licence Raj’ resulted in the elimination of channels of information for the government, which is crucial to make informed policy choices.
    • For example, it took the government several meetings to determine the production capacity of various pharmaceutical companies.
    • Similarly, there were difficulties in finding out India’s production capacity of PPE, medical devices and diagnostics.
    • 2. The logic and policies of economic liberalisation seriously undermined the manufacturing capabilities of health products in India.
    • The short-sighted policy measures, with the objective of enhancing profitability of the private sector, allowed the import of raw materials from the cheapest sources and resulted in the debasing of the API industry, especially in essential medicine.
    • According to a report of the Confederation of Indian Industry (CII), nearly 70% of India’s API import is from China.
    • The CII report lists nearly 58 API where the dependence is 90% to 100%.
    • The disruption in the supply of API due to the COVID-19 outbreak has impacted the production of not only medicines required for COVID-19 patients, but also of other essential medicines in India.
    • As a cost-effective producer of medicines, the world is looking to India for supply, but it cannot deliver due to its dependence on China.
    • This dependence has also forced India to impose export restrictions on select medicines.
    • Similar dependence exists with regard to PPE, medical devices and diagnostic kits.
    • The 100% dependence on Reagents, an important chemical component for testing, is limiting the capacity of the government from expanding testing because the cost of each test is ₹4,500.
    • Dangers of dependence: In the name of economic efficiency, India allowed unconditional imports of these products and never took note of the dangers of dependency.

    Loss of jobs and poor working conditions

    • Destruction of manufacturing base: Global supply/production chains destroyed the manufacturing base in developed and developing countries.
    • That also resulted in the loss of jobs and poor working conditions in these sectors.
    • Developing countries were asked to ease their labour protection laws to facilitate global production and supply chains popularly known as global value chains.
    • As a result, people were forced to work in precarious working conditions without any social security net.
    • This created an unorganised army of labourers and is preventing many developing country governments from effectively offering relief.

    Conclusion

    A virus has made us rethink our obsession with the economic efficiency theory. It implores us to put in place an industrial policy to maintain core capacity in health products so that we can face the next crisis more decisively.

  • Government must fix an upper limit for fiscal deficit

    D. Subbarao in this article discusses how the government is facing the hard choice of choosing between saving lives and saving the economy. On the government’s response on economic front he argues that the government, unlike the rich countries should keep an upper limit on its spending because of the dangers involved in unrestricted spending.

    Why the dilemma is sharpest for India?

    • This dilemma is arguably the sharpest for India.
    • Because of our high population density and poor medical infrastructure, any laxity in prevention can result in a huge health disaster.
    • On the other hand, an extended lockdown will force millions into the margins of subsistence, push small and large firms alike into bankruptcy, seriously impair financial stability and land us in a humanitarian and economic disaster.

    Why is the relief package criticised as too little?

    • After the lockdown, the government announced a relief package amounting to 0.8 per cent of GDP, that’s been criticised as being too little.
    • From a study of a sample of countries, the latest issue of The Economist reports that India’s lockdown has been the most stringent while its fiscal relief package is the smallest in proportion to GDP.

    What could be the reasons for a cautious approach in the relief package?

    • A possible explanation for the government’s timid fiscal response may be the fear of spooking the market.
    • For years, every economist and analyst has been warning the government of the dire consequences of fiscal irresponsibility.
    • And that warning message must have been so hardwired into the government’s collective mind that it was unable to get over the mental overhang.

    We should be aware of the reasons from the macroeconomic point of view that force the government to limit its fiscal deficit. In this case, India government is exercising the caution owing to the same constraints.

    Uncertainties in the crisis

    • Uncertainty is a defining feature of every crisis.
    • During the global financial crisis, a big uncertainty around the world was about how much risk there was in the system, where it lay and who was bearing it.
    • The uncertainty of the corona crisis is much deeper.
    • There are far too many known unknowns not to speak of unknown unknowns.
    • Uncertainties in corona crisis: We just don’t know enough about the effectiveness of the lockdowns, the age and gender profile of susceptibility to the virus.
    • We also don’t know about the process of recovery, the tipping point if any for mass immunity, whether the virus will attack in waves.
    • And most importantly, when we might have a vaccine and a cure.
    • Governments are, for the large part, having to fly blind.

    Issues over relief and stimulus package

    • There are many issues to be decided and planned on the way forward.
    • A big issue will be an expenditure plan for relief during the crisis and stimulus after some normalcy is restored.
    • Borrow more spend more: Even the most ardent fiscal hawks are now agreed that the government needs to abandon its fiscal reticence, and borrow more and spend more.
    • Even the most extreme monetary purists are agreed that the RBI should fund the government borrowing by printing money.
    • Even the staunchest advocates of financial stability are agreed that more regulatory forbearance is necessary.
    • And virtually everyone is agreed on where additional spending should be directed.

    Debate on how much additionally the government should borrow

    • There is disagreement on how much additionally the government should borrow.
    • There are two opposing views in this regard, which are discussed below.
    • 1. Fiscal risk without preset fiscal deficit: One view is that the government should err on the side of taking a fiscal risk without any preset fiscal deficit number.
    • It should simply determine what needs to be done and borrow to that extent, acting as if there were no fiscal constraint at all.
    • In other words, act as per the diktat of the now famous three words — “whatever it takes”.
    • 2. Set a limit: An opposing view is “whatever it takes” is not an option for India.
    • Many analysts have estimated that just the loss of revenue due to the economic shutdown will take the combined fiscal deficit of the Centre and states beyond 10 per cent of GDP.
    • The borrow and spend programme will be in addition to the above loss.
    • Unlike rich countries, we can’t afford to ignore the risks of fiscal excess of that magnitude, no matter the compelling circumstances.
    • What are the risks involved? There will be a heavy price to pay down the road by way of inflation and exchange rate volatility.

    From the UPSC point of view you must pay attention to the both the arguments made here, question can be asked in UPSC based on the suggestions and their pros and cons. Both the arguments cited above have their merits and demerits.

    Way forward

    • It’s important to keep in mind that we have resources and capability in the near future should there be another wave of the virus later in the year.
    • It will be advisable for the government to fix an upper bound for fiscal deficit and operate within that. For now, the borrow and spend programme should be restricted to 2 per cent of GDP.

  • Making use of technology to trace Covid-19 cases

    The article argues for the greater adoption of technology in tracing the Covid-19. Taking a cue from the success of JAM and UPI, recently launched app Aarogya Setu could also be the next game-changer in the fight against the pandemic. However, there are several challenges that are also discussed here.

    Success story of domestic digital platforms

    • The success of two domestic digital payment platforms offers us an opportunity to show how the tracing of COVID-19 cases can be done at scale and with greater speed.
    • The JAM (Jan Dhan-Aadhaar-Mobile) trinity for DBTs (Direct Benefit Transfers) and UPI (Unified Payments Interface) have made India a technology leader in money transfers.
    • The JAM has lent efficiency to the transfer of funds to the needy.
    • It was drafted into action recently to channel payments to the more vulnerable who need help in dealing with the adverse economic consequences of the lockdown.
    • The UPI is emerging as a transaction vehicle of choice for all retail payments.
    • In March, 148 banks were on the UPI platform, helping process over 120 crore transactions worth over Rs 2 lakh crore.

    The success story of the UPI and JAM is important from the UPSC point of view. Riding on the success of these two, the Aarogya Setu could also become the third and help in the fight against the epidemic. So, we should be aware of the basics of its working and problems the app could face.

    How the Aarogya Setu works?

    • Widespread adoption is required: The success of India’s Aarogya Setu mobile application will depend on its widespread adoption.
    • Based on bluetooth technology: The app relies on bluetooth technology to map and deconstruct the contact history of individuals who may have come in contact with potential carriers of the coronavirus.
    • Exchange of information between apps: If two individuals are at the same place at the same time, their apps can exchange information-up to a maximum distance of about 15 feet.
    • Exchange of the above information is without the server knowing anything about it.
    • The app notifies users and authorities of individuals who are at risk.
    • Privacy safeguards: Some privacy safeguards have been put in place to ensure that individuals do not share personally identifiable information with each other but only with authorities — that too, in select cases.
    • A confidence-building measure would be to release the code for public scrutiny with the aim of further bolstering privacy standards.

    What are the possible challenges in the success of Aarogya Setu?

    • The distribution of the detection framework necessitates a rethink, beyond an app.
    • Issues with app download in India: Nandan Nilekani has underlined that app downloads in India are perhaps the most expensive compared to any other developed or fast-developing nation.
    • Despite the falling cost of data, Indian users consider several factors before downloading an app such as required storage space, the potential impact on battery and data usage.
    • Given India’s open internet, several publishers from across industries and geographies are vying for smartphone real estate.
    • Challenge involved: In such a situation, drawing attention to particular use-cases i.e. Aarogya Setu-howsoever urgent-is challenging.

    Following are the suggestions to overcome the shortcoming of the Aarogya Setu. Though they are for Aarogya Setu, we can apply these in other situations in which mobile technology bases app is used by the government in the larger public interest such as rescue operation or warnings in case of disaster.

    So, what could be the alternate strategy?

    • The alternative strategy involves using the reach of the other famous apps (for ex. Paytm) to do what we want to do i.e. tracing by delinking.
    • Delinking involves separating the technology we want to use for tracing (the backend) from the channels (the front end).
    • A fine-tuned backend can be pushed to, and used by, publishers (other apps) who already have the reach.
    • Similarity with UPI: This is akin to the UPI being used by several banks and technology firms for payment.
    • The government did build its frontend in the form of the BHIM (Bharat Interface for Money) app but mostly for signalling purposes.
    • In the current context, the government can consider using its own app for tracing and for additional use-cases such as passes and approvals for movement when the lockdown is gradually eased out.
    • It could even host other health-related features.
    • Expanding its ambit and making it a conduit like JAM will likely increase the incentive for people to embrace it.

    Limitations of using GPS and Bluetooth for tracing in India

    • Another area where improvisations are called for is the tooling for tracking.
    • While reports have indicated that the developers are using bluetooth for tracing and are also capturing GPS coordinates, both users and device manufacturers limit their usage of these technologies in favour of other optimisations.
    • Users are concerned with both data and battery usage while device manufacturers kill background jobs even if the publishers have sought and secured permissions from users.
    • These tendencies are pronounced on Android, the dominant mobile operating system in India.
    • What are the other options? In such a scenario, developers ought to think about using other techniques.
    • For instance, using cell tower data and WiFi identifiers to bolster tracing efforts.
    • This is especially important in a context where only a third of our population has smartphones and even fewer people have devices with bluetooth capability.
    • Even the recently announced Google-Apple partnership may not have meaningful results in this setting.

    Conclusion

    With the potential ramifications of COVID-19’s spread in India and across the globe, the nation’s recent history of technological successes and a government committed to agile governance, the pandemic presents an opportunity for the country to show its people and the world how technology is a force of good.