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April 2019

Banking Sector Reforms

[op-ed snap]Serious setback


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Impact of Supreme court order cancelling RBI circular on credit availibility and way forward


The Supreme Court order quashing a circular issued by the RBI on the resolution of bad loans is a setback to the evolving process for debt resolution.

Impact of this order

  • The voiding of the February 12, 2018 circular could slow down and complicate the resolution process for loans aggregating to as much as ₹3.80 lakh crore across 70 large borrowers, according to data from the ratings agency ICRA.

Need for the circular

1.Recognising defaults by Banks

    • The circular had forced banks to recognise defaults by large borrowers with dues of over ₹2,000 crore within a day after an instalment fell due.
    • And if not resolved within six months after that, they had no choice but to refer these accounts for resolution under the Insolvency and Bankruptcy Code.

2. Increasing share of  Bad loans

  • Mounting bad loans, which crossed 10% of all advances at that point
  • The failure of existing schemes such as corporate debt restructuring, stressed asset resolution and the Scheme for Sustainable Structuring of Stressed Assets (S4A) to make a dent in resolving them formed the backdrop to this directive.

3. Breaking nexus

  • The circular was aimed at breaking the nexus between banks and defaulters, both of whom were content to evergreen loans under available schemes.

4. Introducing Credit Discipline

  • It introduced a certain credit discipline — banks had to recognise defaults immediately and attempt resolution within a six-month timeframe, while borrowers risked being dragged into the insolvency process and losing control of their enterprises if they did not regularise their accounts.
  • RBI data prove the circular had begun to impact resolution positively.

Impact on Current banking situation due to order

  • It is this credit discipline that risks being compromised now.
  • It is not surprising that international ratings agency Moody’s has termed the development as “credit negative” for banks.

Faults with circular

  • It is true that the circular failed to take into account the peculiarities of specific industries or borrowers and came up with a one-size-fits-all approach.
  • It is also true that not all borrowers were deliberate defaulters, and sectors such as power were laid low by externalities beyond the control of borrowers.
  • The RBI could have addressed these concerns when banks and borrowers from these sectors brought these issues to its notice.
  • By taking a hard line and refusing to heed representations, the RBI may only have harmed its own well-intentioned move.

Way forward

  • it is now important for the central bank to ensure that the discipline in the system does not slacken.
  • The bond market does not allow any leeway to borrowers in repayment, and there is no reason why bank loans should be any different.
  • The RBI should study the judgment closely, and quickly reframe its guidelines so that they are within the framework of the powers available to it under the law.
  • Else, the good work done in debt resolution in the last one year will be undone.


Corruption Challenges – Lokpal, POCA, etc

[op-ed snap] Turf issues in fighting corruption


From UPSC perspective, the following things are important :

Prelims level : Appointment of Lokpal

Mains level : How to deal with overlap In jurisdiction among CBI, CVC and Lokpal



The Lokpal and Lokayuktas Act, 2013 is complicated. The appointment of India’s first Lokpal has not been received with great excitement.

Anti Corruption Mechanism in India

  • There are now three principal actors at the national level in the fight against graft:
    1. The Lokpal
    2. The Central Vigilance Commission (CVC)
    3. The Central Bureau of Investigation (CBI)

Apprehensions regarding the Lokpal

  • Some people have misgivings over the independence of the Lokpal.
  • They wonder how it will work with the other two so that the objective of cleansing public life is achieved with reasonable satisfaction.
  • Some critics allege that the Lokpal’s composition was dictated solely by the establishment led by the Prime Minister
  • But what about the Chief Justice of India, or his nominee, another important member of the Selection Committee?
  • Casting aspersions on the neutrality of the highest judicial authority in the country is unacceptable unless one can prove with reasonable material that he acted in a biased manner in choosing the first Lokpal.

Jurisdiction Issues among all agencies

  • What is worrying is how well the CVC and CBI are going to play a complementary role in upholding the objective for which the Lokpal has been appointed.
  1. The overlap between CBI and Lokpal
  • The Lokpal has jurisdiction over Group A and B public servants.
  • This does not deprive the CBI of its own jurisdiction over these two groups.
  • The Lokpal Act permits using the CBI (referred to by the Act as the Delhi Special Police Establishment, from which the CBI was born) for examining a complaint against a public servant for misconduct.
  • Although the Lokpal has its own Inquiry Wing, it can nevertheless forward a complaint to the CBI for a preliminary inquiry, and thereafter for registering a regular case under the Prevention of Corruption Act, 1988.
  • It is not clear what happens when such a complaint is already being inquired into by the CBI.
  • Legally speaking, the government, in addition to the Lokpal, is competent to order a preliminary inquiry and permit the CBI to proceed with a regular case.
  • It is also to be remembered is that the CBI can register a case even without the government’s nod in instances in which a public servant is caught red-handed while receiving a bribe.

2.Superintendency issue

  • If an individual lodges a complaint with the government and the Lokpal, what should the Lokpal do? Does it have the authority to give direction to the CBI to keep its hands off the matter and wait for the Lokpal’s own Inquiry Wing to handle the matter?
  • The act gives the impression that superintendency over the CBI is shared by the Lokpal and the government, and neither is in exclusive command of the former. Can the Lokpal order the CBI to suspend its inquiry in respect of a complaint and report on it to the exclusion of the government?


  • The initial days are going to be difficult in terms of coordination. Everything will depend on how well the Lokpal and the government sink their egos and concentrate on the fundamental objective of striking at corruption without getting bogged down by technicalities.
  • All these imponderables, however, do not reduce the utility of a highly placed ombudsman.
  • It may finally boil down to Lokpal’s perception of what his role is.
  • He can certainly shape the future of this experiment.



Air Pollution

State of Global Air Report, 2019


From UPSC perspective, the following things are important :

Prelims level : State of Global Air Report 2019

Mains level : Air pollution related deaths in India and across the world

  • The current high level of air pollution has shortened the average lifespan of a South Asian child by two-and-a- half years while globally the reduction stands at 20 months, according to a global study released.

State of Global Air Report, 2019

  • State of Global Air 2019, published by Health Effects Institute (HEI), said exposure to outdoor and indoor air pollution contributed to over 1.2 million deaths in India in 2017.
  • The worldwide air pollution was responsible for more deaths than many better-known risk factors such as malnutrition, alcohol abuse and physical inactivity.
  • Overall, long-term exposure to outdoor and indoor air pollution contributed to nearly 5 million deaths due to stroke, diabetes, heart attack, lung cancer, and chronic lung disease in 2017.

India’s performance

  • In India, air pollution is the third highest cause of death among all health risks, ranking just above smoking; each year, more people globally die from air pollution-related diseases than from road traffic injuries or malaria.
  • The study found that China and India together were responsible for over half of the total global attributable deaths, with each country facing over 1.2 million deaths from air pollution in 2017.
  • China has made initial progress, and is beginning to achieve a decline in air pollution.
  • Out of these, 3 million deaths were directly attributed to PM2.5, half of which were from India and China together.
  • South Asian countries — Bangladesh, India, Nepal and Pakistan — led the world as the most polluted region, accounting for over 1.5 million air-pollution related deaths, according to the report.

Disasters and Disaster Management – Sendai Framework, Floods, Cyclones, etc.

Sudden release of water from dams worsened Kerala floods


From UPSC perspective, the following things are important :

Prelims level : EAP

Mains level : Disaster management in India

  • The amicus curiae appointed by the Kerala High Court to assist it in flood-related cases informed the court that the sudden release of water simultaneously from different reservoirs had aggravated the damage during the floods.

Poor dam management

  • The dams in Kerala did not have an effective flood control zone and flood cushions.
  • The flood cushion or flood control zone was a temporary storage space for absorbing high flow for alleviating downstream flood damage.
  • None of the dams in the State were operated or used for the purpose of flood control and moderation, despite the obligation to utilise them for flood control as per the stipulations under the National Water Policy, National Disaster Management Authority guidelines on flood and RTIO (real-time integrated operation).
  • It seemed that high reservoir storage and sudden release of water had resulted in worsening the floods.
  • Various alerts (blue/orange/red) were issued not in accordance with the EAP (Emergency Action Plan) guidelines.
  • No proper follow-up action and effective precautionary steps, especially for evacuating people and accommodating them in safe locations, were taken after the issue of red alert.

No EAP in dams

  • None of the dams had EAP (Emergency Action Plan) despite the mandate of the National Disaster Management Authority to have it by 2009.
  • The EAP was a written document prepared by the dam operator and it contained plans to prevent or lessen the impact of a failure of the dam or appurtenant structure.
  • It could be inferred that most of the major reservoirs were almost full before the extreme rainfall and they did not have the capacity to accommodate the additional flow.
  • This compelled the authorities to release substantial amount of water from reservoirs in a short span of time at the peak of the rainfall.
  • Almost all dams released water only after the water level crossed the FRL (Full Reservoir Level) or reached the MWL (maximum water level).


Amicus Curiae to the Court

  • An amicus curiae (literally, “friend of the court”; plural, amici curiae) is someone, who is not a party to a case and may or may not have been solicited by a party.
  • It is he/she who assists a court by offering information, expertise, or insight that has a bearing on the issues in the case; and is typically presented in the form of a brief.

RBI Notifications

Ways and Means Advances


From UPSC perspective, the following things are important :

Prelims level : WMA

Mains level : Liquidity management measures by RBI

  • RBI may trigger fresh floatation of market loans when Government utilizes 75% of the WMA limit.
  • The interest rate on WMA will be Repo Rate and overdraft will be 2% above the Repo Rate.

Ways and means advances (WMA)

  • The Reserve Bank of India gives temporary loan facilities to the centre and state governments as a banker to government.  This temporary loan facility is called Ways and Means Advances (WMA).
  • It is a mechanism to provide to States to help them tide over temporary mismatches in the cash flow of their receipts and payments.
  • It was introduced on April 1, 1997, after putting an end to the four-decade old system of adhoc (temporary) Treasury Bills to finance the Central Government deficit.
  • This facility can be availed by the government if it needs immediate cash from the RBI. The WMA is to be vacated after 90 days.
  • Interest rate for WMA is currently charged at the repo rate. The limits for WMA are mutually decided by the RBI and the Government of India.

Electric and Hybrid Cars – FAME, National Electric Mobility Mission, etc.

[pib] NuGen Mobility Summit 2019


From UPSC perspective, the following things are important :

Prelims level : NuGen Mobility Summit

Mains level : Issues related to adoption of the EVs in India


NuGen Mobility Summit, 2019

  • The International Centre for Automotive Technology (ICAT) is organizing a NuGen Mobility Summit, 2019, at Manesar, NCR.
  • The objective of the Summit is to share new ideas, learnings, global experiences, innovations and future technology trends for faster adoption, assimilation and development of advanced automotive technologies for a smarter and greener future.
  • The event aims to bring together the automotive OEMs, professionals, researchers, academic experts, vehicle system suppliers, test equipment supplier, quality managers, product planners, component developers, SAE members and students from all over the world.

About ICAT

  • The International Centre for Automotive Technology (ICAT), Manesar, located in the northern automotive hub of India, is a leading world class automotive testing, certification and R&D service provider under the aegis of NATRiP (National Automotive Testing and R&D Infrastructure Project).
  • It is a division of NATRIP Implementation Society (NATIS) under the Department of Heavy Industries, Government of India.
  • It provides services for testing, validation, design and homologation of all categories of vehicles.
  • It has a mission to assist the automotive industry in adopting cutting edge technologies in vehicle evaluation and component development in new generation mobility solutions.

Trade Sector Updates – Falling Exports, TIES, MEIS, Foreign Trade Policy, etc.

[pib] Indian Advance Pricing Agreement


From UPSC perspective, the following things are important :

Prelims level :  IAPA, BAPA

Mains level : The problem with multilateral agreements and what India needs to do to gain most from them


  • The Central Board of Direct Taxes has entered into 18 APAs in the month of March 2019, which includes 03 Bilateral APAs (BAPAs).

What is an APA?

  • The Advance Pricing Agreement (APA) program allows the taxpayer and the tax authority to avoid future transfer pricing disputes by entering into a prospective agreement.
  • An APA is a contract, usually for multiple years, between a taxpayer and at least one tax authority specifying the pricing method that the taxpayer will apply to its related-company transactions.
  • These programmes are designed to help taxpayers voluntarily resolve actual or potential transfer pricing disputes in a proactive, cooperative manner, as an alternative to the traditional examination process.
  • APAs gives certainty to tax-payers, reduces disputes, enhance tax revenues and make the country an attractive destination for foreign investments.
  • These agreements would be binding both on the taxpayer as well as the government. Similarly, they lowers complaints and litigation costs.

The International Transactions covered in all these Agreements, inter alia, include the following, – 

  • contract manufacturing
  • provision of software development services
  • back office engineering support service
  • provision of back office (ITeS) support services
  • provision of marketing support services
  • payment of royalty for use of technology and brand
  • trading
  • payment of interest