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Foreign Policy Watch: India-Afghanistan

Terrorist attack in Kabul’s Gurudwara

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 2- The US-Taliban pact and its implications for India.

Context

Attack on gurdwara underlines that the US-Taliban deal has brought Afghanistan no respite.

The futility of US-Taliban deal highlighted

  • The attack on a gurdwara in Kabul, in which 25 people were killed, has shown that the coronavirus may well be vanquished by science, but human beings will continue to inflict barbarity upon each other.
  • Within hours, it was claimed by the Islamic State, which later also said it had carried it out in revenge for Kashmir.
  • The deal not leading to peace: If there were still doubts left on this score, it must be clear after this attack that the US-Taliban deal was not an arrangement to return Afghanistan to peace.

Why the attack matters for India?

  • The gurdwara attack was the first strike after the agreement claimed by the IS.
  • A provision in pact: Under the pact, the Taliban have committed themselves to eliminate the Islamic State from Afghanistan.
  • Yet to start honouring commitment: If the IS claim is true, the Taliban have yet to begin honouring that commitment.
  • India’s reaction: Appearing to hint at something more sinister, the ministry of external affairs called the attack “diabolical” and condemned the “perpetrators and their backers”, a formulation usually reserved for attacks suspected to have emanated from or to have the backing of Pakistan.
  • Connection of attack with India: The Taliban’s operational leadership is now in the hands of Sirajuddin Haqqani of the Haqqani group, which has been blamed for several attacks on Indian targets, including the 2008 Indian Embassy bombing in Kabul.
  • The Taliban have denied having anything to do with the gurdwara attack, and Pakistan has condemned it strongly.
  • The question over IS in Afghanistan: Who, really, is the IS in Afghanistan is a question that security experts have been asking for some time now.

COVID-19 outbreak in Afghanistan

  • Appeal for ceasefire: The UN Secretary-General made an appeal for an immediate ceasefire in theatres of conflict across the world, to enable governments, health workers and humanitarian aid agencies to access those who might be most vulnerable to COVID-19.
  • The epicentre of the outbreak is Herat, where over 1,00,000 Afghans recently crossed over from Iran.
  • After the number of confirmed cases rose to 58, the province has been placed under lockdown.
  • But the government is hobbled in its efforts to contain the disease, both by a contested election result — Afghanistan has two presidents — and the burden of an agreement that has brought it no respite.

Conclusion

With the recently concluded US-Taliban deal delivering no peace and coronavirus spreading unabated, Afghanistan faces two contagions, new and old — COVID-19 and the relentless violence.

Coronavirus – Economic Issues

What the RBI has done to provide relief for the ongoing Coronavirus outbreak in India

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Banking rates and markets instrument.

Mains level : Paper 3- Steps taken by the RBI to revive growth and provide stability to economy.

Context

The RBI’s Governor’s ‘bazooka’ announcement earlier today has seen the usually conservative institution and its head pull out the big guns in word and action.

Four steps taken by the RBI

  • One, increase the liquidity in the system.
  • Two, make sure the lower policy rate is transmitted. Steps one and two are linked.
  • Three, give a three-month window for a payback on all term loans.
  • Four, take steps to reduce volatility and provide stability.
  • Big cut in repo rate: He announced a big cut in the repo rate by 75 basis points (100 basis points make a per cent, so three-quarters of a percentage point) to 4.4%.
  • What is the repo rate? Repo rate is the rate at which the banks borrow from the RBI. Banks give ‘eligible securities’ they hold for cash that RBI gives as an overnight loan.
  • Banks pay the repo rate as interest for this borrowing.

First two steps of the RBI: Increasing liquidity and ensuring policy rate transmission

  • Why lower repo rate matters? When the repo rate is high, banks find it costly to borrow and in turn raise the price of loans to their borrowers.
  • Reducing interest for the system: A low repo rate has the overall effect of reducing interest rates for the system. Lower rates make it easier for entrepreneurs to take loans for working capital and for households for homes, vehicles and so on.
  • Issue of policy rate transmission: Previous rate cuts have not been ‘transmitted’ by the banks who have not reduced lending rates and have preferred to keep money with the RBI at the ‘reverse repo rate’.
  • What is reverse repo rate? This is the rate at which banks lend to the RBI.

How RBI is ensuring transmission now?

  • The RBI has now reduced the reverse repo rate by 90 basis points to 4%.
  • This cut in reverse rape sharper than the one on the repo rate to encourage banks to borrow from the RBI rather than lend to it.
  • How reverse repo rate matters? Banks have preferred to deposit money with the RBI rather than lend it out with an average daily amount of ₹3 trillion being kept with the RBI.
  • A reduction of the reverse repo to 4% makes it unattractive to banks to park it with the RBI and banks will be nudged to lend.
  • Why bank lending matters for business? Bank lending provides the needed oxygen to businesses for their working capital and longer-term loans.
  • Read this as a measure to help banks take the decision to lend rather than play it safe by keeping money with the RBI.

How lock-down slows down the economy?

  • Rush to safety for money: If people are in a lock-down, the wheels of the economy begin to grind down and there is a rush to safety for money in the system.
  • Freezing of the markets market: Investors begin to redeem their shares, bonds and mutual funds. These redemptions cause a fire sale of assets. Finally, when there are no buyers, markets begin to freeze.

What are the measures taken by RBI to stabilise the market?

  • To keep the wheels of the markets well-oiled with cash, the RBI has made ₹3.74 trillion available. This it has done using four weapons.
  • The first measure: It has used targeted long-term repo operations.
  • RBI will lend money to banks (a total of ₹1 trillion) that can be invested in bonds and other forms of lending instruments.
  • What is a hold-to-maturity way? Under the hold-to-maturity way, the portfolio is valued not on the market price but on what the price should be given the rate of interest of the bond, the holding period and the rating of the bond.
  • Basically, it allows trades to happen at a price that is not confused with the current pandemic in the market.
  • The second measure: The RBI reduced the cash reserve ratio (CRR) by a full percentage point down to 3% for a year.
  • The CRR is the percentage of demand and time deposits banks have to keep with the RBI.
  • Why CRR and not SLR was reduced? There is another 18.25% of deposits that is also not used for lending under the Statutory Liquidity Ratio (SLR), further reducing the money banks have to lend.
  • RBI has reduced the CRR to 3%, freeing up ₹1.37 trillion for banks to lend. CRR has been chosen rather than SLR because this increases ‘primary liquidity’ with the banks a bit better.
  • Not only is there CRR rate down, banks now need to maintain 80% of the limit on a daily basis instead of 90% till June 26, 2020.
  • The third measure: ₹1.37 trillion will be made available under the emergency lending window called the marginal standing facility (MSF).
  • Banks will now be able to borrow 3% of their deposits under this window, up from the current 2%. Basically, RBI is willing to lend more than before.
  • How much more? ₹1.37 trillion under this window.

The third step of the RBI: Regulatory forbearance

  • What is the regulatory forbearance?

    What this means is that as economic activity grinds to a slowdown, people will not be able to pay back the loans they have taken for no fault of theirs.

  • This could be businesses with loans, households with EMIs on home loans and others with what are called ‘term loans’.
  • RBI will allow a moratorium of three months for loan repayment.
  • This is a relief especially for small entrepreneurs who have been forced to shut shop and for employees whose incomes have stopped since their place of work is shut.
  • It is good that the RBI has looked at the retail part of the market along with the corporate sector for once.
  • Working capital loans don’t come under the ‘term loan’ category, and these borrowers can defer paying interest for three months till June 2020.

The fourth step of the RBI: Measures to reduce volatility in the exchange rate

  • Fourth is a measure to reduce the volatility of the price of the rupee in international markets by allowing banks to deal in off-shore non-deliverable rupee derivative markets.
  • It looks like reform using the crisis to bring about this long-awaited change.

Conclusion

We don’t know if measures taken by the RBI and the government are enough. But what is comforting is that the government and the RBI are working in tandem to deal with this giant killer of a virus.

RBI Notifications

Regulation of Payment Aggregators (PAs)

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Payment Aggregators

Mains level : Regulation of online payment systems in India

The Reserve Bank of India released guidelines for regulating payment aggregators (PAs) and payment gateways (PGs), nearly six months after it first proposed regulating these entities in a discussion paper.

Payment Aggregators (PAs)

  • PAs are entities that facilitate e-commerce sites and merchants to accept various payment instruments from the customers for the completion of their payment obligations.
  • PGs are entities that provide technology infrastructure to route and facilitate the processing of an online payment transaction without any involvement in the handling of funds.
  • With the new set of guidelines PAs and PGs such as Paytm, Pay Pal, Mobikwik, Razorpay, PayU, CCAvenue etc. will be regulated by RBI to ensure the safety of all our online transactions.

What are the new guidelines?

The new guidelines say that-

  • A payment aggregator (entities that facilitate e-commerce sites and merchants to accept various payment instruments) should be a company incorporated in India under the Companies Act, 1956 / 2013.
  • Non-bank entities offering payment aggregator services will have to apply for authorisation on or before June 30, 2021.
  • E-commerce marketplaces providing payment aggregator services will have to be separated from the marketplace business and they will have to apply for authorisation on or before June 30, 2021.
  • Pas existing today will have to achieve a net worth of ₹15 crore by March 31, 2021 and a net worth of ₹25 crore by the end of third financial year, which means or before March 31, 2023.
  • The net-worth of ₹25 crore shall be maintained at all times thereafter.

Coronavirus – Disease, Medical Sciences Involved & Preventive Measures

Serological test for COVID-19

Note4Students

From UPSC perspective, the following things are important :

Prelims level : COVID 19 diagnosis

Mains level : Coronovirus outbreak and its mitigation

The ICMR invited bids for an estimated 10 lakh antibody kits (for serological tests) for the diagnosis of COVID-19.

What are serological tests?

  • Viral infections are mainly identified by two kinds of tests– genetic and serological.
  • Genetic tests can identify infections that are active but cannot be used to detect past infections.
  • To trace how infections like the novel coronavirus have spread so far, it is important to detect people who contracted the disease in the past and have recovered.
  • This is what serological tests seek to determine.

How are the two different?

  • The genetic test is conducted on a swab collected from the back of the throat, a liquid sample from the lower respiratory tract, or a simple saliva sample.
  • For SARS-COV-2, the virus’s RNA is first converted into DNA.
  • By a process called polymerase chain reaction (PCR), DNA fragments in the sample are copied exponentially — one is copied into two, the two are copied into four, and so on.
  • Unlike genetic tests, which look for RNA in swab samples, serological tests work on antibodies in blood samples. Hence, they are also called ‘antibody tests’.

How serological tests work?

  • Antibodies, or protective proteins produced by the immune system to neutralize pathogens such as bacteria and viruses, are present in one’s bloodstream for a considerable period of time after the infection has gone.
  • To disable a pathogen, the antibody latches to a unique protein molecule on pathogen’s surface, called an antigen.
  • Serological tests use antigen molecules to detect the presence of antibodies relevant to the infection.
  • Generally, a blood sample is placed in a test tube that is lined with antigens on the inside. If the relevant antibodies are present, they latch on to the antigens.
  • Such tests are relatively inexpensive, and can display results within a few minutes.

G20 : Economic Cooperation ahead

[pib] Virtual Summit of G20 Leaders

Note4Students

From UPSC perspective, the following things are important :

Prelims level : G-20 countries

Mains level : Global cooperation for COVID-19 pandemic

A Virtual G20 Leaders’ Summit was recently convened yesterday to discuss the challenges posed by the outbreak of the COVID-19 pandemic and to forge a globally coordinated response.

About G20

  • Formed in 1999, the G20 is an international forum of the governments and central bank governors from 20 major economies.
  • Collectively, the G20 economies account for around 85 percent of the Gross World Product (GWP), 80 percent of world trade.
  • To tackle the problems or the address issues that plague the world, the heads of governments of the G20 nations periodically participate in summits.
  • In addition to it, the group also hosts separate meetings of the finance ministers and foreign ministers.
  • The G20 has no permanent staff of its own and its chairmanship rotates annually between nations divided into regional groupings. 

Aims and objectives

  • The Group was formed with the aim of studying, reviewing, and promoting high-level discussion of policy issues pertaining to the promotion of international financial stability.
  • The forum aims to pre-empt the balance of payments problems and turmoil on financial markets by improved coordination of monetary, fiscal, and financial policies.
  • It seeks to address issues that go beyond the responsibilities of any one organisation.

Member Countries

The members of the G20 consist of 19 individual countries plus the European Union (EU).

  • The 19 member countries of the forum are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom and the United States.
  • The European Union is represented by the European Commission and by the European Central Bank.

 Who are the G20 Sherpas?

  • A Sherpa is the personal representative of a head of state or government who prepares an international summit, particularly the annual G7 and G20 summits.
  • Between the summits, there are multiple Sherpa conferences where possible agreements are laid out.
  • This reduces the amount of time and resources required at the negotiations of the heads of state at the final summit.
  • The Sherpa is generally quite influential, although they do not have the authority to make a final decision about any given agreement.
  • The name is derived from the Sherpa people, a Nepalese ethnic group, who serve as guides and porters in the Himalayas, a reference to the fact that the Sherpa clears the way for a head of state at a major summit.

Coronavirus – Disease, Medical Sciences Involved & Preventive Measures

[pib] Project ‘Isaac’

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Project 'Isaac'

Mains level : Not Much

IIT, Gandhinagar has launched Project Isaac to engage its students in creative projects to enhance their critical skills while they are confined to their homes because of Coronavirus.

Project ‘Isaac’

  • The project is inspired by Sir Isaac Newton, who was similarly sent home by Trinity College, Cambridge, because of the Great Plague of London in 1665.
  • During this year, Newton, then a 22-year-old college student developed some of his most profound discoveries, including early calculus, as well as his theories of optics and gravity.
  • As part of the project, four different competitions are being organized by IIT, Gandhinagar to cultivate new skills among students regarding writing, painting, coding, music, creative expression, and so on.
  • Students can take part in competitions online.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

What is Keqiang Index’?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Keqiang Index

Mains level : NA

China’s GDP numbers which are preferably represented by Keqiang Index has been recently seen in news amid coronavirus outbreak.

Keqiang Index

  • Li Keqiang index or Keqiang index is an economic measurement index created by The Economist to measure China’s economy using three indicators, as reportedly preferred by Li Keqiang.
  • It uses three other indicators:
  1. the railway cargo volume,
  2. electricity consumption and
  3. loans disbursed by banks
  • Li Keqiang currently the Premier of the People’s Republic of China, suggest the index as better economic indicator than official numbers of GDP.

Coronavirus – Economic Issues

Let’s use follower’s advantage

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 2- Learning from the experience of South Korea in designing the policies to deal with coronavirus.

Context

How this coronavirus pandemic threat will pan out no one knows but what we do know is that the intensity of the challenge and its impact on our well-being will depend greatly on how we reach out to ordinary people, and the policies we implement.

Historical perspective and comparison

  • Compared to the fatality numbers of some earlier pandemics, such as the Asian flu, 1957-58 (1.1 million dead) and Hong Kong Flu, 1968 (2 million dead), the fatality numbers of the current coronavirus pandemic are, as yet, nowhere near.
  • One of the most comprehensive studies on the pandemic, by the Imperial College of London, shows that the “case fatality rate”, or fatality among those who get coronavirus is 0.9 per cent — this means a 99.1 per cent survival rate among the people who get it.
  • What makes this pandemic special is that it is happening in the age of digital connectivity and greater scientific knowledge than we have ever had.
  • We can inform people quickly and take big steps to contain it.
  • But this also has a danger we have never faced.
  • Policy actions can have a mega backlash on the economy.
  • We are in uncharted territory — never before have we taken the kind of collective action against a pandemic as we are doing now.

Time to collectively confront our common humanitarian challenge

  • Using the experience of South Korea: There is some evidence from history, and from the country that has been the most successful in dealing with this pandemic —South Korea.
  • The country’s success has saved lives, protected the economy from undue damage, boosted the popularity of the Korean President Moon Jae-In across political divides and raised the global standing of South Korea.
  • France’s President Emmanuel Macron and Sweden’s Prime Minister Stefan Lofven have consulted Moon Jae-In for advice.
  • We have some evidence and estimates about the kind of damage this pandemic can do.
  • China’s industrial production in January-February 2020 declined by 5 per cent compared to a year ago.
  • Goldman Sachs has estimated that the US’s GDP growth could decline 24 per cent for the second quarter this year.
  • Data are coming in on recent US unemployment claims climbing by 30 per cent.
  • This is clearly time to put political differences aside, and collectively confront our common humanitarian challenge.

Designing policy to deal with the pandemic

  • Economic implications: In designing policy, it is important to realise that all interventions to contain the pandemic have economic implications.
  • Some people react to this by saying that our first priority is to save lives, not the economy. This is a mistake. The two are not separate matters.
  • A poorly-executed policy can damage the economy and this can end up taking more lives than the original problem.
  • Examples of policy doing damage to lives: We have examples of the damage policies can do from history. In 1958, Mao Zedong initiated the Great Leap Forward to boost China’s production. This unleashed the biggest famine in modern times, which resulted in 20 to 40 million deaths.
  • The Bengal Famine of 1943 occurred with no decline in food production but there were disruptions in supply chains from the farms to those who needed food.
  • The death toll was two to three million. Such evidence from the past warns us that policies not designed well can cause more deaths than the pandemic itself.

Three lessons from South Korea

  • We already have three lessons from Korea, which are being widely discussed in newspapers and the media around the world.
  • First, you need strong leadership.
  • Second, it is critically important to have trust between society and government. There is only that much you can do if people do not cooperate.
  • Third, the need is for nuanced policies, with the government having the courage to make course correction as it goes along.

Way forward

  • First, trust can be a casualty with the lockdown. There are reports of the police wielding the baton too quickly on ordinary vendors, small grocers and sellers. They need to explain to people so that they begin to actually cooperate, instead of complying only when under observation. That is the key difference between a trusting society and a trustless one.
  • The government cannot be a substitute for the private firms: To believe that small traders and private firms can be substituted by the government is the mistake Communist China made in the 1960s and 1970s, before the arrival of Deng Xiaoping.
  • An example of the importance of specialised knowledge — this applies to the US as well — pertains to the role of cash grants to the poor. Such grants work well in normal times but may need to be supplemented with the direct support of food and medical services.

Conclusion

Some say that the Korea analogy is of no use to us because it is a relatively small country. It is true that everything will not apply here. But on the other hand, Korea and Hubei province of China are very comparable. Korea’s population is 52 million, Hubei’s is 58 million. The number of people who died of the virus in Korea is 126. The figure for Hubei is 3,160. Korea, of course, had the follower’s advantage since the virus struck there later. But we too have that advantage.