Bills/Act/LawsDOMRExplainedGovt. SchemesHistorical Sites in NewsIOCRMains Onlyop-ed of the dayop-ed snapPIBPrelims OnlyPriority 1SC JudgementsSpecies in NewsStates in News
May 2020
M T W T F S S
 123
45678910
11121314151617
18192021222324
25262728293031

Coronavirus – Economic Issues

Where the “fiscal space” debate should focus?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Primary deficit, AQR

Mains level : Paper 3- Factors to be considered while deciding the size of stimulus package.

The article focuses on the “fiscal space” debate in India. So, what is this debate? This debate is focuses upon the size of the fiscal deficit this year in India, ways that could be used to finance it and upper limit of this deficit etc. But the author argues that we should focus on debt/GDP trajectory in the subsequent years. Besides this, he suggests what our policy intervention comprise.

Monetary policy and fiscal policy: Efficacy Vs. Space debate

  • In response to the economic disruption caused by Covid-19, monetary policy has moved swiftly and aggressively in many economies.
  • But questions remain on its incremental efficacy.
  • With a high level of uncertainty around, risk-averseness is evident in the financial systems.
  • This risk-averse tendency reduces the efficacy of lower rates and higher liquidity.
  • So, while monetary policy may have space, how much efficacy will it have?
  • Fiscal policy i.e. spending by the governments can have much efficacy.
  • But how much space does it have? Therein lies the debate.

Focus on Debt/GDP trajectory, not on level

  • The “fiscal space” debate in India has centred exclusively on this year’s deficit and how it will be financed.
  •  But a more holistic assessment of fiscal space should focus on two factors 1) the government’s inter-temporal budget constraint 2)  how India’s debt/GDP evolves in the coming years.
  • These two are the factors that rating agencies and foreign investors will eventually focus on.
  • Following are the question that debate should focus on.
  • How much will India’s debt/GDP jump up this year?
  • More importantly, what happens thereafter?
  • Will debt/GDP keep rising year after year? Or will it start declining?
  • As research has found, it’s typically the trajectory of debt/GDPmore than the level — that impacts future growth.

Evolution of debt

  • The evolution of debt is essentially a function of three variables:
  • 1) The primary deficit.
  • 2) Nominal GDP growth
  • 3) The government’s cost of borrowing.
  • The higher is the difference between growth and cost of borrowing, the greater is the depreciation of the existing debt stock.
  • High growth allows countries to “grow out” of their debts.
  • In contrast, high primary deficits worsen the debt burden.

Where does India stand?

  • India comes into COVID-19 with a debt/GDP of about 70 per cent.
  • A primary deficit across the Centre and states of about 2.5 per cent of GDP including the Centre’s extra-budgetary resources. — based on the Revised Estimates for 2019-20.
  • A weighted average sovereign borrowing cost of about 7.5 per cent (on the stock of debt) and an estimated pre-COVID nominal GDP growth of 7.5 per cent in 2019-20.
  • In other words, the favourable gap between growth and borrowing costs had closed.
  • With this backdrop, one can simulate what happens to debt/GDP in the coming years under different growth, fiscal and interest-rate scenarios.
  • What do we find?
  • Even under relatively benign scenarios –nominal GDP growth of 4 per cent and a fiscal expansion of 3 per cent of GDP this year- India’s debt/GDP will balloon towards 80 per cent by the end of the year.
  • But India will not be alone. Public debt is expected to balloon all over the world.
  • Instead, what will matter for sustainability is the trajectory of debt thereafter.
  • Does debt/GDP come down or keep going up in subsequent years?

 Fiscal space depends on potential growth in coming years

  • The subsequent trajectory of Debt/GDP depends overwhelmingly on medium-term growth.
  • Consider the following two scenarios and refer to the figure given below-
  • 1. Fiscal Deficit 6%
  • Consider that this year’s combined fiscal deficit widens by 6 per cent of GDP.
  • But the primary deficit is then consolidated back to 2 per cent of GDP in the next 3 years.
  • And as long as nominal GDP is 10 per cent in the medium term which corresponds to real GDP growth of 7 per cent.
  • Debt/GDP gets on to a constantly declining path after the third year.
  • This suggests a bigger fiscal intervention is sustainable but only if medium-term growth prospects are lifted in tandem.
  • 2. Fiscal Deficit 3%
  • Consider that this year’s deficit widens by “just” 3 per cent of GDP.
  •  But medium-term nominal GDP growth settles at 8 per cent that is, real GDP growth of 5 per cent.
  • Debt/GDP rises relentlessly for the next decade towards 90 per cent of GDP.

Key takeaway: focus on medium-term growth

  • This suggests even a relatively-conservative fiscal response this year becomes unsustainable if medium-term growth prospects are diminished.
  • Small changes in medium-term growth have large implications for fiscal sustainability.
  •  How much fiscal space India has to respond in the crisis year will depend crucially on what potential growth is likely to be in the coming years.
  • The more that India’s policy response can preserve, protect and boost medium-term growth — both through the nature of the policy intervention this year and the accompanying reforms — the larger the fiscal response India can mount.
  • Put more starkly, the fiscal debate between “need” and “affordability” is endogenous.
  • The medium-term sustainability of any fiscal package this year will depend on the nature of growth-enhancing interventions and reforms that accompany it.

So, what could the interventions comprise?

1. Keep small business afloat

  • Policy must ensure that all viable enterprises can survive the pandemic.
  • If economically-viable but illiquid small and medium enterprises go under, the implications both for unemployment and India’s underlying production capacity could be severe.
  • The government’s credit-guarantee scheme is, therefore, very important and should hopefully induce banks to provide much-need working capital to keep small businesses afloat.

2. Reforms in the finance sector

  • It is important to jump-start a risk-averse financial sector into funding an economic recovery, more broadly.
  • Last week’s bond market interventions which involved special liquidity and partial guarantee funds are important to ease conditions at the financial periphery.
  • Over time, however, liquidity must give way to capital and reform.
  • Following steps will be crucial to strengthening the financial sector-
  • 1)Pre-emptively recapitalising public sector banks for growth and resolution capital.
  • 2) Conducting an AQR for the NBFC sector after pandemic.
  • 3) Then converting well-run NBFCs into banks to avail of a stable deposit franchise.
  • 4) Modifying the incentives under which public sector banks operate.
  • Higher potential growth is only feasible if the financial sector is able to fund it.

3. Reforms in the other sectors

  • Real reforms must accompany those in the financial sector.
  • The government’s announcement on unshackling agriculture — if carried through to its logical conclusion — is potentially game-changing for farmers and will be a landmark reform for the sector.
  • As COVID-19 hastens the reorganisation of supply-chains within Asia, India must seize the moment to integrate into the Asian supply chain.
  • Revisit a Special Export Zone (SEZ) model with the appropriate regulatory environment to avoid the pitfalls of the past.
  • Path dependence will be key. If the first one or two SEZs succeed, it would create a powerful demonstration effect both externally to help attract more firms into India.
  • And internally inducing different states to compete to create their own SEZs to drive jobs and investment.

4. Social infrastructure and ways to pay for it

  • If the virus has taught the world anything, it’s the criticality of social infrastructure.
  • India will not be able to fundamentally alter its growth potential without crucial investments in health and education.
  • The government’s announcement to boost health spending is, therefore, very welcome.
  • But how will this be paid for? This is where policy must get creative.
  • Existing assets on the public sector balance sheet must be aggressively monetised to fund growth-enhancing investments in physical and social infrastructure.
  • This will simultaneously take the pressure off the fiscal and financial sectors, and deliver a productivity-enhancing swap on the public sector balance sheet.

The article is helpful to consolidate the basic understanding of the macroeconomic parameters of economy. Consider the question asked by UPSC last year “Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments”

Conclusion

Higher potential growth is the antidote to many pressures, from incomes to jobs to debt sustainability. To the extent this unprecedented crisis creates political space and capital to reform, the opportunity must be seized.


Back2Basics: Nominal GDP

  • Nominal gross domestic product is gross domestic product (GDP) evaluated at current market prices. 
  • GDP is the monetary value of all the goods and services produced in a country.
  • Nominal differs from real GDP in that it includes changes in prices due to inflation, which reflects the rate of price increases in an economy.

Primary Deficit

  • Primary deficit refers to the difference between the current year’s fiscal deficit and interest payment on previous borrowings.
  • It indicates the borrowing requirements of the government, excluding interest.
  • It also shows how much of the government’s expenses, other than interest payment, can be met through borrowings.

Debt/GDP ratio

  • The debt-to-GDP ratio is the metric comparing a country’s public debt to its gross domestic product (GDP).
  • By comparing what a country owes with what it produces, the debt-to-GDP ratio reliably indicates that particular country’s ability to pay back its debts.
  • Often expressed as a percentage, this ratio can also be interpreted as the number of years needed to pay back debt if GDP is dedicated entirely to debt repayment.

AQR- Asset Quality Rating

  • An asset quality rating refers to the assessment of credit risk associated with a particular asset, such as a bond or stock portfolio.
  • The level of efficiency in which an investment manager controls and monitors credit risk heavily influences the rating bestowed.
  • And because asset quality is an important determinant of risk that profoundly impacts liquidity and costs, analysts go to great lengths to make sure they issue the most accurate evaluations possible.
  • After all, their pronouncements can greatly affect the overall condition of a business, bank, or portfolio for years to come.

Policy Wise: India’s Power Sector

Proposed amendments could harm DISCOMs

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Electricity Act 2003.

Mains level : Paper 3- Problems of DISCOMs.

Despite several policy measures, DISCOMs continue to suffer from various issues. This article focuses on the comprehensive proposal to amend the Electricity Act 2003. But here’s a catch, we will be discussing some issues with proposed amendment. Let’s dive into our DISCOMs analysis.

Two-part tariff policy

  • At the core of DISCOM woes is the two-part tariff policy.
  • Two-part tariff policy was mandated by the Ministry of Power in the 1990s at the behest of the World Bank.
  • As more private developers came forward to invest in generation, DISCOMs were required to sign long-term power purchase agreements (PPA).
  • Under PPA, DISCOMs were committed to pay-  1) a fixed cost to the power generator, irrespective of whether the State draws the power or not, 2) a variable charge for fuel when it does.

How Over-optimistic projection led to losses?

  • The PPAs signed by DISCOMs were based on over-optimistic projection of power demand estimated by the Central Electricity Authority (CEA).
  •  The 18th Electric Power Survey (EPS) overestimated peak electricity demand for 2019-2020 by 70 GW.
  • The 19th EPS published in 2017, by 25 GW, both pre-Covid 19.
  • Thus, DISCOMs were locked into long-term contracts, ended up servicing perpetual fixed costs for power not drawn.
  • Due to the CEA’s overestimates, the all-India plant load factor of coal power plants is at an abysmal 56% even before COVID-19.
  • This means that coal power plants are generating electricity only 56% of what maximum these power plants are able to generate.

Renewable energy factor

  • Renewable impacted the power sector in the following 3 ways-
  • 1) From 2010, solar and wind power plants were declared as “must-run”.
  • This required DISCOMs to absorb all renewable power as long as there was sun or wind, in excess of mandatory renewable purchase obligations.
  • This means backing down thermal generation to accommodate all available green power.
  • This resulted in further idle fixed costs payable on account of two-part tariff PPAs.
  • 2)  Power demand peaks after sunset.
  • In the absence of viable storage, every megawatt of renewable power requires twice as much spinning reserves to keep lights on after sunset.
  • DISCOMs, especially in the southern region, have had to integrate large volumes of infirm power, mostly from solar and wind energy plants.
  • These renewable energy plants enjoy must-run status irrespective of their high tariffs.
  • The tariff is  ₹5/kwh in Karnataka and ₹6/kwh in Tamil Nadu for solar power.
  • All this even as the demand growth envisaged in the 18th EPS failed to materialise.
  • 3) In 2015 the Centre announced an ambitious target of 175 gigawatts of renewable power by 2022.
  • This followed with a slew of concessions to renewable energy developers, and aggravating the burden of DISCOMs.
  • Incidentally, China benefited by as much as $13 billion in the last five years from India’s solar panel imports.

So, what are the proposals in the Electricity Act-2020?

1. Sub-franchisees and  issues with it

  • The amendment proposes sub-franchisees, presumably private, in an attempt to usher in markets through the back door.
  • Issue:  Private sub-franchisees are likely to cherry-pick the more profitable segments of the DISCOM’s jurisdiction.
  • The Electricity Bill 2020 containing the proposed amendments is silent on whether a private sub-franchisee would be required to buy the expensive power from the DISCOM or procure cheaper power directly from power exchanges.
  • If it is the first, the gains from the move are doubtful since the room for efficiency improvements is rather restricted in the already profitable regions attractive to sub-franchisees.
  • If it is the second, DISCOMs will then be saddled with costly power purchase from locked-in PPAs and fewer profitable areas from which to recover it.

2. Concession to renewable

  • The amendment proposes even greater concessions to renewable power developers.
  • This would have a cascading impact on idling fixed charges, impacting the viability of DISCOMs even more.

3. Elimination of cross-subsidies

  • The most controversial amendment proposed, seeks to eliminate in one stroke, the cross-subsidies in retail power tariff.
  • This means each consumer category would be charged what it costs to service that category.
  • Rural consumers requiring long lines and numerous step-down transformers and the attendant higher line losses will pay the steepest tariffs.
  • The proposed amendments envisage that State governments will directly subsidise whichever category they want to, through direct benefit transfers.
  • Cross-subsidy is a fact of life in even private industries, soap, newspapers, or even utilities such as telecom.
  • But eliminating them in one stroke is bound to be ruinous to State finances.
  • There are also myriad problems with Direct Benefit Transfer.
  • This proposal is practically infeasible; if forcibly implemented, it will lead to chaos.

4. Selection of the State regulator

  • State regulators will henceforth be appointed by a central selection committee.
  • The composition of which inspires little confidence in its objectivity.
  • This could result in jeopardising not only regulatory autonomy and independence but also the concurrent status of the electricity sector.

5. Electricity Contract Enforcement Authority

  • Its members and chairman will also be selected by the same selection committee referred to above.
  • The power to adjudicate upon disputes relating to contracts will be taken away from State Electricity Regulatory Commissions and vested in this new authority.
  • This is being done ostensibly to protect and foster the sanctity of contracts.
  • This is also to ensure that States saddled with high-priced PPAs and idling fixed costs, yet forced to keep increasing the share of renewables in their basket, have no room for manoeuvre.

Consider the question “Despite various policy interventions, DISCOMs continue to suffer from financial woes. Analyse the reasons for their woes. Examine the proposals in the Electricity Act (Amendment) Bill 2020.”

Conclusion

Beyond a doubt, the Electricity sector requires change but we must try to bring holistic and participatory approach to find solutions.


Back2Basics: Electricity Act 2003

  • The act covers major issues involving generation, distribution, transmission and trading in power.
  • Before Electricity Act, 2003, the Indian Electricity sector was guided by The Indian Electricity Act, 1910 and The Electricity (Supply) Act, 1948 and the Electricity Regulatory Commission Act, 1998.
  • The Electricity Act 2003 consolidates the position for existing laws and aims to provide for measures conducive to the development of electricity industry in the country.
  • The act attempted to address certain issues that have slowed down the reform process in the country and consequently had generated new hopes for the electricity industry.

 

Coronavirus – Health and Governance Issues

Unanimity at WHO

Note4Students

From UPSC perspective, the following things are important :

Prelims level : WHO

Mains level : Paper 2- Role of WHO under scanner for handling corona pandemic.

WHO has been in news recently for all the wrong reasons. This article focuses on wide-ranging support for the resolution calling for the inquiry into the origin of the novel coronavirus. With this resolution, WHO has a chance to redeem its credibility. Until recently China seemed to be in the control of the global narrative on the pandemic. And now we witness near-unanimous support to this resolution.

Inquiry of the origin of the virus

  • International attention is riveted on the question of an inquiry into the origin of the corona-virus.
  • The call for an international investigation was first voiced formally by the Australian prime minister, Scott Morrison.
  • Beijing reacted with open threats of trade sanctions. But Canberra pushed the investigation ahead.
  • It is working with the European Union to promote a resolution at this week’s World Health Assembly (WHA), which brings ministers from all the member states of the WHO.
  • The resolution also calls for an “impartial, independent and comprehensive” evaluation into the international response to the corona pandemic.
  • The WHA has 194 members.
  • So, the entire international community — has a voice in addressing the key issues raised by the corona crisis by debating the resolution.

Wide support to the resolution

  • According to media reports, the resolution is close to gaining support from two-thirds of the WHA’s 194 members.
  • Australia and the EU hope to have the resolution approved unanimously.
  • Since the resolution does not mention China by name, Canberra and Brussels hope Beijing will not oppose the resolution.
  • They also hope to persuade Washington, which wanted tougher language including references to China, to endorse the resolution.
  • Whatever the fate of the resolution, the wide-ranging support it has got amidst the vocal Chinese opposition is impressive.

So, how effective is the resolution?

  • To be sure, the resolution was watered down to get the maximum possible backing at the WHO.
  • But it is said to have enough teeth to dig deep into the issues raised by the corona crisis.

How China controlled the corona narrative until now?

  • A few weeks ago, it seemed China and the Director-General of WHO, had full control over the corona narrative on the issues involved.
  • The Trump administration’s aggressive questioning of China’s role and WHO DG’s role had not gone down well.
  • Nor did the US threat to cut off funding for the WHO.
  • Within the US itself, opposition Democrats and the foreign policy establishment has attacked Trump for trying to “divert attention”.
  • China’s success in quickly getting things under control at home and its expansive mask diplomacy seemed to give Beijing an upper hand at the WHO.
  • China’s growing clout in the developing world and bilateral economic levers against major developed countries, including in Europe, appeared to insure against any serious international questioning of its handling of the virus.
  • What factors played the role in the passing of the resolution?
  • 1) The public pressure from the US concentrated minds at the WHO.
  • 2) Some quiet diplomacy by middle powers, including India, appears to have created the political basis for learning the right lessons from the pandemic and preventing similar eruptions in the future.

Is it a setback for China?

  • Some observers see a unanimous approval of the resolution as a diplomatic setback for Beijing.
  • Since limiting the demands for an external inquiry has been a major political priority for Beijing.
  • There are similar demands at home for an investigation into a crisis that led to an enormous loss of life in China and punishing those responsible.
  • The leadership in Beijing is not comfortable with these demands.

Issues with the WHO that India must pay attention to

1. International norms for early detection

  • There is the need to develop new international norms that will increase the obligations of states and the powers of the WHO in facilitating early detection and notification of pandemics.
  • This will involve finding ways to bridge the contested notions of state sovereignty and collective security.

2. Funding of the WHO

  • If you have a club that depends on donations rather than membership fees, donors will inevitably set the agenda.
  • Over the decades, the WHO has become ever more reliant on voluntary contributions from governments and corporations rather than assessed contributions from the member states.
  • This is going to leave the WHO rather vulnerable to pressures.

3. WHO’s focus should be on fewer objectives

  • India must also ask if the WHO is trying to do too many things.
  • The WHO’s initial successes came when it focused on a few objectives like combatting malaria and the elimination of smallpox.
  • A limited agenda might also make the WHO a more effective organisation.

Way forward for India

  • India knows it is one thing to pass to a resolution and entirely another to compel a great power like China to comply.
  • Any current effort to understand the origin and spread of the COVID-19 virus and a long-term strategy to deal with future pandemics must necessarily involve more than a measure of Chinese cooperation.
  • Sustained engagement with Beijing, then, is as important for Delhi as deeper cooperation with Washington and the “Quad plus” nations.
  • India should also focus on more intensive engagement with the non-aligned nations in promoting a new global regime on preventing and managing pandemics.

Consider the question “Corona pandemic and its handling by the WHO resulted in the loss of its credibility. But the collective efforts of the nations which resulted in the passage of the resolution for inquiry of the origin of the virus, could soften the blow the credibility of WHO had suffered. Comment.”

Conclusion

For India, the widespread support for the resolution is a vindication of its early call for transparency and accountability in the responses of China and the WHO to the pandemic. India should take initiative to ensure the reforms at WHO and the formation of global order for preventing and managing the global order.

Foreign Policy Watch: India-China

Are the U.S. and China entering a new Cold War?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Geopolitics after the Cold War era

Relations between the U.S. and China plunged to a new low in recent weeks. Ties between the two countries had started deteriorating well before the COVID-19 pandemic.

Practice question for mains:

Q. How will economic nationalism take a lead in the post-COVID-19 Asia? Discuss in context to the rising tensions between the US and China.

Heading for a new Cold War

  • The US President has recently threatened to “cut off the whole relationship” with China over the COVID-19 pandemic, which originated in Wuhan.
  • Earlier this month, the U.S. imposed visa restrictions on the Chinese journalists working in the country, limiting their work period to 90 days.
  • Last week, Trump extended for one more year a ban on U.S. companies from using telecom equipment made by “companies positing national security risks” (Huawei and ZTE row).

A new national policy

  • The rising tensions between the two superpowers have prompted many experts to warn of a new Cold War.
  • A chorus of American voices now argues that confronting China should become the organizing principle of U.S. foreign policy, akin to the Cold War against the Soviet Union.
  • Hawks in the Trump administration openly push for a more aggressive approach towards Beijing.
  • In 2017, the US’s National Security Strategy called China as “a revisionist power” seeking “to erode American security and prosperity” and “shape a world antithetical to U.S. values and interests”.

Why is the US confronting China?

  • Competition rules the relationship, and flexibility and mature handling are in short supply on both sides.
  • Uncertainty prevails, whether it on the question of resolving trade problems, or on the maritime front in the East and South China Seas, on technology, or on mutual mud-slinging on COVID-19-related issues.
  • Record high temperatures have been recorded in Sino-U.S. relations in recent years and the pandemic is no exception to this.
  • COVID-19 appears to have aggravated the crisis, pushing both countries, already reeling under trade, technology and maritime disputes, to take a more hostile position towards each other.

How has China responded?

  • China has frequently urged the United States to abandon its Cold-War mentality and zero-sum game mindset.
  • It has sometimes through the state-run media, hit back, calling Trump’s comments “lunacy” and Mike Pompeo, the U.S. Secretary of State, an “evil politician”.

A reminder of the ‘Novikov telegram’

  • In early April, China’s Ministry of State Security sent an internal report to the country’s top leaders, stating that hostility in the wake of the coronavirus outbreak could tip relations with the U.S. into a confrontation.
  • Intelligence community sees the report as China’s version of the ‘Novikov Telegram’, referring to a report Nikolai Novikov, the Soviet Ambassador in Washington, sent to Moscow in September 1946.
  • Laying out his analysis of the U.S. conduct, the report, sent to Russia said that the U.S. is determined on world domination and suggested the Soviet Union create a buffer in Eastern Europe.
  • Novikov telegram was a response to the “Long Telegram”, the 8,000-word report sent by George Kennan, an official at the U.S. Embassy in Moscow, to Washington.
  • It said that the Soviet Union was heavily armed and determined to spread communism, and peaceful coexistence was impossible.
  • Historians often trace the origins of the Cold War to these telegrams.

Nationalist overdrive in US

  • The current crisis in relations clearly shows that tensions will not go away. This situation is unlikely to ease until the U.S. Presidential election.
  • Post-election, temperatures could decrease, but a deep-rooted antipathy towards China has gripped the popular and political imagination in the U.S.
  • In China, the leadership and public opinion are both on a nationalist overdrive and the Trump administration is seen as the prime antagonist.

Relevance with the Cold War

  • There are similarities between the current crisis and the Cold War.
  • The political elites of both China and the U.S., like the Soviet Union and the U.S. back then, see each other as their main rivals.
  • We can also see this antagonism moving from the political elite to the popular perception — the targeting of ethnic Chinese professionals and others in the U.S. and of American individuals or entities in China is a case in point.

Conclusion

  • We don’t see the kind of proxy conflicts between the U.S. and China which we did during the Cold War.
  • The world is also not bipolar any more. There are third parties such as the EU, Russia, India and Japan.
  • These parties increasingly have a choice whether or not to align with either power as they see fit and on a case by case basis.
  • This leads to a very different kind of international order than during the Cold War.

Challenges ahead

  • The Cold War was out and out ideological between the communist and capitalist blocs.
  • For China, a country ruled by a communist party where the primary goal of all state apparatus is preserving the regime in power, it’s always been ideological.
  • The U.S. has started realizing this angle about China now. The Republican Party has ideological worldviews, too.
  • If Trump gets re-elected, the ideological underpinnings of the U.S.-China rivalry could get further solidified.

Back2Basics: Cold War

  • During World War II, the United States and the Soviet Union fought together as allies against the Axis powers.
  • However, the relationship between the two nations was a tense one.
  • Americans had long been wary of Soviet Communism and concerned about Russian leader Joseph Stalin’s tyrannical rule of his own country.
  • For their part, the Soviets resented the Americans’ decades-long refusal to treat the USSR as a legitimate part of the international community as well as their delayed entry into World War II, which resulted in the deaths of tens of millions of Russians.
  • After the war ended, these grievances ripened into an overwhelming sense of mutual distrust and enmity.

Capital Markets: Challenges and Developments

Minimum Public Shareholding (MPS) Requirement

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Minimum Public Shareholding (MPS)

Mains level : Not Much

The Securities and Exchange Board of India (SEBI) has relaxed the 25 per cent minimum public shareholding norm and advised exchanges not to take penal action till August 2020 in case of non-compliance.

A statement based question can be asked about the SEBI in the prelim asking-

If it is a statutory or quasi-judicial body ; Scope of its regulation; Appointment of its chairman etc..

What is a Public Shareholding Company?

  • A Public Shareholding Company is a company whose capital is divided into shares of equal value, which are transferable.
  • Shareholders of a Public Shareholding Company are not liable for the company’s obligations except for the amount of the nominal value of the shares for which they subscribe.

What is MPS requirement?

  • The 25 per cent MPS norms were introduced in 2013, whereby no listed company was permitted to have more than 75 per cent promoter stake.
  • The rules were aimed at improving liquidity and better stock price discovery by making higher float available with public.
  • The average promoter holding in India is among the highest globally.
  • Last year, the government had proposed to increase the minimum public float from the current 25 per cent to 35 per cent. It had met with opposition, forcing the government to drop the plan.

Why ease MPS norms?

  • The Sebi move is aimed at easing such compliance rules amid the disruptions caused by the coronavirus pandemic.
  • The decision has been taken after receiving requests from listed entities and industry bodies as well as considering the prevailing business and market conditions.
  • As per the norms, exchanges can impose a fine of up to Rs 10,000 on companies for each day of non-compliance with MPS requirements.
  • Besides, exchanges can intimate depositories to freeze the entire shareholding of the promoter and promoter group. This circular will come into force with immediate effect.

Back2Basics: Securities and Exchange Board of India (SEBI)

  • The SEBI is the regulator of the securities and commodity market in India.
  • It was first established in 1988 as a non-statutory body for regulating the securities market.
  • It became an autonomous body on 12 April 1992 and was accorded statutory powers with the passing of the SEBI Act 1992.
  • SEBI has to be responsive to the needs of three groups, which constitute the market:

1) issuers of securities

2) investors

3) market intermediaries

Judicial Reforms

Over 42,000 undertrials released to unclog prisons: NALSA report

Note4Students

From UPSC perspective, the following things are important :

Prelims level : NALSA

Mains level : Need for prison reforms in India

Legal services institutions have intervened to release 42,529 undertrial prisoners as well as 16,391 convicts on parole to de-congest prisons during the COVID-19 pandemic, a report from NALSA has said.

Practice question for mains:

Q. More than a century-old system of prisons in India needs urgent repair. Discuss with context to the increase in the cases of undertrials.

Decongesting the prison

  • There are 1,339 prisons with approximately 4, 66,084 inmates in India with the rate of occupancy at Indian prisons at 117.6% (a/c to NCRB).
  • The report stated that 243 undertrial prisoners had been granted bail and 9,558 persons in remand had been given legal representation across the country.
  • It said the highest number of undertrial prisoners released was 9,977 in Uttar Pradesh, followed by 5,460 in Rajasthan and 4,547 in Tamil Nadu, 3,698 in Punjab and 3,400 in Maharashtra.
  • Note: Prisons/ Prisoners/persons detained is a State subject under Entry 4 of List II of the Seventh Schedule to the Constitution of India.

Hardships of the undertrials

  • Right to a speedy trial is an integral part of the principles of fair trial and is fundamental to the international human rights discourse.
  • In Indian jails, most of the prisoners are undertrials, which are confined to the jails until their case comes to a definite conclusion.
  • In most of the cases, they end up spending more time in the jail than the actual term that might have had been awarded to them had the case been decided on a time and, assuming, against them.
  • Plus, the expenses and pain and agony of defending themselves in courts is worse than serving the actual sentence. Undertrials are not guilty till convicted.
  • In 2017, the Law Commission of India had recommended that undertrials who have completed a third of their maximum sentence for offences attracting up to seven years of imprisonment be released on bail.

About NALSA

  • National Legal Services Authority of India (NALSA) was formed on 9 November 1995 under the authority of the Legal Services Authorities Act 1987.
  • Its purpose is to provide free legal services to eligible candidates and to organize Lok Adalats for the speedy resolution of cases.
  • The CJI is patron-in-chief of NALSA while second seniormost judge of Supreme Court of India is the Executive-Chairman.
  • There is a provision for similar mechanism at state and district level also headed by Chief Justice of High Courts and Chief Judges of District courts respectively.
  • The prime objective of NALSA is speedy disposal of cases and reducing the burden of the judiciary.

Also read:

[Burning Issue] Need of Prison Reforms

Global Geological And Climatic Events

Super Cyclone Amphan and its threats

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Tropical Cyclones

Mains level : Rising events of Tropical Cyclone in India

The storm system in the Bay of Bengal, Amphan, developed into a super cyclone and is expected to make landfall along the West Bengal-Bangladesh coast very soon.

Realted PYQ:

Q. In the South Atlantic and South Eastern Pacific regions in tropical latitudes, cyclone does not originate. What is the reason? (CSP 2015)

(a) Sea Surface temperature are low
(b) Inter Tropical Convergence Zone seldom occurs
(c) Coriolis force is too weak
(d) Absence of land in those regions

Super Cyclone Amphan

  • Cyclone Amphan is a tropical cyclone formed over the Bay of Bengal that has intensified and likely to turn into a “super cyclonic storm (maximum wind speed is 224 kmph)”.
  • It has been named by Thailand.
  • Amphan is the equivalent of a Category 5 hurricane on the Saffir-Simpson Hurricane Wind Scale.
  • By the time it makes landfall in West Bengal, Amphan is expected to tone down into a category 4 Extremely Severe Cyclonic (ESC) storm with a wind speed of 165-175 kmph and gusting to 195 kmph.

What makes it a nightmare?

  • This is the first super cyclone to form in the Bay of Bengal after the 1999 super cyclone that hit Odisha and claimed more than 10,000 lives.
  • It is the third super cyclone to occur in the North Indian Ocean region after 1999 which comprises of the Bay of Bengal, the Arabian Sea and the northern part of the Indian Ocean.
  • The other two super cyclones were Cyclone Kyarr in 2019 and Cyclone Gonu in 2007.

Recent cyclones in the region

  • From 1965 to 2017, the Bay of Bengal and the Arabian Sea collectively registered 46 ‘severe cyclonic storms’.
  • More than half of them occurred between October and December.
  • Seven of them occurred in May and only two (in 1966 and 1976) were recorded in April, according to data from the IMDs cyclone statistics unit.
  • Cyclone Phailin in 2013 and the super cyclone of 1999 — both of which hit coastal Odisha — have been the most powerful cyclones in the Bay of Bengal in the past two decades in terms of wind speed.
  • Last year, Fani, which was an ESC made landfall in Odisha and ravaged the State, claiming at least 40 lives.

Back2Basics: Tropical Cyclones

  • Cyclones are formed over slightly warm ocean waters.
  • The temperature of the top layer of the sea, up to a depth of about 60 metres, need to be at least 28°C to support the formation of a cyclone.
  • This explains why the April-May and October-December periods are conducive for cyclones.
  • Then, the low level of air above the waters needs to have an ‘anticlockwise’ rotation (in the northern hemisphere; clockwise in the southern hemisphere).
  • During these periods, there is an ITCZ in the Bay of Bengal whose southern boundary experiences winds from west to east, while the northern boundary has winds flowing east to west.
  • This induces the anticlockwise rotation of the air.
  • Once formed, cyclones in this area usually move northwest. As it travels over the sea, the cyclone gathers more moist air from the warm sea and adds to its heft.

What strengthens them?

  • A thumb rule for cyclones is that the more time they spend over the seas, the stronger they become.
  • Hurricanes around the US, which originate in the vast open Pacific Ocean, are usually much stronger than the tropical cyclones in the Bay of Bengal, a relatively narrow and enclosed region.
  • The cyclones originating here, after hitting the landmass, decay rapidly due to friction and absence of moisture.

Grading of Cyclones

  • Tropical cyclones in the Bay of Bengal are graded according to maximum wind speeds at their centre.
  • At the lower end are depressions that generate wind speeds of 30 to 60 km per hour, followed by:
  1. cyclonic storms (61 to 88 kmph)
  2. severe cyclonic storms (89 to 117 kmph)
  3. very severe cyclonic storms (118 to 166 kmph)
  4. extremely severe cyclonic storms (167 to 221 kmph) and
  5. super cyclones (222 kmph or higher)

New Species of Plants and Animals Discovered

Species in news: Pinanga Andamanensis

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Pinanga Andamanensis

Mains level : NA

A rare palm endemic to the South Andaman Island is finding a second home at Thiruvananthapuram-based Jawaharlal Nehru Tropical Botanic Garden and Research Institute (JNTBGRI).

Last year one  species from our newscard : Species in news: Hump-backed Mahseer made it into the CSP 2019.  The ‘Abutilon ranadei’ flower in the newscard creates such a vibe yet again.

A stand-alone species being mentioned in the news for the first time often find their way into the prelims. Make a special note here.

Pinanga Andamanensis

  • Pinanga andamanensis is an IUCN critically endangered species and one of the least known among the endemic palms of the Andaman Islands.
  • The name is derived from ‘Penang’, the modern-day Malaysian state.
  • Its entire population of some 600 specimens naturally occurs only in a tiny, evergreen forest pocket in South Andaman’s Mount Harriet National Park.
  • It was originally described by the Italian botanist Odoardo Beccari in 1934.
  • His description was based on an old herbarium specimen collected by E.H. Man, a late-19th century assistant superintendent in the Andaman administration.
  • After that first identification, it was thought to be extinct till 1992.

Defence Sector – DPP, Missions, Schemes, Security Forces, etc.

[pib] Shekatkar Committee recommendations on Border Infrastructure

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Shekatkar Committee

Mains level : Significance of the Border Infrastructure

Government has accepted and implemented three important recommendations of the Committee of Experts (CoE) under the chairmanship of Lt General D B Shekatkar (Retd.) relating to border Infrastructure.

Practice question for mains:

Q. India’s unique geo-strategic location needs an all-weather and efficient border infrastructure. Comment.

About Shekatkar Committee

  • The military reforms committee – under Lt General (retd.) DB Shekatkar – was set up by then Raksha Mantri Manohar Parrikar in 2015.
  • The committee was established with a mandate for Enhancing Combat Capability and Rebalancing Defence Expenditure.
  • Shekatkar Committee had made recommendations on enhancing the combat potential of India’s three armed forces, rationalizing the defence budget etc.
  • The committee submitted its report on December 21, 2016. It had apparently exceeded its brief with some 200 recommendations.
  • A major recommendation is that the defence budget should be 2.5% to 3% of the GDP.

Recommendations on border infrastructure

  • On the matter related to creating border infrastructure, the Government has implemented the recommendation of CoE to outsource road construction work beyond the optimal capacity of Border Roads Organisation (BRO).
  • These were related to speeding up road construction, leading to socio-economic development in the border areas.
  • The other recommendation relating to the introduction of modern construction plants, equipment and machinery has been implemented.

Back2Basics: Border Roads Organisation (BRO)

  • The BRO develops and maintains road networks in India’s border areas and friendly neighboring countries and functions under the Ministry of Defence.
  • It is entrusted for construction of Roads, Bridges, Tunnels, Causeways, Helipads and Airfields along the borders.
  • Officers from the Border Roads Engineering Service (BRES) and personnel from the General Reserve Engineer Force (GREF) form the parent cadre of the Border Roads Organisation.
  • It is also staffed by officers and troops drawn from the Indian Army’s Corps of Engineers on extra regimental employment.
  • The BRO operates and maintains over 32,885 kilometers of roads and about 12,200 meters of permanent bridges in the country.