Note4Students
From UPSC perspective, the following things are important :
Prelims level: Reverse Vaccinology
Mains level: Coronovirus and the hunt for its vaccine
The Tamil Nadu Dr. MGR Medical University has developed a vaccine candidate against SARS-CoV-2 through ‘reverse vaccinology’.
A definition based prelims question can be expected on Reverse Vaccinology. Ex. Which of the following statements best describes ‘Reverse Vaccinology’?
Reverse Vaccinology
- Reverse vaccinology is an improvement on vaccinology that employs applied bioinformatics.
- The basic idea behind it is that an entire pathogenic genome can be screened using bioinformatics approaches to find genes.
- Some traits that the genes are monitored for may indicate antigenicity.
- Those genes are filtered for desirable attributes that would make good vaccine targets such as outer membrane proteins.
- Once the candidates are identified, they are produced synthetically and are screened in animal models of the infection.
- Since then, it has been used on several other bacterial vaccines.
Benefits
- Earlier researchers had to do a viral culture in the laboratory to develop a vaccine, and this was time-consuming.
- The major advantage for reverse vaccinology is finding vaccine targets quickly and efficiently.
- Traditional methods took decades to unravel pathogens and antigens, diseases and immunity
- With ‘reverse vaccinology’ scientists know what molecules make the genomic sequence.
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From UPSC perspective, the following things are important :
Prelims level: Asset-to-liability mismatch, Types of debt markets, Priority sector lending certificates, roll-over etc.
Mains level: Paper 3- What is the importance of debt market for the economy of a country? What are the factor responsible for the shallowness of the India's debt market?
India’s bond market suffers from several issues. This article discusses such issues, and also highlights the recent positive trends seen in the debt market owing to several steps taken by the government.
The Indian debt market, primarily of the fixed-income variety, can be broadly classified into:
- 1. Money Market
- Where the borrowing is for a tenor of less than a year.
- Different types of money market instruments: Inter-Bank Term Money, repo transactions, Certificate of Deposits, Commercial Papers, T-Bills, etc. are some of the money market instruments.
- Through these instruments, short term requirement of funds is met by banks, institutions and the state and central governments.
- 2. Bank and Corporate Deposits
- Bank fixed deposits (FDs) have been popular and widely subscribed to, as the feeling of no-default-risk.
- Corporate deposits are FDs issued by a company (non-bank).
- 3. Government Securities
- G-Secs are sovereign-rated debt papers, issued by the government with a face value of a fixed denomination.
- 4. Corporate & PSU Bond Market
- Corporate bonds are issued by public sector undertakings (PSUs) and private firms.
- These bonds are issued for a wide tenor between 1 year – 15 years.
- These bonds carry a different risk profile and hence will have associated rating.
Debt market plays a significant role in the economy of a country. But India’s debt market suffers from shallowness. Some of the steps taken by the government to improve the situation have been showing positive trends. In the light of this development, the UPSC can frame a direct question, for ex. “What are the factors responsible for the shallowness of the debt market in India? Suggest ways to increase the depth of the debt market in India.”
What are the problems of India’s debt market?
- Wholesale market: The Indian debt market is largely a wholesale market.
- It is a wholesale market in a sense that a majority of institutional investors comprises of mainly banks, financial institutions, mutual funds, EPFO, insurance companies and corporates.
- The concentration of these large players has resulted in the debt markets being fairly skewed, evolving into a wholesale & bilaterally-priced trades.
- Lack of retail sell and transparency: It also lacks the retailness and the contractual transparency that the Indian capital markets have been able to build in the past 2 decades.
- Skewed towards G-secs: Structurally, the debt market remains firmly skewed towards government securities (G-secs).
- Also, the largest investor group in the G-secs market are the banks, due to their regulatory requirement to invest in SLR.
- Low and unstable trading in the corporate bond market: The Indian corporate bond market has low & unstable trading volumes.
- Sadly, the corporate bond market remains largely about top-rated financial and public sector issuances.
- The domestic debt managers have forgotten that the logic of the business of finance is “to price the risk”.
Regulation and comparison with other countries
- RBI regulates money markets & G-secs.
- SEBI regulates the Corporate debt market & bond markets.
- The domestic debt market in India amounts to about 67% of GDP.
- The size of India’s corporate bond market is a mere 16% of GDP — compared with 46% in Malaysia, and 73% in South Korea.
The recent positive trend in the debt market
- In the past few years, the domestic corporate bond market had seen increasing volumes, largely due to financial investments going into it, including retail participation.
- Also, the banks had ceded space to NBFCs over past many years.
- This is because banks found it easier to buy securitisation pools to achieve their PSL targets rather than develop competencies that NBFCs had built-in serving affinity groups, in smaller cities & towns.
- And post the ILFS crisis, the markets have started shunning non-banks again.
- Policy initiative by the government: The various policy initiatives undertaken in the last few years would take time to fructify and to stabilise.
- These include the IBC, SEBI’s bond market policies, RBI’s large borrower framework for enhancing credit supply.
- Some of these have already seen changes/addendums to the original draft, with the intent being to course-correct, for the stability of the markets.
Roll over of debt papers in India
- We have seen liquidity problems in our markets every few years.
- The concept of “roll-over” of debt paper was usual as our markets did not build long term papers.
- With the ILFS slowdown, it was easy for name-calling on “ALM mismatch” concept.
- Not much had been anyways done before and later to address the availability of debt to reduce the Asset-to-Liability mismatches.
- Also, we have played it safe so far by even lending for large infra projects with shorter paper and hoped to roll it over at the end of the debt term.
Conclusion
This is the time that our regulators need to work along with the various governments, especially the states, for smoother ironing of fiscal hiccups and use this to redress any structural glitches. It’s time that there is actual intent to deepen the domestic debt market and to listen to the industry about their requirements.
Back2Basics: What is ASM?
- Banks’ primary source of funds is deposits, which typically have short- to medium-term maturities.
- They need to be paid back to the investor in 3-5 years.
- In contrast, banks usually provide loans for a longer period to borrowers.
- Home loans, for instance, can have a tenure of up to 20 years.
- Providing such loans from much shorter maturity funds is called an asset-liability mismatch.
- It creates risks for banks that need to be managed.
- The most serious consequences of asset-liability mismatch are interest rate risk and liquidity risk.
- Because deposits are of shorter maturity they are repriced faster than loans.
- Every time a deposit matures and is rebooked if the interest rates have moved up the bank will have to pay a higher rate on them.
- But the loans cannot be repriced that easily. Because of this faster adjusting of deposits to interest rates asset-liability mismatch affects net interest margin or the spread banks earn.
Priority Sector Lending (PSL)
- Priority Sector Lending is an important role given by the (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low-income groups and weaker sections etc.
Roll over of debt
- When debt becomes due there is a need to either repay the principal or alternatively, to enter into a new agreement.
- Structurally, funds from the second debt are used to repay the first debt.
- Then you repay the second debt as required. Quite often these new terms will be agreed with the initial lender.
- In essence, you’re ‘rolling’ the repayment obligation from one period into the next.
- This all leads to rollover risk, which is the risk you that you won’t be able to find anyone willing to lend the value of the outstanding debt and/or offer a comparable rate as the first principle repayment obligation approaches.
- This may be due to either movement in the borrowers perceived credit status and/or changes to the broader credit environment.
- This was a key theme during the financial crisis of 2007 – 2008.
- The reasons for refinancing may include the above, but also other themes such as debt consolidation (which doesn’t directly imply a change to the debt term).
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From UPSC perspective, the following things are important :
Prelims level: 10 % condition for FDI.
Mains level: Paper 3-What are the implications of two dominant players in IT and telecom respectively coming together for data privacy and net neutrality?
Facebook’s decision to acquire a 9.99 per cent stake in the parent company of Reliance Jio could have several implications. It could impact retail stores which we are trying hard to protect by restricting FDI in retail. Second, it could have implications for net neutrality. Third, it would have implications for data privacy.
Implications for the country’s retail landscape
- Recently, Reliance Industries and Facebook announced that the California-based social media giant will acquire a 9.99 per cent stake in Jio Platforms limited, the holding company of Reliance Jio, for $5.7 billion (Rs 43,574 crore).
- At its core, the idea is to create an ecosystem around JioMart, enabling customers to access the local Kirana stores using WhatsApp, combining both offline and online retail.
- This ability to connect millions of local businesses with end consumers, and provide them a seamless online transaction experience could radically alter the country’s retail landscape.
- Both firms have stressed on the new opportunities for businesses of all sizes, and especially for the millions of small businesses across the country.
- With the ongoing lockdown in the country only reaffirming the importance of the local Kirana store — major online delivery channels have struggled to reach consumers during this period — integration is bound to be an enticing proposition.
Opportunities for cross-selling
- A scaling up of this model will also provide opportunities for cross-selling — significantly increasing the upside for firms and increasing the valuation of its retail arms.
- At present, though, the reach of WhatsApp Pay is limited — just over a million Indians are reported to currently have access to the pay feature.
- But this sort of model is popular in other Asian economies such as China, Korea and Japan where apps like WeChat have a wide range of product offerings, which induces consumer stickiness.
- This arrangement also allows Jio to greatly expand its product offering to its more than 370 million-odd subscriber base.
- The deal may also open up the entire WhatsApp consumer base of around 400 million — to Reliance, including those on other telecom platforms such as Airtel and Vodafone.
The following concern could arise from the deal and the UPSC can frame a question based on these concern, like ” Recently a global IT giant acquired a significant stake in an Indian telecom giant. Discuss the various issues which could arise from coming together of such dominant players.”
What are the concerns in such deals?
- Implications for consumer welfare: Given the dominant market position of the players, concerns over the market structure and its implications for consumer welfare are bound to arise.
- Questions over net neutrality: The tie-up also raises questions on net neutrality with the possibility of preferential treatment being granted.
- Data privacy issue: Third, given the data privacy issues highlighted in the past by the Cambridge Analytica episode, for instance, there are apprehensions over the enormous amounts of data that will be collected by these entities.
- This concern gains significance especially when India still does not have a personal data protection law.
Conclusion
Whenever two dominant players of respective fields come together, it gives rise to concern. The government must keep watch on the implications and how such a deal plays out in the future. If the concerns raised turn out to come true, maybe India should come out with the antitrust law of its own.
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From UPSC perspective, the following things are important :
Prelims level: WTO benchmark, Brent crude.
Mains level: Paper 3- What are the implications of oil price fluctuations for Indian economy?
This article discusses the factors that contributed to oil prices falling below zero, and where the prices are headed in the near future. There are suggestions for India to make the most of this oil crisis. In the last week, we covered the same topic but its focus was on increasing the storage capacity. This article also covers the geopolitical implications of oil prices remaining low for long.
What negative price of the benchmark US crude WTI mean?
- The collapse in the price of WTI reflected a technical peculiarity of futures trading.
- Paper traders would normally have had two options- 1) To let their contract expire and take physical delivery 2) To pass on the contract to someone else.
- The US was running out of crude oil storage capacity and traders knew they could not “risk” taking delivery.
- There was no physical space to hold the product.
- So their only option was to sell the contract.
- On the last day before the contracts expired, the traders in desperation “paid” to offload their risk.
- There was no physical transaction of oil.
- The current future price is back in positive territory.
The world running out of oil storage capacity
- The world and not just the US was fast running out of storage capacity.
- Production in excess of demand: This was because oil production was way in excess of demand.
- The latter had crashed by almost 30 million barrels a day or mbd (the equivalent of OPEC’s entire production) because of the COVID-induced lockdown of transportation and industry.
- The price of the other crude benchmarks had also dropped but not the same extent — the North Sea Brent fell, for instance, to $15/bbl, a level not seen since 1999.
- The reason was that unlike the WTI, which is traded in the US and therefore dependent on US inland storage capacity, the other crudes have access to seaborne storage (oil tankers).
- This latter capacity is, however, fast filling up and the price of these crudes may also hit historic lows.
So, where the oil prices are headed?
- Oil prices will be volatile downwards until demand picks up and/or supply is further cut.
- Demand will depend on the curve of post-COVID economic recovery.
- Supply will rest on the outcome of further discussions amongst OPEC, Russia and, ironically, the US.
- OPEC and Russia had earlier this month agreed to cut production by 10 mbd.
- But clearly, this is not enough and further cutbacks have to be agreed on.
- Whatever the scenario for economic recovery or supply constraints, there is a slim likelihood of crude oil prices reaching the average price levels of 2019 ($64) over the next 12 months or so.
- More likely, they will be volatile downwards with $50 as the ceiling and with no floor.
- This “low for longer” price outlook raises two issues for India’s policy-makers.
As India depends on imports for over 80% of its oil requirements, oil prices have wide implications for the financial health of India. Safe oil supply lines are essential for its energy security. Both these points are important from the UPSC point of view. Following two points deal with these two factors.
Two issues that India’s policy-makers need to consider-
1. Disruption of oil supply lines and problems of diaspora
- Every oil producer with no exception will face a budgetary crisis.
- Some, like Saudi Arabia, the UAE and Kuwait will finance their social and economic commitments by cutting costs, increasing debt and drawing down on their sovereign reserves.
- Others like Iran, Iraq, Nigeria and Venezuela, who have no such cushion and whose credit ratings are junk, will confront deepening political and social crises.
- Economic plan: India should build into its economic plans the possibility that its traditional oil supply routes could get disrupted.
- And that its diaspora, whose remittances are of significance, could face disproportionate hardship as these economies retrench.
India has the largest diaspora in the world and sends as much as $80 billion back home as remittances. So, any impact on diaspora in oil economies has implication for India from this perspective as well.
2. Empower the oil traders and remove bureaucratic control
- On the day prices hit negative territory, it is unclear whether the trading experts in our oil PSUs had the flexibility to even contemplate “buying” the WTI futures contract for June, taking delivery, shipping it to India and storing it someplace.
- It is also not clear whether they had the authority to lock in low prices through forward contracts.
- Storage capacity and WTI quality mismatch: There is a shortage of storage capacity in India and a mismatch between the quality of WTI and the requirements of our refineries.
- India cannot leverage the current market conditions of low and volatile oil prices to our national advantage unless we empower the traders and leave them unencumbered from bureaucratic control.
- Most importantly, protect them from the three Cs ( CVC, CBI and CAG) in case their trade goes awry.
Conclusion
This oil market crisis could be made to work to our advantage. We must not waste this opportunity. There is a need to remove the bureaucratic hurdles in our PSUs, increasing storage capacity and sound financial planning by the government to make the most of this oil crisis.
Back2Basics: What is WTI and Brent crude benchmark?
- West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing.
- This grade is described as light crude oil because of its relatively low density, and sweet because of its low sulfur content.
Brent Crude
- Brent Crude is a trading classification of sweet light crude oil that serves as one of the two main benchmark prices for purchases of oil worldwide.
- This grade is described as light because of its relatively low density, and sweet because of its low sulphur content.
Futures contract
- In finance, a futures contract is a standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties not known to each other.
- The asset transacted is usually a commodity or financial instrument.
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From UPSC perspective, the following things are important :
Prelims level: Greenland and its geographical features
Mains level: Neo-imperialism and its re-emergence
Context
- The US had last year sent a proposal to “purchase” Greenland from the Nordic nation.
- This proposal follows plans by the US government to open a consulate in Nuuk, Greenland’s capital.
- This move is being considered to be “extremely provocative” interference by the US.
Go for a detailed map reading of the Arctic region. It has been in news for several times this year.
Why is the US opening a consulate in Greenland?
- The US is opening a consulate in Greenland after nearly seven decades of closing its first consulate after the Second World War.
- Russia has been steadily expanding its military presence in the Arctic and China has done its bit on the economic front.
US’s interests in Greenland
1) Domestic interest
- The US claims that its aid is to ensure “sustainable growth” in the autonomous island.
- It also cited Russia’s “aggressive behavior and increased militarisation in the Arctic” and China’s “predatory economic interests” as reasons for the decision.
- The US acquiring new territory under Trump would appeal to the nationalistic and imperialistic views of Americans.
- Acquiring Greenland would also secure Trump’s position in US history of having been the third president to add land to the country’s territory.
2) Strategic interest
- Due to climate change, the Arctic ice is melting at an accelerated rate, opening up water routes for military and maritime trade.
- This is in addition to global superpowers and regional players vying for control over Greeland’s vast untapped natural resources.
3) Economic interest
- Greenland is also a resource-rich landmass, strategically located between the Arctic Sea and the Atlantic Ocean, with some of the largest deposits of rare-earth metals, including iron-ore, uranium, and by-products of zinc, neodymium, praseodymium, dysprosium and terbium.
- These rare-earth metals are used in the production of electric cars, mobile phones and computers.
- For the longest time, China has been the world’s largest supplier of these rare-earth metals and has expanded its acquisitory plans by excavating mines across the African continent.
- An acquisition of Greenland would make the US less reliant on China for these rare-earth metals.
- Greenland, as a part of the Arctic region, also has large deposits of undiscovered oil and gas, resources that the US always wants more of.
The US obsession
- Trump’s interest in Greenland is almost an extension of his world view and US foreign policy in his administration.
- Purchasing another country or territory is unusual, but the US government has done this twice before.
- Erstwhile President Thomas Jefferson acquired Louisiana from the French in 1803 and the second time when President Andrew Johnson purchased Alaska from Russia in 1867.
Back2Basics: Greenland
- Greenland is the world’s largest island located between the Arctic and Atlantic oceans, east of the Canadian Arctic Archipelago.
- It is an autonomous territory within the Kingdom of Denmark.
- Though physiographically a part of the continent of North America, Greenland has been politically and culturally associated with Europe
- The majority of its residents are Inuit, whose ancestors migrated from Alaska through Northern Canada, gradually settling across the island by the 13th century.
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From UPSC perspective, the following things are important :
Prelims level: Operation Twist, OMOs
Mains level: Operation Twist
The Reserve Bank of India (RBI) has announced simultaneous purchase and sale of government bonds in a bid to soften long-term yields under its Operation Twist.
Operation Twist
- Operation Twist is a move taken by U.S. Federal Reserve in 2011-12 to make long-term borrowing cheaper.
- It first appeared in 1961 as a way to strengthen the U.S. dollar and stimulate cash flow into the economy.
- It is the name given to a Federal Reserve monetary policy operation that involves the purchase and sale of bonds.
- The operation describes a form of monetary policy where the bank buys and sells short-term and long-term bonds depending on their objective.
Its genesis
- The name “Operation Twist” was given by the mainstream media due to the visual effect that the monetary policy action was expected to have on the shape of the yield curve.
- If we visualize a linear upward sloping yield curve, this monetary action effectively “twists” the ends of the yield curve, hence, the name Operation Twist.
- To put another way, the yield curve twists when short-term yields go up and long-term interest rates drop at the same time.
Back2Basics: Open Market Operations
- Open market operations are the sale and purchase of government securities and treasury bills by RBI or the central bank of the country.
- The objective of OMO is to regulate the money supply in the economy.
- When the RBI wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the system.
- OMO is one of the tools that RBI uses to smoothen the liquidity conditions through the year and minimise its impact on the interest rate and inflation rate levels.
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From UPSC perspective, the following things are important :
Prelims level: BSL ratings
Mains level: Not Much
The Defence Research and Development Organisation (DRDO) has developed a mobile virology research lab.
We can expect a prelim question on BSL ratings as the term is widely appearing in news these days.
About the MVRDL
- The MVRDL is the combination of a bio-safety level (BSL)-3 lab and a BSL-2 lab and was set up in a record time of 15 days.
- It can process 1,000-2,000 samples a day.
- The mobile lab will be helpful in carrying out a diagnosis of COVID-19 and in virus-culturing for drug screening, convalescent plasma-derived therapy, comprehensive immune profiling of patients towards vaccine etc.
What are Biosafety Level (BSL) Ratings?
- A BSL is a set of biocontainment precautions required to isolate dangerous biological agents in an enclosed laboratory facility.
- The levels of containment range from the lowest biosafety level 1 (BSL-1) to the highest at level 4 (BSL-4).
- BSL-1 is suitable for work with well-characterized agents which do not cause disease in healthy humans.
- BSL- 2 is suitable for work involving agents of the moderate potential hazard to personnel and the environment.
- BSL-3 is appropriate for work involving microbes which can cause serious and potentially lethal disease via the inhalation route.
- BSL-4 is the highest level of biosafety precautions and is appropriate for work with agents that could easily be aerosol-transmitted within the laboratory and cause severe to fatal disease in humans for which there are no available vaccines or treatments.
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From UPSC perspective, the following things are important :
Prelims level: Supernovae
Mains level: Not Much
Indian researchers have found that SN 2010kd, a super-luminous supernova stands out with the amount of mass as well as Nickel ejected during explosion.
Space science-related terms these days are often focused on Gravitational waves, Black holes etc. But basic terminologies are very important and need to be taken care of. For example, a layman may hardly find any difference between Novae-Supernovae, Neutron star, Nebula etc. UPSC often tries to bust you with such basic differences.
What are Supernovae?
- Supernovae are kind of energetic explosions were the core of massive stars (a few times to that of the mass of our Sun) goes to a catastrophic phase of explosion liberating huge amounts of energy and mass.
- These events are visible through very far away distances much beyond our own solar system.
- Super-luminous supernovae are a special type of stellar explosions having energy output 10 or more times higher than that of standard supernovae.
What is so distinct about SN 2010kd?
- The mass ejection from SN 2010kd is metallic and is much more than seen in case of normal core-collapse supernovae.
- The scientists found that SN 2010kd exploded with a larger velocity but decayed slower than other similar supernovae.
- The observations show that parameters like rotation and metallicity play a crucial role in stellar explosions.
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From UPSC perspective, the following things are important :
Prelims level: NanoBlitz 3D
Mains level: NA
Indian scientists have developed an advanced tool for mapping nano-mechanical properties of materials like multi-phase alloys, composites, and multi-layered coatings.
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. NanoBlitz 3D is another distinct development. We can expect a prelims question asking what the NanoBlitz 3D is , with confusing options like 3d printing tool etc.
NanoBlitz 3D
- Scientists from Advanced Research Centre for Powder Metallurgy and New Materials (ARCI) an autonomous institute under the Dept. of S&T have developed this tool.
- It is an advanced tool for mapping nano-mechanical properties of materials like multi-phase alloys, composites, and multi-layered coatings.
- The tool has been useful to yield excellent results on a wide range of material systems, including glass-fibre-reinforced polymer composites, dual-phase steels, softwood and shale.
- An important aspect of this technique is its high-throughput, with just a few hours of testing required for generating more than 10,000 data points that can be processed using machine learning (ML) algorithms.
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From UPSC perspective, the following things are important :
Prelims level: Ambubachi Mela
Mains level: NA
The Ambubachi Mela at Guwahati’s Kamakhya Temple has been cancelled this year due to COVID-19.
Many festivals this year have been cancelled for the first time in their recorded history. Few of them were – Thrisur Pooram Festival, Pandharpur Jatara and now, the Ambubachi Mela. Do read about the Medaram Jatara (held in February) as well. Take note of each of them and their speciality along with the respective state of celebration.
Ambubachi Mela
- Ambubachi Mela, a four-day fair to mark the annual menstruation of the goddess at Kamakhya temple in Guwahati has begun.
- Legends say the temple atop the Nilachal Hills, whose northern face slopes down to the Brahmaputra River, was built by the demon king Narakasura.
- But records are available only from 1565 when Koch king Naranarayana had the temple rebuilt.
- Kamakhya is one of 51 shaktipeeths or holy sites for the followers of the Shakti cult, each representing a body part of the Sati, Lord Shiva’s companion.
- The temple’s sanctum sanctorum houses the yoni – female genital – symbolised by a rock.
Significance
- Temple priests said the ritualistic fair celebrating the Goddess’ period is one of the reasons why taboo associated with menstruation is less in Assam compared to other parts of India.
- The attainment of womanhood of girls in Assam is celebrated with a ritual called Tuloni Biya, meaning small wedding.
Similar place
- A similar custom is followed at the Devi Temple at Chengannur town in Alleppey district of Kerala.
- The temple is shut for the days the Goddess there is believed to undergo her period.
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From UPSC perspective, the following things are important :
Prelims level: Routes of FDI, External commercial borrowing etc.
Mains level: Paper 3- What are the factors responsible for declining FDI in India? Discuss the changes made in FDI policy amid covid pandemic.
This article deals with the recent changes made by the government in the FDI policy. The major change was that the government approval route was made mandatory for investment coming from certain countries. There are certain ambiguities and issues with the latest changes.These are discussed here.
What changes were made in the FDI policy?
- Government approval route for investment: Investment is permitted through government route only in the following cases-
- 1) An entity situated in a country which shares a land border with India.
- 2) Where the owner of investment into India is situated in or is a citizen of any such country.
- Further, any transfer of ownership of any existing or future foreign direct investment (FDI) in an entity in India (indirectly or indirectly) resulting in the beneficial ownership falling within the purview of the above restrictions, would require the government’s approval.
Ambiguities arising due to press note
- There appear to be certain ambiguities arising from the press note and the amendments to the Rules.
- The usage of the term “FDI” in the press note and the relevant amendments to Rule 6(a) of the Rules, seem to suggest that the restrictions are on investments that are structured as FDI.
- FDI is defined under the Rules to mean investment through equity instruments by a person resident outside India in an unlisted Indian company, or in 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company
- The restriction doesn’t seem to be on investments by an FPI registered with SEBI.
- FPI is permitted to invest in listed or to be listed Indian companies’ securities, in the manner set out in Schedule II of the Rules.
- Also not on investments under the FVCI route.
- Investment through FVCI is an investment in the securities of Indian companies operating in certain specific sectors, in the manner set out in Schedule VII of the Rules.
- It is also unclear if “foreign investments” in LLPs, not being FDI, would also be subject to these restrictions.
- This ambiguity is further amplified by the subject line of the press note, which reads “curbing opportunistic takeovers/acquisitions of Indian companies”, without making any reference to LLPs.
- And the amendments to Rule 6(a) of the Rules, which only pertain to investments in equity instruments of an Indian company under Schedule I of the Rules.
The points mentioned here add to our understanding of FDI and issues with it. A question based on the issue can be asked, for ex-“What are the reasons for a steady decline in FDI in India? To what extent FDI poilcy is responsible for this?”
Difficulties in seeking government approval
- The requirement of seeking government approval may also pose operational difficulties for many entities.
- For instance, the approval requirement seems to be applicable in all cases of further investments irrespective of the threshold.
- It applies whether or not such investments are in the form of rights issue (where all or almost all existing shareholders also participate) or preferential allotments.
- Which results in causing some amount of hardship for entities to raise further capital, especially where entities already have existing investments from investors situated in countries like China.
- The amendments to the Rules also do not attempt to clarify the applicability of the approval requirements where there is no change in the shareholding percentage of the investor pursuant to a follow-on investment.
- Another aspect which is important, is the usage of the terms “directly or indirectly” in the context of transfer/ divestment of beneficial ownership of existing FDI, to entities in/ citizens of a country which shares a land border with India.
- This may require global acquisitions of entities in other jurisdictions which have subsidiaries/ investee companies in India, by a person in one of India’s neighbouring countries, to be subject to the approval requirements, thereby impacting timelines for closing.
No restrictions on external commercial borrowings (ECB)
- There are presently no such commensurate restrictions under the ECB regulations.
- Therefore, an eligible borrower could avail ECB from a recognised lender.
- That includes a foreign equity holder in one of India’s neighbouring countries which are FATF compliant for any immediate funding requirements.
- Any conversion of the ECB or any part thereof, into shares of the Indian company, would be subject to the restrictions and approval requirements under the FDI policy and the Rules.
Conclusion
The government/RBI should provide necessary clarifications on these issues and ambiguities at the earliest. With there being no sunset clause presently contemplated on the applicability of these restrictions, only time will tell if the amendments to the Rules are a boon to the economy and a step in the right direction, or otherwise.
Back2Basics: What is ‘Rights issue’
- Cash-strapped companies can turn to rights issues to raise money when they really need it.
- In these rights offerings, companies grant shareholders the right, but not the obligation, to buy new shares at a discount to the current trading price.
- A rights issue is an invitation to existing shareholders to purchase additional new shares in the company.
- This type of issue gives existing shareholders securities called rights.
- With the rights, the shareholder can purchase new shares at a discount to the market price on a stated future date.
- The company is giving shareholders a chance to increase their exposure to the stock at a discount price.
- Until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way that they would trade ordinary shares.
- The rights issued to a shareholder have value, thus compensating current shareholders for the future dilution of their existing shares’ value.
- Dilution occurs because a rights offering spreads a company’s net profit over a larger number of shares.
- Thus, the company’s earnings per share, or EPS, decreases as the allocated earnings result in share dilution.
What is the Limited Liability Partnership (LLP)?
- LLPs are a flexible legal and tax entity that allows partners to benefit from economies of scale by working together while also reducing their liability for the actions of other partners.
- In a general partnership, all partners share liability for any issue that may arise.
- The LLP is a formal structure that requires a written partnership agreement and usually comes with annual reporting requirements depending on your legal jurisdiction.
What is the FVCI route of investment?
- Foreign Venture Capital Investor’ (FVCI) means an investor incorporated and established outside India and registered with Securities and Exchange Board of India under Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000.
- The amount of consideration for all investment by an FVCI has to be received/made through inward remittance from abroad through banking channels or out of funds held in a foreign currency account and/ or a Special Non-Resident Rupee (SNRR) account maintained by the FVCI with an AD bank in India.
- The foreign currency account and SNRR account shall be used only and exclusively for transactions under the relevant Schedule.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Various article to ensure the independence of judiciary.
Mains level: Paper 2- Do you agree with the view that post-retirement appointment of the judges undermine the confidence in judiciary? Give suggestions to deal with the problem.
The article discusses the issue of retired judges accepting government post after retirement. Such appointments have several implications. It undermines confidence in the independence of the judiciary. It also influence pre-retirement judgements delivered by the judges. The article also offers some solutions to this problem.
The provisions in the Constitution to secure the independence of the judiciary
- The Constitution has been conceived to provide a pride of place to the judiciary.
- Constitutional appointees to the Supreme Court have been guaranteed several rights in order to secure their independence.
- Salary: The salaries of judges and their age of retirement are all guaranteed in order to secure their independence.
- Removal: They cannot be easily removed except by way of impeachment under Articles 124(4) and 217(1)(b).
- They have the power to review legislation and strike it down.
- They can also question the acts of the executive.
- All this makes it clear that the framers of the Constitution envisaged an unambitious judiciary for which the only guiding values were the provisions of the Constitution.
Issue of judges accepting post-retirement jobs
- It was thought that on retirement from high constitutional office, a judge would lead a retired life.
- Nobody ever expected them to accept plum posts.
- But the clear demarcation between the judiciary and executive got blurred as many judges over the years began to accept posts offered by the government.
- A few years ago, a former Chief Justice of India (CJI) was made a Governor by the ruling party.
- Now, we have the case of a former CJI, Ranjan Gogoi, being nominated by the President to the Rajya Sabha and taking oath as Member of Parliament.
- Pre-retirement judgements under cloud: During his tenure as CJI, Justice Gogoi presided over important cases such as Ayodhya and Rafale where all the decisions went in favour of the government.
- This gave rise to the impression that his nomination was a reward for these ‘favours’.
- Thus his appointment — and that too within a few months of his retirement — not only raised eyebrows but came in for severe condemnation from varied quarters.
- Loss of confidence: People are fast losing confidence in the so-called independent judiciary.
- In 2013 Arun Jaitley, who was also a senior Advocate, ironically said that legislature was creating post-retirement avenues for Judges in every legislation.
- He also said that post-retirement job influences pre-retirement judgements.
- It is in this context that the appointment of Mr Gogoi has to be perceived.
Did Constitution makers intend to nominate Judges?
- Mr Gogoi’s view that membership of the Rajya Sabha was not a job but a service, and that once the President nominated him the call of duty required him to accept it, only created the impression that the judiciary is pliant.
- A bare reading of Article 80(3) of the Constitution only envisages the President to nominate “persons having special knowledge in literature, science, art and social service” as members to the Rajya Sabha.
- It is difficult to imagine that the Constitution-makers had in mind a retired CJI when framing this provision.
A direct question based on the issue can be asked, like “What are the implications of post-retirement appointments of the judges? Give suggestions to deal with this problem”. So, take note of the various issues and their solutions discussed here.
Way forward
- If post-retirement appointments are going to undermine confidence in the judiciary and in a constitutional democracy.
- Enact law or amend Constitution: It is time to have a law in place either by way of a constitutional amendment or a parliamentary enactment barring such appointments.
- This is the only way to secure the confidence of the people and prevent post-retirement appointments.
- Increase pension: Judges can be compensated by being given their last drawn salary as a pension.
- Retirement age can be increased: Also, the age of retirement for judges can be increased by a year or two.
- This will undo the damage caused by post-retirement jobs.
Conclusion
The appointments of persons who have held constitutional office will undermine the very constitutional values of impartiality in the dispensation of justice. So, enacting a law to bar such appointments or amendment to the Constitution would be the step in the right direction.
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From UPSC perspective, the following things are important :
Prelims level: Reproduction number-with respect to pandemic.
Mains level: Paper 3- What was the extent of damage caused by the Covid-19 to the India economy?
The theme of the article is the restarting of the Indian economy. Striking the right balance between livelihood and the spread of the virus is important for India. While India has been doing well on the curbing of the spread of the virus, its economy remains in the complete shutdown. So, we must restart our economy and this article offers some suggestions to do so and some trends that our economy is showing are discussed here.
Striking the balance between the economy and the spread of the virus
- One critical problem is striking the right balance between curbing the spread of the virus and keeping the economy functioning.
- We cannot have the poor, the labourers and the migrants bear the brunt of the effort to contain the spread of the virus.
- And nor do we want to weaken the foundations of the economy so much that we emerge from the pandemic onto an economic wasteland.
- The choice between lives and economy is also a choice between lives and lives.
Appreciation of India’s effort to curb the virus
- India’s effort to curb the spread of the virus has received appreciation — not just the state of Kerala, which has got accolades from around the world, but the country as a whole.
- The incidence of COVID-19 remains low in India.
- Of every 10 million people, there are as yet 5 lives lost in India.
- Comparison with the world: This is vastly lower, not just compared to Belgium, which tops the list with 5,180 fatalities for every 10 million people, but many other nations, such as the United States with 1,370 fatalities, Spain with 4,550, Italy with 4,080 and the UK with 2,550 fatalities.
One of the many puzzles associated with the Covid-19 is variation shown by it in fatality rate across the globe. Following are some figures about it.
Worldwide variation in the fatality rate
- To be fair, the low fatality, per 10 million population, is not specific to just India.
- We have comparably low figures currently in almost all African and South Asian nations.
- Thus, it is seven for Bangladesh, three for Sri Lanka, nine for Pakistan, two for Tanzania, one for Nigeria, and 0.3 for Ethiopia.
- No one fully understands these huge differences between Europe and North America, on the one hand, and Africa and South Asia, on the other.
- Isolation of nation, not a factor: This cannot be because these nations are more isolated.
- Bangladeshis are among the most globally scattered people and Ethiopia has huge interactions with China, but the fatality rates are low in both countries.
- Why is this so? The short answer is we do not know.
Defeating the virus by keeping reproduction number below one
- It is important to realise that the risk cannot be cut to zero — nothing in life is a zero-risk activity.
- To defeat the virus, the aim has to be to keep the “reproduction number”, or R-0, down to less than one.
- R-0 refers to the number of people, on average, who get infected by each infected person.
- When R-0 reaches less than one in any given region, such as is the case in Kerala, we know that the incidence of the disease is winding down in that region.
Following points are important from the UPSC perspective. A question can be framed on the economic damage of the Covid-19, opportunities provided by it, its implications for the vulnerable section of the society, unemployment, international trade, changes in the economic policies of the government etc.
Coming out of lockdown: Economic policy challenge
- The economic policy challenge is about how to come out of the lockdown.
- This has to be done carefully, but quickly.
- The stringency of India’s lockdown at top: A study by researchers at the University of Oxford, of the stringency of lockdowns in 73 countries, places India right on top.
- For a short while, this is worth it, and also impressive for a populous nation like India.
- Not desirable position: The top rank on the stringency index is not something any country will want to occupy for long.
- That will have a devastating effect on the poor and damage the nation’s long-run economic prospects.
Trends in the Indian economy
- Unemployment rate at an all-time high: There are studies showing that India’s unemployment rate is now at 24 per cent, an all-time high.
- Biggest ever capital outflow in a month: March also saw the biggest outflow of capital from the nation ever recorded in one month — roughly $15 billion left the nation.
- This also happens to be the largest capital outflow from any emerging economy in March.
- Clearly, global players are reacting to the fact that the economy is not functioning.
- Rupee at an all-time low: These sentiments have weakened the Indian rupee, which is now at an all-time low.
- Some of these problems are inevitable in this dystopian world; we can deal with these problems for a short while.
- Global trade: If these trends persist, India would end up ceding space to other nations in global trade, exports and business, and the suffering will be huge on the working classes.
Way forward in opening the economy
- Once this phase of the lockdown ends on May 3, we will have to start opening businesses, allowing the private sector, especially the informal enterprises and small firms, to operate.
- Rule of behaviour: There will have to be rules of behaviour in place, such as social distancing, masks, hand-washing, but we have to begin to facilitate poor labourers to reach their place of work, and our farms and factories to function.
- Focus on participation, not permission: We have to encourage the rules of behaviour to continue by “participation” and not by bureaucratic “permission”.
- India has a long history of the “permit raj”, where all businesses were beholden to the bureaucracy for what they did.
- This had a tendency to strangle all but a few big firms and had held up the nation’s economic growth for long.
Conclusion
India stands at an important juncture. A misstep at such moment could turn the course of history for the nation. So, the right steps at various fronts from containing the spread to the reopening of the economy are required from the government.
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From UPSC perspective, the following things are important :
Prelims level: Highlights of the report
Mains level: Freedom of Press
India has dropped two places on a global press freedom index to be ranked 142nd out of 180 countries in the annual World Press Freedom Report.
Press freedom especially after the abrogation of Art. 370 in J&K was profoundly debated back then. We can expect a mains question like-
“Reasonable restrictions to the freedoms enjoyed by media are necessary while addressing the concerns of national security. Critically comment.”
World Press Freedom Index
- The Press Freedom Index is an annual ranking of countries compiled and published by Reporters Without Borders.
- It is based upon the organization’s own assessment of the countries’ press freedom records.
- It intends to reflect the degree of freedom that journalists, news organisations, and netizens have in each country, and the efforts made by authorities to respect this freedom.
- The report is partly based on a questionnaire which asks questions about pluralism media independence, environment and self-censorship, legislative framework, transparency, and infrastructure.
Highlights on India
- The report said that with no murders of journalists in India in 2019, as against six in 2018.
- However, there have been constant press freedom violations, including police violence against journalists, ambushes by political activists, and reprisals instigated by criminal groups or corrupt local officials.
Global scenario
- Norway is ranked first in the Index for the fourth year running.
- India ranked better than its neighbours Pakistan (145) and Bangladesh (151), but worse than Sri Lanka (127) and Nepal (112).
- China at 177th position is just three places above North Korea, which is at 180th.
Various threats to press freedom
- Across the world, press freedom is under pressure from aggressive authoritarian regimes.
- The media is also facing a technological crisis, due to a lack of democratic guarantees and a democratic crisis following polarization and repressive policies, the report reads.
- In addition comes a crisis of trust following growing suspicion and even hatred of the media, and an economic crisis and impoverishing of quality journalism.
- Among other issues, the report has listed coordinated social media hate campaigns against journalists reporting on issues that “annoy right-wing followers”, criminal prosecutions to gag journalists critical of authorities and police violence against journalists.
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From UPSC perspective, the following things are important :
Prelims level: NBS schemes
Mains level: NBS scheme and its benefits
Union Cabinet has approved fixation of Nutrient Based Subsidy (NBS) rates for Phosphatic and Potassic (P&K) fertilizers for the year 2020-21.
Fertilizer subsidy accounts for large fiscal subsidies (about 0.73 lakh crore or 0.5 per cent of GDP), the second-highest after food. We can expect a question like – “Discuss the role of NBS in ensuring land fertility and farm productivity in India.”
About Nutrient Based Subsidy (NBS) Scheme
- The NBS Scheme for fertilizer was initiated in the year 2010 and is being implemented by the Department of Fertilizers.
- Government is making available fertilizers, Urea and 21 grades of P&K fertilizers to farmers at subsidized prices through fertilizer manufacturers/importers.
What NBS provides?
- The scheme allows the manufacturers, marketers, and importers to fix the MRP of the Phosphatic and Potash fertilizers at reasonable levels.
- The MRP will be decided considering the domestic and international prices of P&K fertilizers, inventory level in the country and the exchange rates.
- The NBS ensures that adequate quantity of P&K is made available to the farmers at a statutory controlled price.
Fertilizers covered
- Under this, a fixed amount of subsidy decided on an annual basis is provided on each grade of subsidized Phosphatic and Potassic (P&K) fertilizers, except for Urea based on the nutrient content present in them.
- It is largely for secondary nutrients like N, P, S and K and micronutrients which are very important for crop growth and development.
- In India, urea is the only controlled fertilizer and is sold at a statutory notified uniform sale price.
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From UPSC perspective, the following things are important :
Prelims level: VidyaDaan initiative
Mains level: Various e-learning initiaitves
The Union HRD Ministry has e-launched VidyaDaan 2.0 program for inviting e-learning content contributions.
There are various web/portals/apps with peculiar names such as YUKTI, DISHA, SWAYAM etc. Their core purpose is similar with slight differences. Pen them down on a separate sheet under the title various digital HRD initiatives.
Add one more to this list.
VidyaDaan
- ‘Vidya Daan’ is a digital program to enable contributions to improve teaching & learning.
- It encourages the sharing of high quality, curated, relevant & curriculum-linked digital content.
- This program attempts to synergize countrywide developments in the field of education by providing schools all over India, from the Metro cities to the smallest villages with good quality e-content.
How does it work?
- VidyaDaan has a content contribution tool that provides a structured interface for the contributors to register and contribute different types of content (such as, explanation videos, presentations, competency-based items, quizzes etc.), for any grade (from grade 1 to 12), for any subject as specified by the states/UTs.
About phase 2.0
- The programme has been re-launched due to the increasing requirement for e-learning content for students especially in the backdrop of the situation arising out of COVID- 19.
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From UPSC perspective, the following things are important :
Prelims level: Anthurium
Mains level: NA
A women innovator from Thiruvananthapuram, Kerala, has developed ten varieties of Anthurium, a flower with high market value, by cross-pollination.
Anthurium
- An anthurium is a vast group of beautiful blooming plants available in a wide range of colours.
- Anthurium is one of the best domestic flowering plants in the world.
- They are decorative as well as purify the surrounding air and remove harmful airborne chemicals like formaldehyde, ammonia, toluene, xylene, and allergens.
- Its importance of removing toxic substances from the air, NASA has placed it in the list of air purifier plants.
- Anthurium has larger economic importance because of its eye-catching and beautiful inflorescence and fetches a good market price.
Salient features of the Anthurium varieties are
- Large beautiful flowers
- Different colors of spathe and spadix
- Long stalks
- Better shelf life
- Good market value
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From UPSC perspective, the following things are important :
Prelims level: Earth Day
Mains level: NA
Yesterday, April 22nd was celebrated as Earth Day, an international event celebrated around the world to pledge support for environmental protection.
The Earth Day designation by UN and its first observance have confusing difference. Make note of that. We can expect a question based on that. Also read about Earth Overshoot Day.
What is Earth Day?
- In 2009, the United Nations designated April 22 as ‘International Mother Earth Day’.
- Earth Day aims to “build the world’s largest environmental movement to drive transformative change for people and the planet.”
- Earth Day was first observed in 1970, when 20 million took to the streets to protest against environmental degradation.
- The event was triggered by the 1969 Santa Barbara oil spill, as well as other issues such as smog and polluted rivers.
- The landmark Paris Agreement, which brings almost 200 countries together in setting a common target to reduce global greenhouse emissions, was signed on Earth Day 2016.
Significance of this year
- The year 2020 marks the 50th anniversary of the annual celebrations.
- This year’s theme for Earth Day is ‘climate action’.
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From UPSC perspective, the following things are important :
Prelims level: IOC and its member countries.
Mains level: Paper 2- How increasing cooperation with IOC could help India in its vision enshrined in SAGAR?
India got an observer status at IOC (Indian Ocean Commission) in March. This article discusses the significance of IOC in the Western Indian Ocean. The IOC is also significant for India as India’s leadership is made clear in SAGAR (Security and Growth for All in the Region) which is “consultative, democratic and equitable”. There are things that India need to learn from IOC like-“bottom-up regionalism” and there are things that India can contribute to IOC like its expertise. These issues are discussed here.
About Indian Ocean Commission (IOC)
- Founded in 1982, the IOC is an intergovernmental organisation.
- It comprises five small-island states in the Western Indian Ocean: the Comoros, Madagascar, Mauritius, Réunion (a French department), and Seychelles.
- Though Réunion brings a major power, France, into this small-state equation, decisions in the IOC are consensus-based.
- While France’s foreign policy interests are represented, the specifics of Réunion’s regional decision-making emerge from its local governance structures.
- Over the years, the IOC has emerged as an active and trusted regional actor, working in and for the Western Indian Ocean and implementing a range of projects.
Maritime security by IOC and India’s interests
- More recently, the IOC has demonstrated leadership in the maritime security domain.
- Since maritime security is a prominent feature of India’s relations with Indian Ocean littoral states, India’s interest in the IOC should be understood in this context.
- However, India has preferred to engage bilaterally with smaller states in the region.
- The IOC is a cluster of small states which do not seek a ‘big brother’ partnership.
- The IOC has its own regional agenda.
- The IOC has made impressive headway in the design and implementation of regional maritime security architecture in the Western Indian Ocean.
MASE program and RMIFC to help maritime security
- What is MASE program? The European Union-funded programme to promote Maritime Security in Eastern and Southern Africa and the Indian Ocean.
- In 2012, the IOC was one of the four regional organisations to launch the MASE Programme
- Under MASE, the IOC has established a mechanism for surveillance and control of the Western Indian Ocean with two regional centres.
- RMIFC: The Regional Maritime Information Fusion Center (RMIFC), based in Madagascar, is designed to deepen maritime domain awareness by monitoring maritime activities and promoting information sharing and exchange.
- The Regional Coordination Operations Centre (RCOC), based in Seychelles, will eventually facilitate joint or jointly coordinated interventions at sea based on information gathered through the RMIFC.
- These centres are a response to the limitations that the states in the region face in policing and patrolling their often enormous Exclusive Economic Zones (EEZs).
- They deliver an urgently needed deterrent against unabating maritime crime at sea.
- Which was only partly addressed by the high-level counter-piracy presence of naval forces from the EU, the Combined Maritime Forces, and Independent Forces.
- Seven states in the region have signed agreements to participate in this multilateral maritime security architecture, and once ratified, will provide its legal foundation.
- Many major powers have expressed interest in accessing the RMIFC.
In 2013, a question based on the “strings of pearls” was asked by the UPSC. In 2014 question with respect to the South China Sea and the freedom of navigation was asked. On similar lines, a question can be asked from the Western Indian Ocean region dealing with maritime security. Such a question would require information about IOC.
What India can learn from IOC?
- The IOC’s achievements offer an opportunity for India to learn, and also to support.
- The IOC style of ‘bottom-up regionalism’ has produced a sub-regional view and definition of maritime security problems and local ownership of pathways towards workable solutions.
- A 2019 policy brief published by the IOC ‘Strengthening Maritime Security in the Western Indian Ocean’, sets out how the counter-piracy response off the coast of Somalia delivered unprecedented regional and international cooperation in the domain of maritime security.
- However, it resulted in multiple players, the duplication of actions, and regional dependence on international navies.
- The IOC has been seeking more sustainable ways of addressing maritime security threats in the region, with the RMIFC and RCOC as part of this response.
- Its regional maritime security architecture is viewed locally as the most effective and sustainable framework to improve maritime control and surveillance and allow littoral States to shape their own destiny.
- Moreover, with proper regional coordination, local successes at curbing maritime threats will have broader security dividends for the Indian Ocean space.
How India can contribute?
- Nearly all littoral states in the Western Indian Ocean need assistance in developing their maritime domain awareness and in building capacity to patrol their EEZs.
- All would benefit from national information fusion centres that can link to those of the wider region.
- With its observer status, India will be called upon to- 1. Extend its expertise to the region. 2. Put its satellite imagery to the service of the RMIFC. 3. Establish links with its own Information Fusion Centre.
- As a major stakeholder in the Indian Ocean with maritime security high on the agenda, India will continue to pursue its interests and tackle maritime security challenges at the macro level in the region.
- However, as an observer of the IOC, a specific, parallel opportunity to embrace bottom-up regionalism presents itself.
- There are those in the Western Indian Ocean who are closely watching how India’s “consultative, democratic and equitable” leadership will take shape.
Conclusion
India, with its principles of leadership made clear in SAGAR has an opportunity to learn from and partner with IOC to reinforce the maritime security in the Western Indian Ocean.
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From UPSC perspective, the following things are important :
Prelims level: Ways and means advances, limit on the states for borrowing.
Mains level: Paper 3- Discuss the ways to ensure that the States do not face lack of resource in fight against Covid-19?
The article elaborates on the central role played by the States in the fight against Covid-19. The article emphasises the role that States can play in the implementation of the various measures to tackle the epidemic and economic revival of the country. It also highlights the lack of resources at the States’ disposal and reasons for the lack such as revenue loss in the lockdown and lower devolution by the Central Government. In the end, there is a suggestion to increase the borrowing limit of the States’.
Time to relax fiscal constraints on the States
- The speed of economic revival will depend on how long it will take to revive economic activities and the volume of stimulus through public spending the government is able to provide.
- It now appears that the lockdown will be lifted in stages and the recovery process will be prolonged.
- The country is literally placed in financing a war-like situation.
- The government will have to postpone the fiscal consolidation process for the present, loosen its purse strings and finance its deficits substantially through monetisation.
- This is also the time for the government to announce relaxation in the States’ fiscal deficit limit to make them effective participants in the struggle.
The following points highlight the importance of States in dealing with the crisis. The federal structure of India comes to the fore here. The UPSC can aks question on this theme, for example, “Discuss the important role played by the States in dealing with the Covid-19 and how it underscores the federal character of the Indian polity?”
The important role played by the States
- Prioritise health spending: It is also important for the States to realise the importance of health and prioritise spending on health-care services.
- Being closer to the people, the States have a much larger responsibility in fighting this war.
- Public health, as well as public order, are State subjects in the Constitution.
- Acts invoked for lockdown: Some States were proactive in dealing with the COVID-19 outbreak by involving the Epidemic Diseases Act, 1897, even before the Government of India declared a universal lockdown invoking the Disaster Management Act, 2005.
- Of course, the Centre under Entry 29 of the Concurrent List has the powers to set the rules of implementation which states, “Prevention of the extension from one State to another of infectious or contagious diseases or pests affecting men, animals or plants”.
- Implementation at the ground level: While Central intervention was done to enable, “consistency in the application and implementation of various measures across the country”, the actual implementation on the ground level will have to be done at the State level.
- Furthermore, States are better informed to decide the areas and activities where relaxations should be done as the coronavirus curve is flattened.
- Coordination: Hopefully, there will be better coordination between the Union and State governments instead of claiming credit and apportioning blame.
Covid-19 has made clear the neglect and poor state of health in India. The UPSC can frame the question based on the health infrastructure and expenditure on it. The question can be framed on the following lines “Covid-19 has highlighted India’s lack of preparedness and the poor health infrastructure in the country. What are the reasons for it? Give suggestions to improve it.”
Neglect of the health-care sector in the country
- The pandemic has underlined the historical neglect of the health-care sector in the country.
- Expenditure on health as a percentage of GDP: The total public expenditures of Centre and States works out to a mere 3% of GDP.
- In 2017-18, in per capita terms, the public expenditure on medical and public health varied from an abysmal ₹690 in Bihar and ₹814 in Uttar Pradesh to the highest of ₹2,092 in Kerala.
- The centrally sponsored scheme, the National Health Mission, is inadequately funded, micromanaged with grants given under more than 2,000 heads and poorly targeted.
- The focus of “Ayushman Bharat” has been to advocate insurance rather than building wellness centres.
Economic revival by the States
- Besides protecting lives and livelihoods, States will have to initiate and facilitate economic revival, and that too would require substantial additional spending.
- Hand holding small and medium enterprises which have completely ceased production, providing relief to farmers who have lost their perishable crops and preparing them for sowing in the kharif season are other tasks that require spending.
- In fact, States have been proactive. Kerala came out with a comprehensive package allocating ₹20,000 crores to fight the pandemic.
- Almost all States have taken measures to provide food to the needy besides ramping up health-care requirements.
Lack of resources and revenue loss suffered by the States
- While the requirement of States for immediate expenditures is large, they are severely crippled in their resources.
- In the lockdown period, there has virtually been no economic activity and they have not been able to generate any revenue from State excise duty, stamp duties and registration fees, motor vehicles tax or sales tax on high-speed diesel and motor spirit.
- The revenue from Goods and Services Tax is stagnant and compensation on time for the loss of revenue has not been forthcoming.
- As the recovery process will be staggered, it is doubtful whether tax revenues will register any positive growth in 2020-21.
- Not surprisingly, the State has decided to monetise land through auctions to get money besides regularising unauthorised constructions by paying high fees.
Lower tax devolution from the Centre
- The position regarding tax devolution from the Centre is even more precarious.
- To begin with, the tax devolution in the Union Budget estimate is lower than the Commission’s estimate by ₹70,995 crores.
- In fact, the Budget estimate for 2020-21 itself is a huge overestimate when seen against the 11-month actual collections in 2019-20.
- The required growth to achieve the Budget estimate is 33.3% over the annualised actual collection.
- The projections are that the growth of nominal GDP in 2020-21 will be just about 4%.
- And if the tax revenue increases by the same rate, devolution to the States would be lower by ₹2.2-lakh crore than the Finance Commission’s estimate.
- This results in a loss of ₹9,173 crores for Tamil Nadu, ₹9,000 crores for Andhra Pradesh, ₹8,000 crores for Karnataka, ₹4,671 crores for Telangana, and ₹4,255 crores for Kerala.
- Supplementary report by the Finance Commission: There is a strong case for the States to go back to the Finance Commission with a request to make and give a supplementary report.
Of late, the poor fiscal health of the States has been in the news. Following are some of the factors that are responsible for it. A question can be asked with relation to this problem like “The States are facing fiscal constraints owing to the lack of revenue. What are the reasons for it? What are the options available to help the States to deal with such a situation?”
Problems faced by the States in raising resources
- There is only a limited scope for expenditure switching and reprioritisation now.
- Limited space for borrowing: Their borrowing space too is limited by the fiscal responsibility and budget management limit of 3% of Gross State Domestic Product (GSDP).
- High yield no the State bonds: Faced with an acute fund crunch, Kerala floated 15-year bonds but was faced with a huge upsurge in the yield to 8.96%.
- Increase in the WMA limit: The announcement by the Reserve Bank of India on the increase in the limit of ways and means advances by 60% of the levels prescribed in March 31 could help States to plan their borrowing better.
- But that is too little to provide much relief.
Conclusion
It is important for the Central government to provide additional borrowing space by 2% of GSDP from the prevailing 3% of GSDP. This is the time to fiscally empower States to wage the COVID-19 war and trust them to spend on protecting lives, livelihoods and initiate an economic recovery.
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