💥UPSC 2027,2028 Mentorship (May Batch) + Access XFactor Notes & Microthemes PDF
Talk to mentor

Civilsdaily

Login

Archives: News

  • Coronavirus – Health and Governance Issues

    Seizing the moment at the WHO

    op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    India has been tasked with helming the  WHO executive board at the turbulent times. The world is facing the health crisis. It is against this backdrop, India has to lead the executive board. This article suggests 5 elements that should form the part of India’s policy approach.

    Challenges for India as it heads WHO executive board

    • Minister of Health and Family Welfare is elected as the Chair of the World Health Organization’s (WHO) executive board.
    • The 34-member body is tasked with implementing the decisions of the recently concluded World Health Assembly (WHA).
    • The elevation affords India an important platform to steer the global public health response to COVID-19.
    • It also comes at a time when the WHO is being rocked politically as never before.

    WHO: caught between the US-China crossfire

    • Recently, U.S. President Donald Trump wrote a letter to the WHO Director-General.
    • In the letter, he threatened to make permanent his temporary funding freeze as well as reconsider the U.S’s membership in the organisation if the latter did not commit to major substantive reforms within 30 days.
    • By contrast, at the WHA plenary, Chinese President Xi Jinping pledged $2 billion to fight the virus.
    • He also promised to pair up 30 African hospitals with domestic counterparts, accelerate the building of the Africa Centers for Disease Control headquarters, and ensure that vaccine development in China, when available, would be made a global public good.

    So, as WHO executive body chair, India will have to navigate this treacherous power landscape with candour and tact. Following 5 elements should inform its policy approach.

    1. Set epidemic prevention and control as a priority

    • India must insist that epidemic prevention and control remain the international community’s foremost priority.
    • As the virus’ chain of transmission is broken, the focus should shift to identifying the animal-to-human transmission origins of SARS-CoV-2.
    • China shares an important interest in facilitating international access to investigate COVID-19’s zoonotic origins.
    • Why China shares interest? Because Wuhan and other previously infected zones could yet be susceptible to the risk of viral reintroduction.

    2. Review the early response of China and WHO to outbreak

    • India should lean on the WHO secretariat to fast-track the “impartial, independent, and comprehensive review” of the WHO’s – and China’s – early response to the outbreak.
    • The review’s findings should illuminate best practice and highlight areas for improvement, both in the WHO’s leadership and capacity as well as member states’ implementation of the International Health Regulations.
    • For those in New Delhi inclined to relish the prospect of Beijing’s comeuppance, the review’s findings may yet sorely disappoint.
    • The WHO-China Joint Mission featuring renowned global epidemiologists had termed China’s early COVID-19 response as the “most ambitious, agile and aggressive disease containment effort in history”.

    3. Ensure equitable access to COVID-19 vaccines for all

    • For ensuring equitable access to COVID-19 therapeutics and vaccines for all countries, India must promote the establishment of an appropriate multilateral governance mechanism.
    • The envisaged voluntary pooling mechanism to collect patent rights and regulatory test data should be suitably tailored to the needs of crisis.
    • And the World Trade Organization’s intellectual property rights provisions should be overridden as is allowed during a public health emergency to assure affordable vaccine availability.

    4. Taiwan issue at WHA: India should stay aloof

    •  India must stay aloof from the West’s campaign to re-seat Taiwan as an observer at the WHA.
    • When Taipei last attended in 2016, it did so under the explicit aegis of UN General Assembly Resolution 2758, whereby the UN considers Taiwan to be an integral part of the People’s Republic of China.
    • That the independence-minded Tsai government is unwilling to concede this basis for attendance has more to do with domestic political manoeuvring than Chinese or international ostracism.

    5.Global ban on consumption of wild animals

    •  India must lead the call for a permanent global ban on the consumption and trade of wild animals.
    • This ban should be with limited exceptions built-in for scientific research, species protection and traditional livelihood interests.
    • With two-thirds of emerging infections and diseases now arising from wildlife, the destruction of natural habitats and biodiversity loss must be taken much more seriously.

    Consider the question “The WHO has been facing the credibility crisis for its response to the Covid-19. In such a difficult time for the agency, India has to lead the executive board of WHA. In light of this, suggest the policy approach that India should adopt at WHA.”

    Conclusion

    India has its work cut out. The government should seize the moment to steer the global response in addressing the shortcomings in various areas exposed by the Covid-19 pandemic.

    Get an IAS/IPS ranker as your 1: 1 personal mentor

  • Global Geological And Climatic Events

    The Sixth Mass Extinction

    | Enviro & Biodiversity | Mains Paper 3: Conservation, Environmental Pollution & Degradation, Eia

    Click here for high resolution of the image: National Geographic

    The ongoing sixth mass extinction may be one of the most serious environmental threats to the persistence of civilization, according to new research published in an American journal.

    Try this question from CSP 2018:

    The term “sixth mass extinction/sixth extinction” is often mentioned in the news in the context of the discussion of

    (a) Widespread monoculture Practices agriculture and large-scale commercial farming with indiscriminate use of chemicals in many parts of the world that may result in the loss of good native ecosystems.

    (b) Fears of a possible collision of a meteorite with the Earth in the near future in the manner it happened 65million years ago that caused the mass extinction of many species including those of dinosaurs.

    (c) Large scale cultivation of genetically modified crops in many parts of the world and promoting their cultivationin other Parts of the world which may cause the disappearance of good native crop plants and the loss offood biodiversity.

    (d) Mankind’s over-exploitation/misuse of natural resources, fragmentation/loss, natural habitats, destructionof ecosystems, pollution and global climate change.

    Highlights of the research

    • The study analysed 29,400 species of terrestrial vertebrates and determined which of these are on the brink of extinction because they have fewer than 1,000 individuals.
    • The disappearance of their component populations has been occurring since the 1800s.
    • Most of these 515 species are from South America (30 per cent), followed by Oceania (21 per cent), Asia (21 per cent) and Africa (16 per cent) among others.

    The Anthropocene Extinction

    • Mass extinction refers to a substantial increase in the degree of extinction or when the Earth loses more than three-quarters of its species in a geologically short period of time.
    • So far, during the entire history of the Earth, there have been five mass extinctions.
    • The sixth, which is ongoing, is referred to as the Anthropocene extinction.
    • The five mass extinctions that took place in the last 450 million years have led to the destruction of 70-95 per cent of the species of plants, animals and microorganisms that existed earlier.
    • These extinctions were caused by “catastrophic alterations” to the environment, such as massive volcanic eruptions, depletion of oceanic oxygen or collision with an asteroid.
    • After each of these extinctions, it took millions of years to regain species comparable to those that existed before the event.

    So what is the sixth mass extinction then?

    • Researchers have described it as the “most serious environmental problem” since the loss of species will be permanent.
    • Even though only an estimated 2% of all of the species that ever lived are alive today, the absolute number of species is greater now than ever before.
    • The research claims that this extinction is human-caused and is more immediate than climate destruction.

    Major drivers of mass extinction

    • Significantly, the study calls for a complete ban on wildlife trade as many of the species currently endangered or on the brink of extinction are being decimated by legal and illegal wildlife trade.
    • The current COVID-19 pandemic, while not fully understood, is also linked to the wildlife trade.
    • There is no doubt that there will be more pandemics if man continues destroying habitats and trading wildlife for own consumption as food and traditional medicines.

    What happens when species go extinct?

    • When species go extinct, the impact can be tangible such as in the form of a loss in crop pollination and water purification.
    • Further, if a species has a specific function in an ecosystem, the loss can lead to consequences for other species by impacting the food chain.
    • The effects of extinction will worsen in the coming decades as the resulting genetic and cultural variability will change entire ecosystems.
    • If the number of individuals in a population or species drops, their contributions to ecosystem services become unimportant.
    • Their genetic variability and resilience is reduced, and its contribution to human welfare may be lost.” the study says.

    Get an IAS/IPS ranker as your 1: 1 personal mentor

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

    Moody’s downgrade India’s Ratings

    IOCR | Economics | Mains Paper 3: Indian Economy

    The Moody’s Investors Service downgraded the Government of India’s foreign-currency and local-currency long-term issuer ratings to “Baa3” from “Baa2”. It stated that the outlook remained “negative”.

    Practice question for mains:

    Q. Why India’s GDP growth rate is being labelled an overestimate yet again by the global credit rating agencies? Discuss this in context to the latest downgrade of Indian Economy as highlighted by the Moody’s.

    Why this matters?

    • The Moody’s is historically the most optimistic rating agency about India.
    • This downgrade challenges India’s policymaking institutions.
    • They will be challenged in enacting and implementing policies which effectively mitigate the risks of a sustained period of relatively low growth.

    What is the reason for this downgrade?

    There are four main reasons why Moody’s has taken the decision:

    • Weak implementation of economic reforms since 2017
    • Relatively low economic growth over a sustained period
    • A significant deterioration in the fiscal position of governments (central and state)
    • And the rising stress in India’s financial sector

    What does “negative” outlook mean?

    • The negative outlook reflects dominant, mutually-reinforcing, downside risks from deeper stresses in the economy and financial system.
    • These could lead to more severe and prolonged erosion in fiscal strength than Moody’s current projections.
    • The ratings have highlighted persistent structural challenges to fast economic growth such as “weak infrastructure, rigidities in labour, land and product markets, and rising financial sector risks”.
    • In other words, a “negative” implies India could be rated down further.

    Is the downgrade because of Covid-19 impact?

    No. The pandemic has amplified vulnerabilities in India’s credit profile that were present and building prior to the shock, and which motivated the assignment of a negative outlook last year.

    Then why did the downgrade happen?

    • More than two years ago, in November 2017, Moody’s had upgraded India’s rating to “Baa2” with a “stable” outlook.
    • At that time, it expected that effective implementation of key reforms would strengthen the sovereign’s credit profile through gradual but persistent measures.
    • But those hopes were belied. Since that upgrade in 2017, implementation of reforms has been relatively weak and has not resulted in material credit improvements, indicating limited policy effectiveness.
    • Each year, the central government has failed to meet its fiscal deficit (essentially the total borrowings from the market) target.
    • This has led to a steady accretion of total government debt.

    What will be the implications of this downgrade?

    • Ratings are based on the overall health of the economy and the state of government finances.
    • When India’s sovereign rating is downgraded, it becomes costlier for the Indian government as well as all Indian companies to raise funds because now the world sees such debt as a riskier proposition.
    • A rating downgrade means that bonds issued by the Indian governments are now “riskier” than before.
    • The weaker economic growth and worsening fiscal health undermine a government’s ability to pay back.
    • Lower risk is better because it allows governments and companies of that country to raise debts at a lower rate of interest.

    Get an IAS/IPS ranker as your 1: 1 personal mentor

  • International Space Agencies – Missions and Discoveries

    Radio lights from Sun’s Corona

    | Science Tech | Mains Paper 3: Awareness in various sc and tech fields

    A group of India scientists have recently discovered tiny flashes of radio light emanating from all over the Sun, which they say could help in explaining the long-pending coronal heating problem.

    Possible prelim question:

    The Murchison Widefield Array (MWA) Telescope recently seen in news is a landmark in observing: Gravitational Waves/Black Holes/Sun’s Corona/ etc..

    What is Sun’s Corona?

    • The corona is the outermost part of the Sun’s atmosphere. It is the aura of plasma that surrounds the Sun and other stars.
    • The Sun’s corona extends millions of kilometres into outer space and is most easily seen during a total solar eclipse, but it is also observable with a coronagraph.
    • Spectroscopy measurements indicate strong ionization in the corona and a plasma temperature in excess of 1000000 Kelvin much hotter than the surface of the Sun.

    Radio lights observed

    • These radio lights or signals result from beams of electrons accelerated in the aftermath of a magnetic explosion on the Sun.
    • While the magnetic explosions are not yet observable, these weak radio flashes are ‘smoking guns’ or the evidence for the same.
    • Hence it brought the researchers closer to explaining the coronal heating problem.

    Their significance

    • These observations are the strongest evidence till date that the tiny magnetic explosions originally referred to as ‘nanoflares’ by eminent American solar astrophysicist Eugene Parker.
    • It is the possible phenomena that could be heating up the corona (the aura of plasma that surrounds the sun and other stars).

    The Murchison Widefield Array (MWA)

    • The phenomenon of coronal heating has been known for the last 70 years, the availability of cutting edge data from the Murchison Widefield Array (MWA) radio telescope proved to be a game-changer.
    • The MWA is a low-frequency radio telescope, located at the Murchison Radio-astronomy Observatory (MRO) in Western Australia.
    • The MWA has been developed by an international collaboration, including partners from Australia, New Zealand, Japan, China, India, Canada and the United States.

    Solving the mystery

    • The strength of the magnetic fields varies a lot from one place on the surface of the Sun to another, by more than a factor of 1,000.
    • But the corona is hot everywhere. So, this heating process has to work all over the corona, even in regions of weak magnetic fields.
    • Until now, the process of how this magnetic energy is deposited in the corona had remained a mystery.

    Get an IAS/IPS ranker as your 1: 1 personal mentor

  • Tribes in News

    Tribes in news: Changpa Tribe

    Prelims OnlySpecies | | Mains Paper 1:

    The Chinese Army’s intrusion in Chumur and Demchok has left Ladakh’s nomadic herding Changpa community cut off from large parts of summer pastures.

    Pashmina shawl is a landmark product of the Kashmir Valley. But make a note here. It carries only a BIS certification and not a Geographical Indicator.

    Also try this PYQ from CSP 2014:

    Q. With reference to ‘Changpa’ community of India, consider the following statement:

    1. They live mainly in the State of Uttarakhand.
    2. They rear the Pashmina goats that yield fine wool.
    3. They are kept in the category of Scheduled Tribes.
    Which of the statements given above is/are correct?

    a) 1 only
    b) 2 and 3 only
    c) 3 only
    d) 1, 2 and 3

    Changpa Tribes

    • The Changpa of Ladakh is high altitude pastoralists, raising mainly yaks and goats.
    • Among the Ladakh Changpa, those who are still nomadic are known as Phalpa, and they take their herds from in the Hanley Valley to the village of Lato.
    • Hanley is home to six isolated settlements, where the sedentary Changpa, the Fangpa reside.
    • Despite their different lifestyles, both these groups intermarry.
    • The Changpa speak Changskhat, a dialect of Tibetan, and practice Tibetan Buddhism.

    What is the issue?

    • The Chinese Army has taken over 16 kanals (two acres) of cultivable land in Chumur and advanced around 15 km inside Demchok, taking over traditional grazing pastures and cultivable lowlands.
    • In a cascading effect, this has resulted in a sharp rise in deaths of young Pashmina goats this year in the Korzok-Chumur belt of Changthang plateau in Ladakh.
    • This incursion has destabilized the annual seasonal migration of livestocks, including yaks and Pashmina goats.

    Back2Basics: Pashmina

    • The Changthangi or Ladakh Pashmina is a breed of Cashmere goat native to the high plateau of Ladakh.
    • The much-valued wool from the Ladakh herds is essential for the prized Pashmina shawls woven in Kashmir and famous for their intricate handwork.
    • They survive on the grass in Ladakh, where temperatures plunge to as low as −20 °C.
    • These goats provide the wool for Kashmir’s famous pashmina shawls. Shawls made from Pashmina wool are considered very fine and are exported worldwide.
    • Bureau of Indian Standards (BIS) has recently published an Indian Standard for identification, marking and labelling of Pashmina products to certify its purity.

    Get an IAS/IPS ranker as your 1: 1 personal mentor

  • Foreign Policy Watch: India-China

    Depsang Plain near LAC

    | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    Reports of a heavy Chinese presence at Depsang, an area at a crucial dip (called the Bulge) on the Line of Actual Control (LAC) have increased the recent tensions between Indian and Chinese troops.

    For the Depsang Plain, a prelim based question is hardly possible. However one must know all the fronts of border disputes from mains perspective.

    Depsang Plain

    • The “Depsang Plain” is one of the few places in the Western Sector where light armour (vehicles) would have ease of manoeuvre, so any Chinese buildup there is a cause for concern.
    • India controls the western portion of the plains as part of Ladakh, whereas the eastern portion is part of the Aksai Chin region, which is controlled by China and claimed by India.
    • The buildup invokes memories of both the 1962 war, when Chinese troops had occupied all of the Depsang plains.
    • More recently in April 2013, the PLA crossed the LAC and pitched tents on the Indian side for three weeks, before they agreed to pull out.

    Also read:

    [Burning Issue] India-China Skirmish in Ladakh

    Get an IAS/IPS ranker as your 1: 1 personal mentor

  • Railway Reforms

    The Deccan Queen Express

    Prelims Only | Economics | Mains Paper 3: Infrastructure: Energy, Ports, Roads, Airports, Railways Etc.

    The historic Deccan Queen train between Mumbai and Pune completed 90 years on June 1.

    Take the opportunity to revise some of reformative measure in the Indian Railways taken through these years.  Click here to read more .

    The Deccan Queen

    • The Deccan Queen was introduced between Mumbai and Pune on June 1, 1930 by the Great Indian Peninsula Railway (GIPR), the forerunner of the Central Railway.
    • This was the first deluxe train introduced to serve the two important cities of the region, and was named after Pune – also known as the “Queen of Deccan”.
    • It is among the rare Indian trains that have never been hauled using steam traction and were always electric-powered; on rare instances running on diesel.
    • The GIPR in the 1940s would run Race Special trains for Mumbai’s horse racing enthusiasts who would come to Pune on weekends and race days.
    • This train holds many a record, including that of being India’s first superfast train, first long-distance electric-hauled train, first vestibuled train, the first train to have a ‘women-only’ car, and the first train to feature a dining car.

    Back2Basics: Railways in India

    • Indian Railways started its service 164 years ago on 16 April 1853.
    • The first railway proposals for India were made in Madras in 1832.
    • The first train was run over a stretch of 33 kilometres from Mumbai to Thane and was hauled by three steam locomotives named Sahib, Sindh and Sultan.
    • Indian Railway now has the 4th largest rail network in the world after the United States of America, China and Russia.

    Get an IAS/IPS ranker as your 1: 1 personal mentor

  • Foreign Policy Watch: India-Africa

    Fortifying the African outreach: Contrast in the approach adopted by China and India

    | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    As both India and China try and vie for increasing the influence in the African continent, the difference in the approach they adopted become evident. Both countries have been providing assistance in Africa amid the COVID pandemic. This article analyses the difference in the approach of the two countries.

    Impact of covid pandemic in Africa

    • Although African countries moved quickly to curb the initial spread, they are still woefully ill-equipped to cope with a public health emergency.
    • They are facing shortages of masks, ventilators, and even basic necessities such as soap and water.
    • Such conditions have meant that Africa’s cycle of chronic external aid dependence continues.
    • Africa needs medical protective equipment and gear to support its front line public health workers.
    • India and China have increased their outreach to Africa through medical assistance.
    • Their efforts are directed to fill a part of the growing African need at a time when not many others have stepped in to help.

    China’s donation diplomacy in Africa

    • China, being Africa’s largest trading partner, was quick to signal its intent to help Africa cope with the pandemic.
    • It despatched medical protective equipment, testing kits, ventilators, and medical masks to several African countries.
    • The primary motive of such donations has been to raise Beijing’s profile as a leading provider of humanitarian assistance and “public goods” in the global public health sector.
    • China’s billionaire philanthropy was also in full display when tech founder Jack Ma donated three rounds of anti-coronavirus supplies.
    • Chinese embassies across Africa have taken the lead by coordinating both public and private donations to local stakeholders.
    • However, the sub-optimal quality of China’s medical supplies and its deputing of medical experts have been a major cause for concern.

    Let’s understand the objectives of China’s donation diplomacy

    • Beijing’s ‘donation diplomacy’ in Africa aims to achieve three immediate objectives:
    • 1) Shift the focus away from talking about the origins of the virus in Wuhan.
    • 2) Build goodwill overseas.
    • 3) Establish an image makeover.
    • For the most part, it succeeded in achieving these ends until China faced widespread backlash over the ill-treatment of African nationals in Guangzhou city.
    • The issue quickly grew into a full-blown political crisis for Beijing.

    Let’s analyse the depth of China’s political influence in Africa

    • For the most part, China has been successful in controlling the Guangzhou narrative due to the depth of its political influence in Africa.
    • It is no secret that China relies heavily on diplomatic support and cooperation from African countries on key issues in multilateral fora.
    • For example, Beijing used African support for securing a win for Chinese candidates as the head of Food and Agriculture Organization (FAO) and in the World Health Organization (WHO).
    • On Africa’s part, the problem lies in the deep disjuncture and credibility gap between Africa’s governing class, the people, the media and civil society.
    • Even when criticisms have been levelled against Chinese indiscretions, it has hardly ever surfaced at the elite level.
    • Overall, China’s donation diplomacy towards Africa during COVID-19 has received mixed reactions, but Beijing’s advantage lies in its economic heft and political influence in Africa.

    Understanding India’s diplomacy in Africa: Responsible and reliable global stakeholder

    • For India, the pandemic presents an opportunity to demonstrate its willingness and capacity to shoulder more responsibility.
    • The fact that even with limited resources, India can fight the virus at home while reaching out to developing countries in need is testament to India’s status as a responsible and reliable global stakeholder.
    • Nowhere has India’s developmental outreach been more evident than in Africa with the continent occupying a central place in Indian government’s foreign and economic policy in the last six years.
    • Africa has been the focus of India’s development assistance and also diplomatic outreach, as evident in plans to open 18 new embassies.
    • These efforts have been supplemented by an improved record of Indian project implementation in Africa.

    Trade ties and cooperation amid pandemic

    • India’s role as ‘the pharmacy of the world’, as the supplier of low-cost, generic medicines is widely acknowledged.
    • Pharmaceutical products along with refined petroleum products account for 40% of India’s total exports to African markets.
    • India is sending consignments of essential medicines, including hydroxychloroquine (HCQ) and paracetamol, to 25 African countries in addition to doctors and paramedics at a total cost of around ₹600 million ($7.9 million) on a commercial and grant basis.
    • The initial beneficiaries were the African Indian Ocean island nations of Mauritius, the Seychelles, Comoros, and Madagascar under India’s ‘Mission Sagar’.
    • While transportation and logistics remain a concern, most of the consignments have already reached various African states.
    • A timely initiative has been the e-ITEC COVID-19 management strategies training webinars exclusively aimed at training health-care professionals from Africa and the SAARC nations and sharing of best practices by Indian health experts.
    • Nigeria, Kenya, Mauritius, and Namibia have been beneficiaries.
    • Across Africa, there is a keen interest to understand the developments and best practices in India because the two share similar socioeconomic and developmental challenges.
    • There is also growing interest in research and development in drugs and vaccines.
    • A few African countries such as Mauritius are pushing for health-care partnerships in traditional medicines and Ayurveda for boosting immunity.
    • The Indian community, especially in East African countries, has also been playing a crucial role in helping spread awareness.
    • Prominent Indian businessmen and companies in Nigeria and Kenya have donated money to the respective national emergency response funds.
    • Country-specific chapters of gurdwaras and temples have fed thousands of families by setting up community kitchens, helplines for seniors and distributing disinfectants and sanitisers.

    The contrast between approaches adopted by India and China

    • Both India and China, through their respective health and donation diplomacy, are vying to carve a space and position for themselves as reliable partners of Africa in its time of need.
    • Burnishing their credentials as humanitarian champions is the name of the game.
    • But there are significant differences in the approaches.
    • For China, three aspects are critical:
    • 1) Money, political influence and elite level wealth creation.
    • 2) Strong state-to-state relations as opposed to people-to-people ties.
    • 3) Hard-infrastructure projects and resource extraction.
    • India’s approach, on the other hand, is one that focuses on building local capacities and an equal partnership with Africans and not merely with African elites concerned.

    Consider the question “Both India and China have been playing an active role in the African continent and vying for the outreach there. But there is a fundamental difference in their approach. Comment.”

    Conclusion

    As these two powers rise in Africa, their two distinct models will come under even greater scrutiny. And both New Delhi and Beijing might find that they need to adapt to the rising aspirations of the African continent.

    Get an IAS/IPS ranker as your 1: 1 personal mentor

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

    Problem of interest rate differential in India

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Do you remember Operation Twist by the RBI? what was being twisted there? It was the yield curve that was sought to be twisted. It had been aimed at reducing the gap between long term interest rates and short term policy rates. This article explains the impact such gap could have on the economy.

    Why long term loans come with a higher interest rate?

    • Long term loans equate to long repayment periods.
    • More uncertainty during these long periods can translate to higher risks.
    • And to compensate for the high risks involved, banks quote higher interest rates when corporates borrow from them to build and operate stuff.
    • However, when banks borrow from the RBI they are borrowing over short intervals.
    • And so they get charged lower interest rates.

    So, why banks are keeping interest rates high despite borrowing at low rates from the RBI?

    • Ever so often, the RBI cuts rates in the hopes of making loans more accessible to banks.
    • They are hoping banks will also extend this benevolence to their customers by cutting long term interest rates.
    • But right now, banks are scared.
    • They don’t think the corporates can pay back.
    • So they are keeping long term rates at elevated levels despite borrowing at consistently low rates from the RBI.

    What happens when gap between long-term and short term interest rates widen?

    •  Capital wasn’t cheap to begin with for corporate borrowers, and it’s getting more expensive.
    • This comes just as migrant rural workers have been driven out of urban production centers because of shuttered factories.
    • Even if this labor is safely put back on, say, road construction, concessionaires [think private road contractors] might still go bankrupt before completing any projects.
    • That’s because their annuity payments from the government are linked to falling short-term policy rates, whereas their long-term borrowing costs are both high and sticky

    To understand the issue of annuity payment and its relation with interest rates, let’s dig deeper into 3 types of models-

    1. Build-Operate-Transfer (BOT) Model

    • So, NHAI is the National Highways Authority of India and is largely responsible for building and maintaining roads.
    • Its preferred method to get the job done is to deploy what is called the BOT model.
    • The Build-Operate-Transfer (BOT) model, as the name suggests is a way for NHAI to offload its responsibilities of road building to private contractors.
    • Under BOT model, private contractors build the road, operate it, make money off of collecting toll, and after about 10–15 years, they hand over the road back to NHAI.
    • There aren’t enough private contractors willing to bid for such projects because — hey, maintaining and operating a road is a pain.
    • Why pain?  You have to wait 15 years to recoup all the money you had to pour in to build the damn thing. That’s the pain.

    2. Engineering, procurement and Construction (EPC) model

    • Under the EPC (Engineering, Procurement & Construction) model, NHAI pays private contractors first, so that they can help NHAI build the road.
    • The contractor does not operate or collect tolls here.
    • Instead, it can walk away scot-free with money in its coffers once it’s done building the road.
    • But it’s hard for the government to shore up all the resources required upfront.

    3. Hybrid Annuity Model (HAM)- The middle path

    •  It’s a nice little mix of both EPC and BOT.
    • Under it, NHAI pays some money upfront in fixed installments usually, 40% of the project cost.
    • And the private contractor does his bit by putting up the rest and finishing the project.
    • However, once the construction is complete, the contractor does not make money off of collecting toll.
    • Instead, he transfers the assets over to NHAI.
    • So its incumbent on the government to pay the rest of the money once the project takes off.
    • And the payments are dependent on the asset created, the performance of the developer, and a few other things.
    • However, since the payouts usually last 15–20 years we need to find a way to determine what kind of money the government pays the contractor every 6 months.
    • And here’s the best way to think about this — So when the government pays the 40% upfront, it’s promising to pay the 60% sometime in the future.
    • It’s money they owe the contractor.

    And, here is the crux of the matter

    • So when the repayments, are made, they’ll have to pay the principal and the interest.
    • The interest involves a fixed component (3%) and a variable component.
    • What is varible component? The variable component is effectively the short term policy rates.
    • So if the RBI keeps cutting these short term rates, private contractors get less money per instalment even if their roads are all nice and shiny.
    • And this can’t bode well for them because they probably put up the 60% back in the day by borrowing from another bank.
    • A bank that’s charging them long term interest rates that refuse to come down.

    Conclusion

    The widening gap between the short term policy rates and long term interest could easily spell the disaster for the entrepreneurs and in turn for the economy as a whole. The government should consider a special package for such entities given the unprecedented situations we found ourselves in.

    Get an IAS/IPS ranker as your 1: 1 personal mentor

  • Foreign Policy Watch: India-Nepal

    Time to revisit the special relationship with Nepal

    op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    A new map released by Nepal delivered a blow to the India-Nepal relations. But this is hardly the first time this has happened. The article clears some cobwebs about Nepal’s foreign policy. First, it throws light on the past trend set by Nepal. And drawing on the past experience, it suggests the changes India should adopt in new framework to deal with Nepal.

    Nepal’s new map: Yet another knock on India-Nepal relations

    • As the parliament in Nepal gets ready to approve a new map that will include parts of Indian territory in Uttarakhand, Delhi is bracing for yet another knock to a bilateral relationship.
    • Many in the Indian strategic community believe that the train wreck was avoidable.
    • But others view the collision between Delhi and Kathmandu as both inevitable and imminent.
    • Even if the territorial issue had been finessed, something else would have triggered the breakdown.

    Bigger fissures in relation

    • A closer look suggests that the territorial dispute is merely a symptom of the structural changes.
    • These structural changes are unfolding in the external and internal context of the bilateral relationship.
    • The question, then, is not what Delhi could have done to prevent the current crisis.
    • It should be about looking ahead to build more sustainable ties with Kathmandu.

    2 factors India must consider and depart from

    • Any new framework for engaging Kathmandu must involve two important departures from the past in Delhi.
    • 1) First is coming to terms with Nepal’s natural politics of balance.
    • 2) The other is the recognition that Delhi’s much-vaunted “special relationship” with Kathmandu is part of the problem.

    Let’s look at the history of Nepal’s geopolitics

    • The founder of the modern Nepali state, Prithvi Narayan Shah, described Nepal as a “yam between two rocks”.
    • He was pointing to the essence of Nepal’s geographic condition between the dominant power in the Gangetic plains on the one hand and Tibet and the Qing empire on the other.
    • Contrary to the conventional wisdom in India, China has long been part of Kathmandu’s international relations.
    • As the East India Company gained ground at the turn of the 19th century, Nepal’s rulers made continuous offers to Beijing to act as China’s frontline against Calcutta’s expansion into the Himalayas.
    • Kathmandu also sought to build a coalition of Indian princes to counter the Company.
    • Even after it lost the first Anglo-Nepal war in 1816, Kathmandu kept up a continuous play between Calcutta and Beijing.
    • As the scales tilted in the Company’s favour after the First Opium War (1839-42), Nepal’s rulers warmed up to Calcutta.
    • When the 1857 Mutiny shook the Company, Kathmandu backed it and regained some of the territories it lost when the Raj replaced the Company.
    • As the fortunes of the Raj rose, Kathmandu rulers enjoyed the benefits of being Calcutta’s protectorate.
    • India inherited this framework but has found it impossible to sustain.

    Why the Treaty of Peace and Friendship (1950) lost its appeal?

    • The 1950 Treaty of Peace and Friendship gave the illusion of continuity in Nepal’s protectorate relationship with the Raj and its successor, independent India.
    • That illusion was continuously chipped away amid the rise of mass politics in Nepal, growing Nepali nationalism, and Kathmandu’s acquisition of an international personality.
    • The 1950 Treaty, which proclaims an “everlasting friendship” between the two nations, has become the symbol of Indian hegemony in Nepal.
    • In a paradox, its security value for India has long been hollowed out.
    • It is a political millstone around India’s neck that Delhi is unwilling to shed for the fear of losing the “special relationship”.
    • Delhi has been trapped into a perennial political play among Kathmandu’s different factions and responding to Nepal’s China card.

    Weakening of “special relationship”: Essence of Nepal’s foreign policy

    • Once the Chinese Communist Party consolidated its power in Tibet and offered assurances to Nepal, Kathmandu’s balancing impulses were back in play.
    • At the risk of oversimplification, Nepal’s foreign policy since the 1950s has, in essence, been about weakening the “special relationship” with India and building more cooperation with China.
    • Kathmandu has used different labels to package its desire for greater room for manoeuvre between its two giant neighbours — non-alignment, diversification, “zone of peace”, equidistance, and a Himalayan bridge between India and China.
    • The stronger China has become, the wider have Kathmandu’s options with India become.

    Way forward

    • It makes no sense for Delhi to hanker after a “special relationship” that a large section of Kathmandu does not want.
    • If Delhi wants a normal and good neighbourly relationship with Kathmandu, it should put all major bilateral issues on the table for renegotiation.
    • Such issues should include the 1950 treaty, national treatment to Nepali citizens in India, trade and transit arrangements, the open border and visa-free travel.
    • Delhi should make it a priority to begin talks with Nepal on revising, replacing, or simply discarding the 1950 treaty.
    • It should negotiate a new set of mutually satisfactory arrangements.
    • India had conducted a similar exercise with Bhutan to replace the 1949 treaty during 2006-07.
    • The issues and political context are certainly more complicated in the case of Nepal.
    • It is better that Delhi bites the bullet and makes a fresh beginning with Kathmandu rather than let the relationship deteriorate.
    • No bilateral relationship between nations can be built on sentiment — whether it is based on faith, ideology or inheritance.
    • Only those rooted in shared interests will endure.
    • Rather than object to Kathmandu’s China ties, Delhi must focus on how to advance India’s relations with Nepal.
    • It should bet that the logic of Nepal’s economic geography, its pursuit of enlightened self-interest, and Kathmandu’s natural balancing politics, will continue to provide a strong framework for India’s future engagement with Nepal.

    Conclusion

    Discarding the appearances of the “special relationship” might, in fact, make it easier for Delhi to construct a more durable and interest-based partnership with Kathmandu that is rooted in realism and has strong popular support on both sides.

    Get an IAS/IPS ranker as your 1: 1 personal mentor

Join the Community

Join us across Social Media platforms.