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Patent Rights on COVID-19 jabs may be waived
The World Trade Organization chief has hailed a breakthrough between the EU, the United States, India and South Africa on waiving intellectual property rights on Covid-19 vaccines.

What is a Patent?
- A patent is an exclusive right granted for an invention.
- In other words, a patent is an exclusive right to a product or a process that generally provides a new way of doing something, or offers a new technical solution to a problem.
- To get a patent, technical information about the invention must be disclosed to the public in a patent application.
- The patent owner may give permission to, or license, other parties to use the invention on mutually agreed terms.
- The owner may also sell the right to the invention to someone else, who will then become the new owner of the patent.
- Once a patent expires, the protection ends, and an invention enters the public domain; that is, anyone can commercially exploit the invention without infringing the patent.
Terms of Patent
- Patents may be granted for inventions in any field of technology, from an everyday kitchen utensil to a nanotechnology chip.
- An invention can be a product – such as a chemical compound, or a process, for example – or a process for producing a specific chemical compound.
- Patent protection is granted for a limited period, generally 20 years from the filing date of the application.
- Patents are territorial rights. In general, the exclusive rights are only applicable in the country or region in which a patent has been filed and granted, in accordance with the law of that country or region.
Back2Basics: Intellectual Properties
- IP is protected in law by, for example, patents, copyright and trademarks, which enable people to earn recognition or financial benefit from what they invent or create.
- By striking the right balance between the interests of innovators and the wider public interest, the IP system aims to foster an environment in which creativity and innovation can flourish.
Types of IP:

(1) Copyright
- Copyright is a legal term used to describe the rights that creators have over their literary and artistic works.
- Works covered by copyright range from books, music, paintings, sculpture and films, to computer programs, databases, advertisements, maps and technical drawings.
(2) Patents

Discussed above

(3) Trademarks
- A trademark is a sign capable of distinguishing the goods or services of one enterprise from those of other enterprises.
- Trademarks date back to ancient times when artisans used to put their signature or “mark” on their products.
(4) Geographical Indications
- Geographical indications and appellations of origin are signs used on goods that have a specific geographical origin and possess qualities, a reputation or characteristics that are essentially attributable to that place of origin.
- Most commonly, a geographical indication includes the name of the place of origin of the goods.
(5) Trade secrets
- Trade secrets are IP rights on confidential information which may be sold or licensed.
- The unauthorized acquisition, use or disclosure of such secret information in a manner contrary to honest commercial practices by others is regarded as an unfair practice and a violation of the trade secret protection.
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March 17, 2022

Prelims Spotlight: Panchayati Raj- Local governance

Dear Aspirants,

This Spotlight is a part of our Mission Nikaalo Prelims-2022.

You can check the broad timetable of Nikaalo Prelims here

Session Details

Morning 12 PM – Prelims Spotlight Session

Evening 06:30 PM – TIKDAM/MCQs Session

Evening 08 PM – Tests on Alternate Days

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17th Mar 2022

Local self-government: various committees

	Balwant Rai Mehta Committee	Ashok Mehta	GVK Rao	Singhvi
Mandate	To examine working of Community development programme and national extension services	To study Panchayati Raj	Administrative arrangement for rural development and poverty alleviation	Revitalisation of Panchayati raj
Suggestion	3 tier Panchayati Raj linked through indirect election	2 tier – Zila Panchayat and Mandal Panchayat	District the unit of planning, post of district development commissioner	Constitutional protection to Panchayati raj

Titbits

1st Panchayati raj institution in Nagore (Rajasthan)
1st municipality Madras (British times)
Gram sabha is an assembly of all the voters of gram panchayat
74th amendment deals with the district planning committee
⅓ reservation for women in all posts
State election commission appointed by the governor to conduct polls
State finance commission appointed by the governor
Min age to contest the election is 21 years
Duration is 5 years, if dissolved before that, the next panchayat serves only the remaining years

Urban Local Government: Composition and Functions

74th Constitutional Amendment

This act added a new part IX-A to the Constitution entitled as ‘The Municipalities’ and a new Twelfth Schedule containing 18 functional items for municipalities. The main provisions of this Act can be grouped under two categories–compulsory and voluntary. Some of the compulsory provisions which are binding on all States are:

Constitution of Nagar panchayats, municipal councils and municipal corporations in transitional areas (areas in transition from a rural area to urban area), smaller urban areas and larger urban areas respectively;
Reservation of seats in urban local bodies for Scheduled Castes / Scheduled Tribes roughly in proportion to their population;
Reservation of seats for women up to one-third seats;
The State Election Commission, constituted in order to conduct elections in the panchayati raj bodies (see 73rd Amendment) will also conduct elections to the urban local self- governing bodies;
The State Finance Commission, constituted to deal with financial affairs of the Panchayati Raj bodies will also look into the financial affairs of the local urban self governing bodies;
Tenure of urban local self-governing bodies is fixed at five years and in case of earlier dissolution fresh elections are to be held within six months;

Some of the voluntary provisions which are not binding, but are expected to be observed by the States are:

Giving representation to members of the Union and State Legislatures in these bodies;
Providing reservation for backward classes;
Giving financial powers in relation to taxes, duties, tolls and fees etc;
Making the municipal bodies autonomous and devolution of powers to these bodies to perform some or all of the functions enumerated in the Twelfth Schedule added to the Constitution through this Act and/or to prepare plans for economic development.

In accordance with the 74th Amendment, municipal corporations and municipalities (municipal boards or municipal committees) are now regulated in a fairly uniform manner in all the States. However, one must remember that local self-government continues to be a subject in the State List.

Thus, the 73rd and 74th amendments provide a framework for the States in respect of local government. Thus, each State has its own Election Commission which conducts elections to all local bodies after regular intervals of five years.

Each State has its Finance Commission to regulate finances of the local bodies. Seats are reserved in the corporations and municipalities for Scheduled Castes and Tribes. One-third seats are reserved for women in all local bodies – urban and rural.

Composition

The Municipal bodies are constituted of persons chosen by direct election from the territorial constituencies (known as wards) in the municipal area.

However, the Legislature of a State may, by law, provide for the representation in a municipal body of persons having special knowledge or experience of municipal administration, the members of Rajya Sabha, Lok Sabha and the members of Legislative Council and Legislative Assembly of the State, representing constituencies, which comprise wholly or partly the Municipal Area.The state legislature may also provide the manner of the election of the Chairpersons of a municipality.

The state legislature may also provide the manner of the election of the Chairpersons of a municipality.

Empowerment of weaker sections of society and women by reserving seats for such groups is one of the important constitutional provisions of the Constitutional Amendment.

The offices of chairperson are also reserved for SC/ST and women. Thus, at least one year, out of five year duration of Municipal Corporation of Delhi, the office of Mayor is reserved for a woman, and for one year is reserved for a Councillor of Scheduled Caste. It gives a term of five years to the municipalities and if any of them is to be dissolved, it must be given an opportunity of being heard.

Functions of Urban Local Bodies

It is a common practice to divide the organisation of a corporation or a municipality into two parts:

(a) deliberative and (b) executive part

The corporation, council or municipal board or council consisting of the elected representatives of the people constitutes the deliberative part. It acts like a legislature.

It discusses and debates on general municipal policies and performance, passes the budget of the urban local body, frames broad policies relating to taxation, resources raising, pricing of services and other aspects of municipal administration.

It keeps an eye on municipal administration and holds the executive accountable for what is done or not done. For instance, if water supply is not being properly managed, or there is an outbreak of an epidemic, the deliberative wing criticises the role of the administration and suggests measures for improvement.

The executive part of municipal administration is looked after by the municipal officers and other permanent employees. In the corporations, the Municipal Commissioner is the executive head, and all other departmental officers like engineers, finance officers, health officers etc. function under his/her control and supervision.

In a large corporation, such as Delhi or Mumbai Municipal Corporation, the Commissioner is usually a senior IAS officer. In municipalities, the executive officer holds a similar position and looks after the overall administration of a municipality.

Municipal functions are generally classified into obligatory and discretionary types.

The obligatory (compulsory) functions are those that the municipal body must perform. In this category fall such functions as water supply; construction and maintenance of roads, streets, bridges, subways and other public works, street lighting; drainage and sewerage; garbage collection and disposal; prevention and control of epidemics.

Some other obligatory functions are public vaccination and inoculation; maintenance of hospitals and dispensaries including maternity and child welfare centres; checking food adulteration; removal of slums; supply of electricity; maintenance of cremation and burial grounds; and town planning. In some States some of these functions may be taken over by State Government.

The discretionary functions are those that a municipal body may take up if funds permit. These are given less priority. Some of the discretionary functions are construction and maintenance of rescue homes and orphanages, housing for low income groups, organising public receptions, provision of treatment facilities, etc.

Type of urban governments

There are eight types of urban governments in India.

Municipal Corporation: Municipal corporations are created for the administration of big cities like Delhi, Mumbai, Hyderabad and others. A Municipal Corporation has three authorities namely, the council (legislative wing of the corporation), the standing committee (to facilitate the working of the council) and the commissioner (chief executive authority of the corporation).The council consist of councillors directly elected by people and is headed by a Mayor while the Commissioner is appointed by state government and is generally an IAS officer.
Municipality: The municipalities are established for the administration of towns and smaller cities. They are known by various other names like municipal council, municipal committee, municipal board, borough municipality, city municipality and others. In composition they are quite similar to municipal corporations except that head of council is called President /chairman and in place of commissioner they have a chief executive officer/chief municipal officer.
Notified Area Committee: A notified area committee is created for the administration of two types of areas- a fast developing town due to industrialisation, and a town which does not yet fulfill all the conditions necessary for the constitution of a municipality, but which otherwise is considered important by the state government. It is called so because it is created by a notification and unlike the municipality it is an entirely nominated body, i.e. all members, including the Chairman, are nominated by the state government. Thus, it is neither a statutory body (created by law) nor an elected body.
Town Area Committee: It is set up by a separate act of state legislature for the administration of a small town. It is a semi-municipal authority entrusted with limited number of civic functions. It may be wholly elected or wholly nominated or partly elected and partly nominated as provided by state government.
Cantonment Board: It is established for municipal administration for civilian population in the cantonment areas (area where military forces and troops are permanently stationed). It is set up under the provisions of the Cantonment Act, 2006 by central government and works under Defence ministry of central government. It is partly elected and partly nominated body having the Military officer commanding the station as its ex-officio President. Vice president is elected amongst by the elected members of board. The executive officer of the cantonment board is appointed by the President of India.,
Township: It is established by large public enterprises to provide civic amenities to its staff and workers, who live in the housing colonies built near the plant. It is not an elected body and all members, including the town administrator, is appointed by the enterprise itself.
Port Trust: The port trusts are established in the port areas like Mumbai, Kolkata, Chennai and so on for two purposes: (a) to manage and protect the ports; (b) to provide civic amenities. It is created by an Act of Parliament and it consists of both elected and nominated members.
Special Purpose Agency: The states have set up certain agencies to undertake designated activities or specific functions that legitimately belong to the domain of municipal corporations, municipalities or other local urban governments. In other words, these are function based, not area based. They are known as ‘single purpose’, ‘uni-purpose’ or ‘special purpose’ or ‘functional local bodies’ like town improvement trust, housing boards, pollution control boars etc. They are established as statutory bodies by an act of state legislature or as departments by an executive resolution. They function as an autonomous body and are not subordinate agencies to local municipal bodies.

March 17, 2022

What is Daylight Saving Time (DST)?
The United States Senate unanimously passed a law making daylight saving time (DST) permanent, scrapping the biannual practice of putting clocks forward and back coinciding with the arrival and departure of winter.

What does this imply?
- With clocks in the US going back an hour, the time difference between New York and India will increase from the current nine and a half hours to ten and a half hours.
- In the Southern Hemisphere, the opposite has happened, where countries have “sprung forward”, and time difference with India has reduced.
What is DST?
- DST is the practise of resetting clocks ahead by an hour in spring, and behind by an hour in autumn (or fall).
- During these months, countries that follow this system get an extra hour of daylight in the evening.
- Because the spring to fall cycle is opposite in the Northern and Southern Hemispheres, DST lasts from March to October/November in Europe and the US, and from September/October to April in New Zealand and Australia.
- Dates for this switch, which happens twice a year (in the spring and autumn) are decided beforehand.
- By law, the 28 member states of the EU switch together — moving forward on the last Sunday of March and falling back on the last Sunday in October.
- In the US, clocks go back on the first Sunday of November.
Now try this PYQ:

Q.On 21st June, the Sun

(a) Does not set below the horizon at the Arctic Circle

(b) Does not set below the horizon at Antarctic Circle

(c) Shines vertically overhead at noon on the Equator

(d) Shines vertically overhead at the Tropic of Capricorn

How many countries use DST?
- DST is in practice in some 70 countries, including those in the European Union.
- India does not follow DST; since countries near the Equator do not experience high variations in daytime hours between seasons.
- There is, however, a separate debate around the logic of sticking with an only one-time zone in a country as large as India.
What does this system mean to achieve?
- The key argument is that DST is meant to save energy.
- The rationale behind setting clocks ahead of standard time, usually by 1 hour during springtime, is to ensure that the clocks show a later sunrise and later sunset — in effect a longer evening daytime.
- Individuals will wake an hour earlier than usual, complete their daily work routines an hour earlier, and have an extra hour of daylight at the end.
March 17, 2022
[Sansad TV] Perspective: Surgical Strikes
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Context
- February 26th marked the third anniversary of the Balakot airstrike which was conducted by Indian Air Force targeting the terrorist camps operating in Balakot town of Pakistan.
- It was done in response to a suicidal attack on convoy of vehicles carrying CRPF personnel plotted by Jaish-e-Mohammed in Pulwama district of Jammu.
- This surgical strike marked a major shift in India’s response to Pakistani sponsored cross border terror activities.
In this article, we will discuss and analyse all aspects of Balakot Air Strike (Surgical Strike), its impact and the way forward against the threat of terror.

What is a Surgical Strike?
- Surgical Strike is a military attack that is carried out to damage military targets, minimal collateral damage to the surrounding and the general public infrastructure.
- The aim is to eliminate the target without causing collateral damage to nearby areas and civilians.
- Surgical strikes require not just detailed and exhaustive planning but need to be carried out with absolute precision to achieve the objective of taking down targets with either no or minimal collateral damage.
Try this question from CS Mains:
Q.The terms ‘Hot Pursuit’ and ‘Surgical Strikes’ are often used in connection with armed action against terrorist attacks. Discuss the strategic impact of such actions. (UPSC CSE 2016)

Reasons for conducting such strikes
- Public outrage: Indian policymakers and military planners knew that only a military response would calm the enraged minds of their fellow citizens.
- Political backing: Unlike the present instance, however, India’s special operations in Pakistan were kept secret and never revealed to the public.
Significance of the strike
- Offensive retaliation: The public announcement of the strike marked a change in India’s policy towards such attacks.
- Demonstration of capability: It had become clear that India would at some stage be forced to act. And India acts in full capacity.
- Perception change: The acknowledgment came amid scepticism and disputing accounts of the attack.
- Paradigm shift in defence policy: Therefore this marked a paradigm shift in India’s response to terror attacks adding a new essence to the defence policy of India.
- Risk-taking: The decision to exploit the space below the ceiling of a full blown war to launch a sub-conventional operation seems to have been a well calculated risk.
Beneficial outcome
- Reduction in infiltration: It led to a considerable reduction in infiltrations from across the border bringing down the cases of terror attacks.
- Support for independent actions: In earlier instances, we would hold ourselves back owing to the ramifications any such act would have internationally. Many countries endorsed India’s move.
- Demoralised terrorist organisations: The pro-activeness in taking down infiltrators on their home-ground had a huge impact on demoralising the forces planning India’s destruction.
- High morale of public and the economy: The strikes proved to be an important element for maintaining the morale of the people of India and the armed forces.
- Demise of terror outfits: Dreaded terror groups like the Islamic State and al Qaeda have failed in their persistent attempts to target India and the country’s interests. (Though they now have emerged as TRF-the resistance front.)
- Change of narrative: Pakistan’s ‘high effect low cost war’ becomes a ‘low effect high cost war’ and that is exactly what the surgical strikes have achieved.
Various steps undertaken

A number of steps have been taken to structurally enhance India’s defence capabilities and preparedness:
- Defence Procurement Policy: It brought out in 2020 provides for a vision to turn India from an arms importer to an exporter.
- Make in India and Atmanirbharta: A huge emphasis has been laid on new initiatives such as Make in India which call for greater indigenisation and relaxed FDI norms in the defence sector to encourage investment in defence production.
- Defence collaborations: The government has also entered into a number of agreements with different countries for the modernisation of defence equipment and weapons.
- iDEX programme: The government is also tapping the start-up ecosystem through its flagship Innovations in Defence Excellence (iDEX) programme.
Issues with such strikes
- Populist measures: Cross-border strikes by a state must not be seen as mocking the authority and political resolve of another government.
- No alternative to diplomacy: Such an approach leaves neither side with any room for diplomatic manoeuvre, working severely to the detriment of a political solution.
- Army going populist: What surprised many this time was the very public nature of the announcement about the counter strike and claims of heavy casualties inflicted.
- Overt Politicization: There has been too much politicking, with the army needlessly dragged into this controversy.
- Burden of proof: Even after years, many political factions are seeking more objective proofs from the government and army of the actual operations.
Way forward
- There is a necessity to strengthen India’s strategic intent in order to convey to the adversaries that India is militarily capable of averting the terror threats to which the actions like Balakot airstrike stands significant.
- This approach shall continue with consistency.
- It has been suggested by an expert that the revision of plans and policies pertaining to national security, should be based on the situation involving a thorough assessment.
- The strategy of preparedness towards escalation as an immediate response to any terror attack needs to continue.
- Beyond the employment of the defence forces, India can also extend its diplomatic influence as a preventive measure to spread the fear of economic sanctions for its major adversary Pakistan.
March 17, 2022
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March 16, 2022
16th March 2022| Daily Answer Writing Enhancement(AWE)
Topics for Today’s questions:

GS-1 Urbanization, their problems and their remedies.

GS-2 India and its neighbourhood- relations

GS-3 Indian Economy

GS-4 Contributions of moral thinkers and philosophers from India and the world.

Question 1)

Q.1 What is an urban forest? Highlight its benefits and steps taken by the government to promote urban forestry in India. (10 Marks)

Question 2)

Q.2 The incident of the accidental firing of a missile by India highlights the issues with the strategic stability regime in South Asia. Discuss the issues and suggest the measures needed? (10 Marks)

Question 3)

Q.3 What are the special situation funds (SSFs)? How will SSF’s full participation across the entire spectrum of the secondary market for corporate debt help deal with the issue of bad debt? (10 Marks)

Question 4)

Q.4 To educate a person in the mind but not in morals is to educate a menace to society. ― Theodore Roosevelt. Explain. (10 Marks)

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March 16, 2022
Western sanctions on Russia are like none the world has seen
Context

Economic measures to cut Russia off from the world’s financial arteries are the most powerful implements a West unwilling to meet a nuclear adversary on the battlefield has dared wield in response to the invasion of Ukraine.

Use of sanctions
- The use of sanction has boomed over the past few decades.
- Since 2000 the number of individuals and entities on America’s sanctions list has risen more than tenfold to 10,000.
- Ever more governments, keen to punish military aggression or human-rights abuses but reluctant to go to war over them, have embraced the tactic.
Sanctions against Russia
- After debating whether to make it much harder for Russian banks to process international payments by shutting them out of SWIFT—some European countries feared it would hurt their own banks, too—Western allies agreed to try targeting seven of them, though it has steered clear of Sberbank, Russia’s largest by assets, which plays a big role in processing energy payments.
- The most potent financial sanctions, though, have been aimed not at Russia’s commercial banks but at its central bank.
- In the eight years since annexing Crimea made Russia the target of a first wave of sanctions, Russia has built up reserves (they now total $630bn) and shifted their composition away from dollars to help insulate the economy from further punishment.
- But reserves become moot, whatever the currency in which they are held, if they cannot be used.
- America, acting with Europe, has banned a range of parties from transactions with Russia’s central bank.
- The West has also frozen most of the bank’s assets outside Russia.
How it will affect Russian economy
- Within hours of the sanctions taking effect, Russia’s central bank raised its main interest rate from 9.5% to 20% in an attempt to shore up the currency.
- Export controls will limit the components Russia can buy for its military and high-tech sectors, denying it goodies ranging from cutting-edge machinery to microchips.
- The measures apply not just to goods made in America, but to those containing American technology that are made in and shipped from third countries, such as China.
- For now, consumer goods dear to ordinary Russians like smartphones and home appliances are exempted from such measures.
- But Apple is no longer selling iPhones or other kit in Russia. It is one of a fast-growing number of Western companies getting out.
Effectiveness of sanctions
- Measuring sanctions’ success is hard, not least because of the difficulty of disentangling their effects from other economic, and on occasion military, forces, but there have been few outright successes.
- A recent success was the squeeze on Libya by America and allies in the 1990s and early 2000s.
- A mix of sanctions and financial inducements persuaded Muammar Qaddafi to end his wmd programme and stop funding terrorism.
- The apparent failures of sanctions are many.
- Sometimes this is because they are fundamentally symbolic, or weakened by interest groups in the countries imposing them.
- Though the point of sanctions is to exploit asymmetries, doing much more harm to the adversary than to yourself, there are always burdens to be borne by some.
- There is also a loss to the economy as a whole.
- The cost of compliance with sanctions for banks and companies has rocketed over the past decade.
- Financial institutions alone spent over $50bn worldwide in 2020 on screening clients for sanctions risks, according to LexisNexis, a data firm.
- One thing which weakens sanctions is leakiness. Despite America’s maximum-pressure measures, Iran manages to export an estimated 1m barrels of oil per day as middlemen find ways to disguise the origin of shipments.
Risks associated with sanctions
- Collateral damage: The more powerful sanctions are, the greater the risk of collateral damage, particularly when targeted regimes are indifferent to the suffering of citizens.
- Work in favour of regime: Increasing the harm done can work at least in part in the government’s favour.
- In Venezuela, a significant number of those opposed to President Nicolás Maduro and his henchmen also oppose the American sanctions putatively aimed at dislodging them.
- Increase the closeness between countries: Sanctions can also push countries they target into each other’s arms.
- Russia and China—hit with American sanctions over its mistreatment of Uyghurs as well as its suspected tech-spying—are enjoying their friendliest relations for decades.
- Alternative infrastructure: It encourages those who fear them to develop alternative financial and technological infrastructures.
- China is pushing hard in that direction.
- As well as trying to boost its chip-making, it is creating its own version of swift, called cips, which simplifies cross-border payments in yuan, and developing a digital currency.
- It has a long way to go.
- Though usage of the yuan as a currency for international payments is at an all-time high, at just over 3% of the total it still pales beside the dollar, at 40%.
- As the world economy reels from financial crises, nationalism, trade wars and a global pandemic, sanctions are aggravating existing tensions within globalisation.
Conclusion

When used in earnest, sanctions can inflict heavy economic costs on both sides on top of the deprivation inflicted in targeted countries. Even then, they do not always work.

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March 16, 2022
A missile misfiring and its trail of poor strategic stability
Context

The accidental firing of an Indian missile into Pakistan highlights the sorry state of bilateral mechanisms for crisis management between the two nuclear adversaries where there is a missile flight time of barely a few minutes.

Balance response from both side
- The Pakistani response to the accidental firing of the missile was a balanced one.
- While New Delhi maintained a silence over the issue until it was brought up on March 11, the Indian response was also far from denial.
- In that sense then, the Indian and Pakistani responses to the missile (mis)firing were the best possible outcome under the circumstances given that there is little bilateral mechanism for crisis management.
- The two sides do not have high commissioners on the other side, there is no structured bilateral dialogue, and, most importantly, the two sides have not held ‘Expert Level Talks on Nuclear Confidence Building Measures’ or ‘Expert Level Talks on Conventional Confidence Building Measures’ for several years now.
Lack of strategic stability regime

Following are the reasons why the strategic stability regime in South Asia is hardly prepared for dealing with accidents such as the one that just happened, or enhancing effective crisis management and deterrence stability.

1] Pre-notification agreement does not include cruise missiles
- For one, although India and Pakistan signed a ‘Pre-Notification of Flight Testing of Ballistic Missiles’ agreement in October 2005, it does not include cruise missiles.
- Notably, the missile that was misfired by the Indian side earlier this month, suspected to be the BrahMos, was a cruise missile (even though it was a misfire, and not a flight test).
- Way forward: Given the many sophisticated cruise missiles that are now a part of each side’s arsenal, it is important to include them in the pre-notification regime.
2] No structured meetings on nuclear confidence-building measures (CBMs)
- The two sides have not held their structured meetings on nuclear confidence building measures (CBMs) and conventional CBMs for several years now.
- Given the nature of the India-Pakistan relationship — adversarial, nuclear-armed, crisis prone, and suffering from trust deficit — there is an urgent need, especially in the wake of the recent incident, to revive these two dialogue mechanisms.
3] China has so far refused to engage in strategic stability discussions with India
- The third state with nuclear weapons in the region, China, has so far refused to engage in strategic stability discussions with India even though China today is involved in the India-Pakistan conflict more than ever before, apart from being in a military standoff with India.
Way forward: Mechanisms for communicating sensitive information during crisis periods
- India and Pakistan should consider setting up mechanisms such as nuclear risk reduction centres (NRRCs), established between the U.S. and the Soviet Union during the Cold War.
- The primary objective of NRRCs, or similar structures that can be set up on either side, is risk reduction by providing a structured mechanism for timely communication of messages and proper implementation of already agreed-upon confidence-building measures.
- Such a body could routinely exchange messages, provide timely clarifications, and review compliance to agreements, among others.
Consider the question “The incident of the accidental firing of a missile by India highlights the issues with the strategic stability regime in South Asia. Discuss the issues and suggest the measures needed?

Conclusion

New Delhi should provide assurances to Pakistan that efforts will be made to avoid such mistakes in the future. And both sides should use risk reduction mechanisms.

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March 16, 2022
16th March 2022 | Prelims Daily with Previous Year Questions

[WpProQuiz 932]

[WpProQuiz_toplist 932]

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March 16, 2022
Why special situation funds are necessary
Context

India suffers from a chronic bad debt problem. To overcome this problem, banks and financial institutions were initially allowed to sell their stressed loans only to ARCs. Now they can sell to SSFs too.

How bad debt affects the credit supply in economy?
- Higher bad debt requires higher provisioning, locking up more capital in the banking system.
- This reduces credit supply and hurts economic growth.
- To overcome this problem, banks and financial institutions were initially allowed to sell their stressed loans only to ARCs.
- Transfer of stressed loans would release capital locked-up in the banking system and help improve credit supply.
Two crucial reforms in financial markets
- Indian financial markets witnessed two crucial reforms earlier this year.
- 1] SSF: SEBI came out with a dedicated regulatory framework for special situation funds (SSFs).
- 2] Dual structure bad bank: The RBI approved the new dual-structure bad bank, NARCL-IDRCL.
- While the bad bank is an upgraded version of the existing asset restructuring companies (ARCs) model, the SSF is a relatively novel concept.
Understanding AIFs and SSF
- SEBI has introduced SSFs as a distinct sub-category of Category I Alternative Investment Funds (AIFs).
- AIFs manage privately pooled funds raised from sophisticated investors with deep pockets.
- AIFs in equity market: While AIFs have traditionally played a prominent role in equity markets, their participation in distressed debt markets has been limited.
- No participation in secondary market for corporate loans: Regulations did not permit AIFs to participate in the secondary market for corporate loans extended by banks and NBFCs.
- The new regulations now create a special sub-category of AIFs, namely SSFs, which are allowed to participate in the secondary market for loans extended to companies that have defaulted on their debt obligations.
What is Syndicated lending?
- Syndicated lending is a financial instrument where a group of lenders, known as a syndicate, work together to provide a large loan to a single borrower.
- This collaborative approach allows lenders to share the risk of borrower default, making it more manageable for individual lenders.
- The syndicate typically includes a lead bank or underwriter, which plays a crucial role in assembling the syndicate and managing administrative tasks.
Why SSFs must be allowed full participation across the entire spectrum of secondary market for corporate debt
- Default is a lagging indicator of financial stress.
- Lesser haircut: If lenders and bond investors could offload potentially stressed assets to SSFs before defaulting in the secondary market, they would benefit from a lesser haircut.
- SSFs would also get adequate time for debt aggregation before default, reducing the collective action problems that may arise after default during insolvency or restructuring.
- It would improve the liquidity: Allowing SSFs to purchase investment-grade loans would also improve the liquidity in the secondary market for corporate loans.
- Traditionally, banks originated loans and held them till maturity.
- Over time, lending moved from involving a single lender to multiple lenders via syndicated lending.
- As volumes in the primary syndication market increased, demand for secondary trading also developed to allow liquidity, risk and portfolio management.
- Suggestion by RBI task force: Secondary trading of loans is now institutionalised in international financial markets.
- The RBI task force on secondary markets for corporate loans, chaired by T N Manoharan, made this suggestion in 2019.
- These markets are liquid precisely because they are open to a wide variety of non-bank participants including insurance companies, pension funds, hedge funds and private equity funds.
- SSFs are unlikely to jeopardise financial stability: SSFs cannot borrow funds or engage in any leverage except for temporary funding requirements.
- Consequently, risks associated with liquidity, credit or maturity transformation and asset-liability mismatches are unlikely to arise.
- Given their structure, SSFs are likely to acquire sufficient debt in a distressed company to acquire control or to influence its subsequent insolvency or restructuring process to maximise its value through business turnaround or sale.
Consider the question “What are special situation funds (SSFs)? Suggest the changes needed in the secondary trading of loans in India’s.”

Conclusion

Overall, the introduction of SSFs promises to usher in a modern era of distressed debt investing in India. To realise their true potential, SSFs must be allowed full participation across the entire spectrum of secondary market for corporate debt and not just be confined to the post-default stage.

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March 16, 2022