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  • 08th Feb 2021 | Prelims Daily with Previous Year Questions

    [WpProQuiz 541]

    [WpProQuiz_toplist 541]

  • Making Budget work

    The article deals with the marked departures in this year’s Budget and the challenges in realising the changes.

    Three paradigm shifts from past in this the Budget

    1)Increased infrastructure spending

    • The main theme of the budget is a big thrust on infrastructure spending and public investment.
    • If the budgeted numbers are realised, capex would have grown from 1.6 per cent of GDP pre-COVID to 2.5 per cent in two years.
    • With India’s investment/GDP ratio falling by 5 percentage points over the last decade, a sustained public investment push — with its large multiplicative effects — is a much-needed impetus to reinvigorate growth and create jobs.

    Implications of increased spending

    • The certainty sustained public investment is likely to crowdin private investment.
    • The certainty of investment-led employment that is likely to reduce household precautionary savings.
    • However, higher capex spend is being paid for by disinvestment and privatisation.
    • Effectively, non-core public-sector assets that don’t generate positive externalities — and, in fact, potentially distort the sectors they compete in — are expected to be replaced with much-needed physical and social infrastructure.
    • This newly created physical and social infrastructure emanate positive externalities and necessarily suffer from under-provisioning by the private sector.
    • If successfully executed — this will not be a case of selling the family silver to pay a credit card bill.
    • Instead, it will be akin to a productivity-enhancing asset swap on the public sector’s balance sheet.

    2) Shift in the way for financing infrastructure

    • In stark contrast to the PPP model, infrastructure will now be financed off public sector balance sheets and, once operational and viable, will be monetised so as to recycle proceeds into the next project.
    • In theory, this is the appropriate division of public-private risk sharing.
    • It combines the public sector’s ability to better mitigate upstream risk while taking advantage of the glut of global liquidity potentially attracted to downstream projects.

    3) Shift is towards more conservative and transparent fiscal accounting

    • There has been much focus on bringing the Food Corporation of India (FCI) liabilities back on the budget.
    • Less appreciated is the conservatism with which tax revenues have been budgeted for.
    • Revised estimates peg this year’s gross taxes at 9.9 per cent of GDP.
    • But for that to happen, taxes, net of excise, will need to contract by 20 per cent in the last quarter.
    • So it’s very likely gross taxes will end up 0.5 per cent of GDP higher this year.
    • Not only is this a welcome departure from the past when revenues were consistently over-budgeted, but it sets the base for next year.
    • With nominal GDP expected to grow in double digits, it’s likely taxes, net of excise, will experience a higher-than-unitary-elasticity to growth, especially given the increased formalisation that COVID has spawned.
    • Tax collections are, therefore, likely to exceed budgeted levels in 2021-22.
    • It behooves a very uncertain macroeconomic environment and creates some buffer if crude prices keep rising or other revenues don’t materialise.
    • Credible accounting over time will bring down risk premia in bond yields, and paradoxically generate a stimulative impulse.

    Three challenges in realising these changes

    1) Execution challenge

    • The budget’s impact on shaping the macroeconomic narrative will depend on the speed and efficacy of simultaneously building and selling public assets.
    • It will be important, for instance, to front-load disinvestment and strategic sales to take advantage of buoyant equity markets before global central banks become more cautious.
    • With debt likely to rise to almost 90 per cent of GDP this year, it’s now incumbent on all stakeholders to consistently deliver the 10 per cent nominal GDP growth that’s needed to first stabilise debt at these levels and then bring it down.
    • Viewed from this lens, it is a budget where execution is vital.

    2) Withdrawal of the policy support at appropriate time

    • While fiscal policy is being appropriately counter-cyclical at the moment, it must be equally nimble in the other direction.
    • When the recovery gets more entrenched, policy support should be withdrawn with equal speed and alacrity.

    3) Role of monetary policy

    • With fiscal policy playing a primary role, monetary policy must slowly take a back seat.
    • The combination of a more relaxed fiscal path and domestic private sector savings normalising after the COVID surge could result in equilibrium bond market yields rising [fall in the price of bond] — but that is a cost worth incurring for a meaningful public investment push.
    • In the near term, the RBI may focus on ensuring this new equilibrium is reached in a non-disruptive manner.
    • Given the current slack in the economy, it’s understandable if fiscal and monetary are temporarily complementary.
    • But as confidence in the recovery grows, fiscal and monetary must quickly become substitutes — with the RBI progressively normalising liquidity to wardoff financial stability and fiscal dominance concerns — so as to safeguard macroeconomic stability.

    Consider the question “This year’s Budget marked many departures from the past Budgets. However, there are several challenges in realising these departures. What are such departures and identify the challenges in realising them?”

    Conclusion

    The budget must be commended for embarking on important paradigm shifts. But its success, and in turn the sustainability of India’s recovery, will now come down squarely to policy execution and coordination.

     

  • IBC as an enabler

    The article analyses whether or not the Insolvency and Bankruptcy Code is delivering on its objectives.

    Criticism of IBC

    • The Insolvency and Bankruptcy Code (IBC), 2016 was enacted to resolve the stress of companies.
    • However, the corporate insolvency resolution process (CIRP)  has been criticised as it rescues only about 25 per cent of companies and leads to liquidation for the rest.

    Is IBC delivering on its mandate

    Let’s analyse how Insolvency and Bankruptcy Code (IBC) 2016 is working towards value maximising outcomes.

    1) It enables the market to attempt to resolve

    • The CIRP enables the market to attempt to resolve stress through a resolution plan whereby the company survives.
    • When it concludes that there is no feasible resolution plan to rescue the company, the company proceeds for liquidation.
    • The market usually rescues a viable company and liquidates an unviable one.
    • There are quite a few companies which have negligible assets and/or are defunct when they enter CIRP.
    • Many of these are beyond rescue for a variety of reasons, including creative destruction, and their continuation is a cost to the economy.
    • In such cases, the code enables liquidation to release available resources to alternate uses.
    • It is welcome, as it releases the assets as well as the entrepreneur stuck up in an unviable company, which is a key objective of the code.

    2) Look at the total asset value not the number of companies

    • In terms of absolute numbers, 25 per cent of companies were rescued and 75 per cent proceeded for liquidation.
    • In value terms, however, 75 per cent of the assets were rescued and 25 per cent of assets proceeded for liquidation.
    • Of the companies sent for liquidation, 75 per cent were either sick or defunct, and of the companies rescued, 25 per cent were either sick or defunct.

    3) Look at the overall impact, not just final numbers

    • Third, the stress that a company suffers is like an illness which can be treated by a variety of options.
    • Normally, recovery is better if diagnosis and treatment start early.
    • Likewise, the health of the company deteriorates if the resolution process is delayed.
    • The percentage of rescue at this later stage may not be significant.
    • The credible threat of CIRP that a company may change hands has redefined the debtor-creditor relationship.
    • Faced with the possibility of the CIRP, a debtor makes all-out efforts to prevent the stress, or resolve it much before it translates into a default, or settles the default.
    • Even after an application is filed, a debtor continues efforts to resolve the financial stress midway through settlement, review, mediation, or withdrawal to avoid the consequences of CIRP.
    • The number of companies that recover before filing the application as a percentage of those that get starts the insolvency process would give the fair idea about the efficacy of the IBC.

    Consider the question “The IBC has often been criticised for liquidating the companies rather than rescuing them. Do you agree with this criticism? Give reasons in support of your argument.”

    Conclusion

    Liquidation or rescue is an outcome of the market forces; the law is only an enabler giving choices and nudging a company towards value maximising outcomes. The “invisible hands” of the market works towards the best outcome, which we should respect and accept.

  • Glacial Lake Outburst Flood (GLOF) in Uttarakhand

    A massive glacier burst at Chamoli in Uttarakhand yet again bringing back our focus to the dangers of climate change.

    A wake-up call!

    Uttarakhand is often at the heart of various Himalayan disasters such as flash floods, cloud bursts, avalanches and earthquakes.

    The Chamoli incident signifies the dawn of ugly faces of climate disaster for which the mankind is clueless. At last, someone has to be blamed, isn’t it?

    What is the news?

    • Experts are uncertain about what caused the massive glacier burst at Chamoli in Uttarakhand.
    • It is unclear whether there was an avalanche in the area recently or whether the lake breach was the result of construction, anthropological activities, climate change etc.

    What is GLOF?

    • A GLOF is a type of outburst flood that occurs when the dam containing a glacial lake fails.
    • An event similar to a GLOF, where a body of water contained by a glacier melts or overflows the glacier, is called a jökulhlaup.
    • The dam can consist of glacier ice or a terminal moraine.
    • Failure can happen due to various factors such as:
    1. Erosion, a buildup of water pressure
    2. Avalanche of rock or heavy snow
    3. Earthquake or volcanic eruptions under the ice or
    4. Displacement of water in a glacial lake when a large portion of an adjacent glacier collapses into it

    Possible causes for Chamoli

    Avalanche

    • An avalanche is falling masses of snow and ice which gathers pace as it comes down the slope.
    • But an avalanche is unlikely to result in the rise of water of that magnitude what Chamoli witnessed.

    Cloudburst

    • What happened in Uttarakhand in 2013 was a multi-day cloudburst.
    • It is a sudden, very heavy rainfall accompanies by a thunderstorm. But it generally happens in monsoon.
    • In fact, the season in which such a disaster was witnessed has surprised experts as there is no immediate trigger that can be pointed to as the reason why water level rose to that level washing away two hydro projects.

    Why always Uttarakhand?

    • Human activities profoundly affect the earth’s climate and mountains are a sensitive indicator of that effect.
    • The mountain ecosystem is easily disrupted by variations in climate owing to their altitude, slope and orientation to the sun.
    • As the earth heats up, mountains glaciers melt at unprecedented rates.
    • Several scientists believe that the change occurring in the mountain ecosystems may provide an early glimpse of what could come to pass in a lowland environment.

    Conclusion

    • The current policy of the government of pursuing hydro-power projects indiscriminately cannot be ignored.
    • The entire State of Uttarakhand is categorised as falling in Zone-IV and V of the earthquake risk map of India.
    • The potential of the cumulative effect of multiple such projects has turned out to be more environmentally damaging than sustainable.

  • Controversial hashtags on twitter and their regulation

    The Centre has issued notice to Twitter after the micro-blogging site restored more than 250 accounts that had been suspended earlier on the government’s ‘legal demand’.

    Take this new term “Hashtags Activism”.

    What is the news?

    • Twitter was asked to block accounts and controversial hashtags that spoke of an impending ‘genocide’ of farmers for allegedly promoting misinformation about the protests, adversely affecting public order.
    • Twitter reinstated the accounts and tweets on its own and later refused to go back on the decision, contending that it found no violation of its policy.

    Concerns with the directive

    • This direction presents a clear breach of fundamental rights but also reveals a complex relationship between the government and large platforms on the understanding of the Constitution of India.
    • The specific legal order issued is secret.
    • This brings into focus the condition of secrecy that is threshold objection to multiple strands of our fundamental rights.
    • It conflicts against the rights of the users who are denied reasons for the censorship.
    • Secrecy also undermines the public’s right to receive information, which is a core component of the fundamental freedom to speech and expression.
    • This is an anti-democratic practice that results in an unchecked growth of irrational censorship but also leads to speculation that fractures trust.
    • The other glaring deficiency is the complete absence of any prior show-cause notice to the actual users of these accounts by the government.
    • This is contrary to the principles of natural justice.
    • This again goes back to the vagueness and the design faults in the process of how directions under Section 69A are issued.

    Are platforms required to comply with legal demands?

    • Cooperation between technology services companies and law enforcement agencies is now deemed a vital part of fighting cybercrime and various other crimes that are committed using computer resources.
    • These cover hacking, digital impersonation and theft of data.
    • The potential of the misuse has led to law enforcement officials constantly seeking to curb the ill-effects of using the medium.
    • Therefore, most nations have framed laws mandating cooperation by Internet service providers or web hosting service providers and other intermediaries to cooperate with law and order authorities in certain circumstances.

    What does the law in India cover?

    • In India, the Information Technology Act, 2000, as amended from time to time, governs all activities related to the use of computer resources.
    • It covers all ‘intermediaries’ who play a role in the use of computer resources and electronic records.
    • The term ‘intermediaries’ includes providers of telecom service, network service, Internet service and web hosting, besides search engines, online payment and auction sites, online marketplaces and cyber cafes.
    • It includes any person who, on behalf of another, “receives, stores or transmits” any electronic record. Social media platforms would fall under this definition.

    What are the Centre’s powers, vis-à-vis intermediaries?

    • Section 69 of the Act confers on the Central and State governments the power to issue directions “to intercept, monitor or decrypt…any information generated, transmitted, received or stored in any computer resource”.

    The grounds on which these powers may be exercised are:

    • in the interest of the sovereignty or integrity of India, defence of India, the security of the state,
    • friendly relations with foreign states,
    • public order, or for preventing incitement to the commission of any cognizable offence relating to these, or
    • for investigating any offence

    How does the government block websites and networks?

    • Section 69A, for similar reasons and grounds, enables the Centre to ask any agency of the government, or any intermediary, to block access.
    • Any such request for blocking access must be based on reasons given in writing.
    • Procedures and safeguards have been incorporated in the rules framed for the purpose.

    Obligations of intermediaries under Indian law

    • Intermediaries are required to preserve and retain specified information in a manner and format prescribed by the Centre for a specified duration.
    • Contravention of this provision may attract a prison term that may go up to three years, besides a fine.
    • When a direction is given for monitoring, the intermediary and any person in charge of a computer resource should extend technical assistance in the form of giving access or securing access to the resource involved.
    • Failure to extend such assistance may entail a prison term of up to seven years, besides a fine.
    • Failure to comply with a direction to block access to the public on a government’s written request also attracts a prison term of up to seven years, besides a fine.

    Is the liability of the intermediary absolute?

    • Section 79 of the Act makes it clear that “an intermediary shall not be liable for any third-party information, data, or communication link made available or hosted by him”.
    • This protects intermediaries such as Internet and data service providers and those hosting websites from being made liable for content that users may post or generate.
    • However, the exemption from liability does not apply if there is evidence that the intermediary abetted or induced the commission of the unlawful act involved.

    Judicial intervention in this regard

    • In Shreya Singhal Case (2015), the Supreme Court read down the provision to mean that the intermediaries ought to act only upon receiving actual knowledge that a court order has been passed.
    • This was because the court felt that intermediaries such as Google or Facebook may receive millions of requests, and it may not be possible for them to judge which of these were legitimate.
    • The role of the intermediaries has been spelt out in separate rules framed for the purpose in 2011.

    Legislative efforts

    • In 2018, the Centre favoured coming up with fresh updates to the existing rules on intermediaries’ responsibilities, but the draft courted controversy.
    • This was because one of the proposed changes was that intermediaries should help identify originators of offensive content.
    • This led to misgivings that this could aid privacy violations and online surveillance.
    • Also, tech companies that use end-to-end encryption argued that they could not open a backdoor for identifying originators, as it would be a breach of promise to their subscribers.

  • What are the One-Person Companies (OPCs)?

    In her Budget speech, the Union Finance Minister had announced measures to ease norms on setting up one-person companies (OPCs).

    Q.What are One-Person Companies (OPCs)?  Discuss how they will help startups and non-resident Indians?

    What is an OPC?

    • As the name suggests, a one-person company is a company that can be formed by just one person as a shareholder.
    • These companies can be contrasted with private companies, which require a minimum of two members to get going.
    • However, for all practical purposes, these are like private companies.
    • It is not as if there was no scope for an individual with aspirations in business prior to the introduction of OPC as a concept.
    • As an individual, a person could get into the business through a sole proprietorship mode, and this is a path that is still available.

    Why do we need such companies?

    • A single-person company and sole proprietorship differ significantly in how they are perceived in the eyes of law.
    • For the former, the person and the company are considered separate legal entities. In a sole proprietorship, the owner and the business are considered the same.
    • This has an important implication when it comes to the liability of the individual member or owner. In a one-person company, the sole owner’s liability is limited to that person’s investment.
    • In a sole proprietorship set-up, however, the owner has unlimited liability as they are not considered different legal entities.
    • Some see the proposal as a move to encourage corporatization of small businesses. It is useful for entrepreneurs to have this option while deciding to start a business.

    Is this a new idea?

    • Such a concept already exists in many countries. In India, the concept was introduced in the Companies Act of 2013.
    • Its introduction was based on the suggestions of the J. Irani Committee Report on Company Law, which submitted its recommendations in 2005.
    • Pointing out that there was a need for a framework for small enterprises, it said small companies would contribute significantly to the Indian economy.
    • But because of their size, they could not be burdened with the same level of compliance requirements as large public-listed companies.

    Features of OPCs

    • The law on one-person companies that took shape, as a result, exempted such companies from many procedural requirements, and, in some cases, provided relaxations.
    • For instance, such a company does not need to conduct an annual general meeting, which is a requirement for other companies.
    • A one-person company also does not require signatures of both its company secretary and director on its annual returns. One is enough.
    • There was, however, criticism that some rules governing a one-person company were restrictive in nature. This year’s Budget has dealt with some of these concerns.

    How many OPCs does India have?

    • According to data compiled by the Monthly Information Bulletin on Corporate Sector, there were 34,235 OPCs out of a total number of about 1.3 million active companies in India (Dec 2020).
    • Data also show that more than half of the OPCs are in business services.

  • Hope: UAE’s first mission to Mars

    The first Arab interplanetary mission is expected to reach Mars’ orbit on February 9 in what is considered the most critical part of the journey to unravel the secrets of weather on the Red Planet.

    Try this question from CSP 2014:

    Q.Which of the following pair is/are correctly matched?

    Spacecraft Purpose
    1. Cassini-Huygens Orbiting the Venus and transmitting data to the Earth
    2. Messenger Mapping and investigating the Mercury
    3. Voyager 1 and 2 Exploring the outer solar system

    Select the correct answer using the code given below.

    a) 1 only

    b) 2 and 3 only

    c) 1 and 3 only

    d) 1, 2 and 3

    Hope Mission

    • The Emirates Mars Mission called “Hope” was announced in 2015 with the aim of creating mankind’s first integrated model of the Red planet’s atmosphere.
    • Hope weighs over 1500 kg and will carry scientific instruments mounted on one side of the spacecraft, including the Emirates exploration Imager (EXI), which is a high-resolution camera among others.
    • The spacecraft will orbit Mars to study the Martian atmosphere and its interaction with outer space and solar winds.
    • Hope will collect data on Martian climate dynamics, which should help scientists understand why Mars’ atmosphere is decaying into space.

    Objectives of the mission

    • Once it launches, Hope will orbit Mars for around 200 days, after which it will enter the Red planet’s orbit by 2021, coinciding with the 50th anniversary of the founding of UAE.
    • The mission is being executed by the Mohammed bin Rashid Space Centre, UAE’s space agency.
    • It will help answer key questions about the global Martian atmosphere and the loss of hydrogen and oxygen gases into space over the span of one Martian year.

  • FSSAI caps transfats in foods

    The FSSAI has amended its rules to put a cap on trans fatty acids (TFAs) in food products just weeks after it tightened the norms for oils and fats.

    What are the new rules?

    • Food products in which edible oils and fats are used as an ingredient shall not contain industrial Trans fatty acids more than 2% by mass of the total oils/fats present in the product, on and from 1st January 2022.
    • In December, the FSSAI had capped TFAs in oils and fats to 3% by 2021, and 2% by 2022 from the current levels of 5%.
    • The 2% cap is considered to be the elimination of trans fatty acids, which is to be achieved by 2022.

    What are Trans Fats?

    • Trans fatty acids are created in an industrial process that adds hydrogen to liquid vegetable oils to make them more solid, increase the shelf life of food items and for use as an adulterant as they are cheap.
    • They are present in baked, fried and processed foods as well as adulterated ghee which becomes solid at room temperature.
    • They are the most harmful form of fats as they clog arteries and cause hypertension, heart attacks and other cardiovascular diseases.

    Why need such regulation?

    • As per the World Health Organisation (WHO), approximately 5.4 lakh deaths take place each year globally because of intake of industrially-produced trans-fatty acids.
    • The WHO has called for the elimination of industrially-produced trans-fatty acids from the global food supply by 2023.
    • The latest FSSAI rules signal the completion of the process of regulating trans fats in India.
    • The move will make a big difference in the health harm caused by this unwanted ingredient.
    • This allows FSSAI and the State-level food safety machinery to focus on implementation and enforcement of the WHO recommendations.

  • The Budget unshackles India’s economic growth story

    The article highlights the three key feature of the Budget which makes it historic.

    1) Disinvestment

    • Budget 2021-22 will begin the process of the withdrawal of the state from business.
    • Bank nationalisation in 1969 signalled a new era — just more than 50 years later, India has changed course for the better.
    • The budget signals that the process towards the goal of greater economic freedom, and faster and more equitable economic development, and maturity, has well and truly begun.

    2) Changed role of fiscal deficit in economic policy

    • Many of us forgot the original meaning of fiscal deficits and their importance.
    • When there is an unemployment, a considerable portion of deficit financing can go towards growth, rather than inflation.
    • The relegation of the fiscal deficit to a secondary role in economic policy was the second big departure from a conventional budget.
    • The conventional argument was that fiscal deficit was something to really worry about, hence taxes must be raised to keep the deficit within limits.
    • There was serious talk of a COVID cess, a wealth tax, and increase in the tax rate for the rich.
    • There is no increase in tax rates to increases tax revenue.
    • Rather, the finance minister took the extra-bold step of reducing corporate taxes in September 2019.
    • India awaits a comprehensive reform of the Direct Tax Code. It did not happen. But the stage is set for such a reform.

    3) Transparency in fiscal math

    • If the government borrows from the Food Corporation of India (to finance MSP purchases, what else), it will now appear as part of expenditures and as part of the deficit.
    • Also, the GDP growth estimates for 2021-22, forecasted at 14.5 per cent (nominal).
    • Normally, finance ministers in India tend to over-estimate, and most often, fall short.
    • Budget 2021-22 might be the first to significantly exceed the forecasts.

    Criticism of the budget

    • One of the issues with the budget cited by the critics is that its forecasts would be in error because of problems of “execution and implementation”.

    Conclusion

    With many firsts, it is a budget that lays the foundation for sustainable recovery in GDP growth and welfare improvement.

  • Dairy Industry in India : An analysis

    The article highlights the issues facing the dairy sector and explains the utility of IVF technology for crossbreeding.

    Importance of dairy sector

    • The dairy sector assumes significance on account two reasons:
    • 1) It has to do with the socio-cultural affinity towards cows and dairy products in large parts of the country.
    • 2) As an industry, it employs more than 70 million farmers.
    • Need of the hour is for us to identify ways in which we can enhance the return on investment for our farmers.

    India’s journey from milk deficit country to one of surplus

    • Initiated in 1970, Operation Flood transformed India into one of the largest milk producers.
    • The per capita availability of milk in 2018-19 was 394 grams per day as against the world average of 302 grams.
    • Today with an annual production of 187.75 million tonnes India accounts for about 22% of the world’s milk production.
    • However, India is yet to join the ranks of major milk exporting nations, as much of what we produce is directed towards meeting domestic demands.

    Making India milk exporting nation

    • Indigenous cows produce 3.01kgs of milk per cow per day, while the yield of exotic crossbred cows is 7.95kgs.
    • Crossbreeding has taken off in a big way because of the advancements in reproductive technologies like In vitro fertilization (IVF), embryo transfer process, and artificial insemination.
    • Out of these processes, IVF and artificial insemination have proven to be the most popular and effective methods.
    • The NAIP (Nationwide Artificial Insemination Programme) Phase-I was launched in September 2019.
    • Every animal in the programme was assigned a 12-digit unique identification number under the Pashu Aadhar scheme.
    • NAIP Phase-II was initiated on 1 August 2020 with an allocation of ₹1,090 crore in 604 districts covering 50,000 animals per district and is on track to be completed by the 31 May 2021.
    • Under the programme, 9.06 crore artificial inseminations will be performed and is expected to lead to the birth of 1.5 crore high yielding female calves.
    • Consequently, 18 million tonnes of additional milk will be produced as average productivity will be enhanced from 1,861kg per animal per year to 3,000kg per animal per year.
    • Artificial insemination (AI) technology has been the most used method in India, but its success hinges upon accuracy in heat detection and timely insemination.
    • And this is where In Vitro Fertilization (IVF) technology will prove to be more effective.

    Conclusion

    In keeping with our ethos of ‘Jai Kisan, Jai Vigyan’ the marriage of rural farming with the latest innovations in technology will usher in unprecedented transformation in our dairy industry.

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