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Population Pyramid

Mains Paper 1 : Population & Associated Issues |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Population Pyramid

Mains level : India's demogrphic dividend



Context

  • Population pyramids, which show the age and sex distribution of any country, help us understand how demographic transition plays out and speculate about its medium-term economic prospects.
  • The newscard provides a look at the pyramids for India and China and their implications.

Reading the Pyramid

  • Generally, males are shown on the left-hand side and females on the right.
  • Also, the convention is that age distribution is done in cohorts of five years, with the age rising as we go vertically upwards.
  • The pyramid shape changes over time due to births, deaths and net migration. A quick look above shows that India’s pyramid, like the actual pyramids in Egypt, is bottom heavy.
  • That is, the Indian population has a larger proportion of children, teenagers and young adults compared to China’s.
  • We can also observe that except for the oldest groups, India seems to have more males than females for every cohort.

What do they say about demographics?

  • India’s population for the age cohorts of 0-4, 5-9, 10-14 and 15-19 is roughly equal, whereas the numbers for older groups become progressively smaller.
  • This means that the country’s younger age groups have stopped growing in numbers now and are likely to shrink slightly soon.
  • This, however, does not mean that India’s population will also start shrinking soon—far from it.
  • On the other hand, China’s largest cohort is in its late 40s, although it is more gender balanced than its younger cohorts, suggesting that sex-selective abortions are likely to have taken off in the last few decades.

What does this have to do with economic growth?

  • If we take the 25-65 age group, India currently has around 650 million people and China 830 million.
  • By 2040, India is likely to reach 900 million, whereas China will have around 730 million.
  • In other words, India will go from having 180 million less working-age people than China today to about 170 million more—a net gain of a third of a billion in 20 years.

Achieving demographic dividend

  • Just having people in the working age is not enough. How many are in the labour force and their productivity are important.
  • People pursuing education and home-makers are mostly the ones to drop out of the labour force, women more so.
  • But after a fall in female labour force participation for 10 years or so, there are early signs of improvement.
  • On productivity, Indians about to enter the 25+ age group have almost universal literacy across both the genders and many are “digital natives” even in lower income groups.

Implications for India

  • The Indian state has to invest more, and efficiently, in human capital and infrastructure.
  • For the former, investments in health and sanitation have to be sustained and more PPP models such as vouchers and charter schools in basic education have to be explored so that tax outlays result in higher outcomes.
  • For the latter, a bigger push for affordable rental housing in cities has to be considered, along with more investments in rail connectivity.
Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

Atlantic Meridional Overturning Circulation (AMOC)

Mains Paper 1 : Climatic Change |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : AMOC

Mains level : Impacts of oceanic warming



News

  • While greenhouse warming caused by human activity is heating up the Indian oceans, it is likely to boost a key system of currents in the Atlantic Ocean that plays a key role in determining the weather across the world.

Atlantic Meridional Overturning Circulation (AMOC)

  • AMOC is sometimes referred to as the “Atlantic conveyor belt”.
  • It is one of the Earth’s largest water circulation systems where ocean currents move warm, salty water from the tropics to regions further north, such as western Europe and sends colder water south.
  • It aids in distributing heat and energy around the earth, as the warm water it carries releases heat into the atmosphere, and in absorbing and storing atmospheric carbon.

Why in news?

  • For thousands of years, AMOC has remained stable, but since the past 15 years, it has been weakening.
  • This change could have dramatic consequences for Europe and other parts of the Atlantic rim.

Impact of AMOC slowdown

  • AMOC last witnessed a slow down 15,000 to 17,000 years ago.
  • It caused harsh winters in Europe, with more storms or a drier Sahel in Africa due to the downward shift of the tropical rain belt.
  • The mere possibility that the AMOC could collapse should be a strong reason for concern in an era when human activity is forcing significant changes to the Earth’s systems.

Need for delaying AMOC slowdown

  • Researchers found that rising temperatures in the Indian Ocean can help boost the AMOC and delay slow down.
  • Warming in the Indian Ocean generates additional precipitation, which, in turn, draws more air from other parts of the world, including the Atlantic.
  • This higher level of precipitation in the will reduce precipitation in the Atlantic and increase salinity in the waters.
  • This saline water in the Atlantic, as it comes north via AMOC, will get cold much quicker than usual and sink faster, acting as a jump start for AMOC, intensifying the circulation.

Uncertainty ahead

  • Scientists don’t know for how long this enhanced warming in Indian Ocean will continue.
  • If other tropical oceans’ warming, especially the Pacific’s, catches up with the Indian Ocean, the advantage for AMOC will stop.
  • Moreover, it isn’t clear whether slowdown of AMOC is caused by global warming alone or it is a short-term anomaly related to natural ocean variability.
Climate Change Impact on India and World – International Reports, Key Observations, etc.

Zero Budget Natural Farming (ZBNF)

Mains Paper 3 : Major Crops & Cropping Patterns |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : ZBNF

Mains level : Debate over efficiency of ZBNF


News

  • Addressing the COP14 to the UNCCD, PM mentioned that India was “focusing on Zero Budget Natural Farming (ZBNF)”.
  • The National Academy of Agricultural Sciences (NAAS) however, criticised the “unproven” technology of ZBNF citing no incremental value gain to either farmers or consumers.

ZBNF

  • ZBNF is a farming technique that seeks to bring down input costs for farmers by encouraging them to rely upon “natural products”, rather than spending money on pesticides and fertilisers.
  • The concept behind ZBNF is that over 98 per cent of the nutrients required by crops for photosynthesis — carbon dioxide, nitrogen, water, and solar energy — are already available “free” from the air, rain, and Sun.
  • Only the remaining 1.5 per cent to 2 per cent nutrients need to be taken from the soil, and converted from “non-available” to “available” form (for intake by the roots) through the action of microorganisms.
  • The idea is that since these too, need not be purchased, farming remains practically “zero-budget”.

Components of ZBNF

  • To help the microorganisms act, farmers must apply ‘Jiwamrita’ (microbial culture) and ‘Bijamrita’ (seed treatment solution).
  • It uses ‘mulching’ (covering plants with a layer of dried straw or fallen leaves) and ‘waaphasa’ (giving water outside the plant’s canopy) to maintain the right balance of soil temperature, moisture, and air.
  • To manage insects and pests, ZBNF recommends the use of ‘Agniastra’, ‘Brahmastra’ and ‘Neemastra’, which, like ‘Jiwamrita’ and ‘Bijamrita’, are based mainly on urine and dung of Indian cow breeds.

Arguments for

  • Proponents claim this system is also more environment-friendly, since it does not require chemical fertilisers and pesticides.
  • Apart from increasing crop yield and leading to healthier produce, this model can also help prevent farmer suicides.
  • Farmers fall into the debt trap mainly because input cost of agriculture is high, they claim, and ZBNF brings it down.

What is the criticism?

  • Scientists say there isn’t much evidence to support claims of the efficacy of ZBNF, and that giving up modified high-value seeds and fertilizers can actually hurt agriculture.
  • There is no verifiable data or authenticated results from any experiment for it to be considered a feasible technological option.
  • 78 per cent of air is nitrogen, but it is not freely available to plants.
  • Being non-reactive, atmospheric nitrogen has to be fixed into a plant-usable form such as ammonia or urea.
Genetically Modified (GM) crops – cotton, mustards, etc.

Flooding has become a calendar event in India

Mains Paper 3 : Disaster Management |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Flooding - reasons


Rains have battered Kerala, Karnataka and Maharashtra leaving many dead and several missing. Parts of Bihar, Madhya Pradesh, Rajasthan, Gujarat and Assam are also reeling under torrential rainfall.

Background

  1. Weather patterns are becoming increasingly unpredictable with every passing year leading to extreme heat, cold and flooding.
  2. This is the effect of climate change caused by years of carbon emissions and the exploitation of natural resources.
  3. Construction booms of the past few decades have taken a toll on wetlands and river valleys across states.
  4. Excessive use of concrete and the illegal encroachment of river banks and lakes have constricted natural drainage systems.

Way ahead

India must strengthen institutional capacity for disaster mitigation and relief

Disasters and Disaster Management – Sendai Framework, Floods, Cyclones, etc.

Government unveils draft e-com norms

Mains Paper 3 : Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Regulating e-commerce in India


News

  • To protect the interest of online shoppers, the Department of Consumer Affairs has released draft guidelines on e-commerce that state that an e-commerce entity cannot directly or indirectly influence the price of the goods or services.

E-commerce guidelines for consumer protection 2019

  • These are issued as guiding principles for e-commerce business for preventing fraud, unfair trade practices and protecting the legitimate rights and interests of consumers.
  • These guidelines apply to business-to-consumer e-commerce, including goods and services.
  • It added that every e-commerce entity needs to publish the name and contact details of the grievance officer on their website along with the mechanism by which users can lodge their complaints.
  • As per the draft, an e-commerce firm cannot falsely represent themselves as consumers or post reviews about goods and services in their name.
  • The draft guidelines adds that e-commerce firms need to ensure that personally identifiable information of customers is protected, is open for stakeholder comments for 45 days or till September 16, 2019.

Mandatory terms

  • Besides, it proposed to make it mandatory for firms to display terms of contract with the seller relating to return, refund, exchange, warranty/guarantee, delivery/shipment, mode of payments and grievance redressal mechanism to enable consumers to make informed decisions.
  • The draft also proposes that once an e-commerce firm comes to know about any counterfeit product, and if the seller is unable to provide any evidence that the product is genuine, the firm needs to take down the listing and notify the consumers of the same.
e-Commerce: The New Boom

Sardine Run

Mains Paper 1 : Climatic Change |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Sardine Run, Phenology

Mains level : Climate change and its impact



News

Sardine Run

  • The sardine run is well known among residents of the KwaZulu-Natal coastline that runs along South Africa’s east coast.
  • Every year in winter, sardines migrate close to the shoreline. The event is well documented in the local press.
  • The sardine run is of great economic importance because it provides prime fishing opportunities and attracts large numbers of tourists who come for dolphin and shark sightings.
  • Similar migration patterns are seen in Sweden, Chile, and the Pacific Ocean.

A phenological event

  • The sardine run is what scientists term a “phenological event” — a biological event that occurs at the same time every year.
  • Phenological events are standard for plants and include the appearance of leaf and flower buds, blossoming, fruit development, fruit harvest and leaf colouration and fall.
  • For animals, the events are more varied and include hibernation, hatching, animal calls, moulting, and in the case of birds, game and fish (among others) migration.

Why is phenology so important?

  • Scientists have become very interested in phenology over the past few decades, because it’s one of the most sensitive biological indicators of climate change.
  • As temperatures increase, the plants or animals experience their triggers for spring earlier and their triggers for winter later.
  • As a result, many of these phenological events are occurring at different times of the year.

Nature’s biological clock

  • Phenological shifts are specific to species and location.
  • For example, Granny Smith apple trees are flowering approximately four days earlier for each 1 degree Celsius increase in temperature in Poland.
  • In South Africa, these Granny Smith apples are flowering two days earlier for each 1°C increase in temperature.
  • For many species these events are happening earlier. This is because they are spring events and, under climate change, the temperatures that are perceived by plants and animals to be the onset of spring are occurring in late winter.
  • For events that occur in autumn, the events are often occurring later, because the cooling that marks the start of winter has not yet occurred.

Why study Sardines?

  • A recently published paper reports sardine run between 1946 and 2012 the South African coast.
  • Researchers explored how the dates of the sardine run have changed over the 65-year period, and statistically examined oceanographic and climatological factors to determine the cause of this change.
  • It’s also known that climate affects the timing of phenological events globally, including marine environments.
  • The study found that sardines arrived off the coast of Durban increasingly late — at a rate of 1.3 days later per decade.

Why delay in sardines run?

  • Through analysis comparing the constructed phenological record with climate and ocean data, the study concluded that the delay could be caused by two things.
  • First, the ocean water is warmer. Sardines can tolerate a maximum surface temperature of 21°C. But this temperature isn’t being reached consistently at the same time every year due to changes in ocean temperature.
  • The second factor is mid-latitude cyclones. There have been an increasing number of these in the east coast region.

Why it matters

  • The delay is concerning. First, the large influx of sardines is important for the fishery industry.
  • If the sardine run occurs at an unexpected time, or doesn’t occur at all, supply chains are disrupted and fishermen are placed at economic risk.
  • The unpredictability is also a problem for tourism. The sardine run attracts visitors who are keen on shark and dolphin sightings and may leave disappointed.
  • The delays in the sardine run also result in food shortages for predators such as sharks, which feed on the sardines.
  • This is termed a species mismatch, and is increasingly observed as a result of climate change induced phenological shifts, where predators and their prey are no longer in the same place at the same time.
  • This is because each species has its own unique trigger for a particular activity.
Climate Change Impact on India and World – International Reports, Key Observations, etc.

US Federal Reserves rate cut and its impact on India

Mains Paper 3 : Indian Economy |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : USD inflow in India


News

  • The US Federal Reserve has announced a quarter-percentage-point cut in interest rates — the first rate cut by the US central bank in 11 years.

Why is US Fed’s rate-cut significant?

  • The cut in interest rates is the first time since the 2008 financial crisis.
  • What is ironic is that this move comes despite a strong US economy and indicators such as job market data showing renewed buoyancy.
  • The rate cut follows months of pressure from US President who has been pushing the American central bank for a cut in rates.

Impact on India

  • A rate cut cycle means a weaker dollar, which is good for the US but may not be so for the rest of the world.
  • It has been seen in the past that as the dollar weakens due to lower growth tendencies, the rupee has tended to strengthen which will pose a conundrum for us as exports will come under pressure.
  • The exports will be reduced due to lower global growth and a stronger rupee. This will not be good for the current account deficit (CAD).

Benefits

  • A rate cut in the US is good for emerging market economies and is projected to catalyse a debt and equity market rally in countries such as India.
  • Typically, emerging economies such as India tend to have higher inflation and thereby higher interest rates than those in developed countries such as the US and Europe.
  • As a result, investors would want to borrow money in the US at low-interest rates in dollar terms and then invest that money in bonds of emerging countries such as India in terms to earn a higher rate of interest.
  • When the US Fed cuts its interest rates, the difference between interest rates of the two countries increases, thus making India more attractive for the currency carry trade.
FDI in Indian economy

[op-ed of the day] The makings of a digital kleptocracy

Mains Paper 2 : Governance, Transparency & Accountability, Citizens Charters |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Data monetisation aspects


Note- Op-ed of the day is the most important editorial of the day. Aspirants should try to cover at least this editorial on a daily basis to have command over most important issues in news. It will help in enhancing and enriching the content in mains answers. Please do not miss at any cost.

CONTEXT

  • There has been public furore over the delay in the release of data, for example farmer suicides, suppression of data such as on employment, bungled migration data in the Census, and controversy over the methodology used to calculate GDP growth rates.
  • These data are the backbone of policy making in India.

Suggested Use of data

  • These three — information obtained through the RTI Act, administrative data and data collected by the statistical machinery of government — are examples of “data as a public good”.
  • But these are scarcely mentioned in a chapter so-titled in this year’s Economic Survey.
  • Instead, its focus is on the expanding digital footprint of people, falling costs of data generation and storage and the growing data mining industry.
  • The thrust is on how to monetise these data, for example by selling data that we share with the government in trust.
  • Another worrying suggestion is consolidation of our data across various ministries.

Problems with Data usage

1.Toxicity – 

  • Somewhere along the line, your mobile number and/or email ID got sold in the data market.
  • Even as most of us delete these, others get trapped.
  • A former Chief Justice of India was duped of ₹1 lakh recently as a result of a fraudulent email.
  • In Mumbai, identity fraud was perpetrated by accessing personal data (address, phone number and Aadhaar).
  • In phishing attacks in Rourkela, Odisha, fraudsters called bank customers asking for Aadhaar details to update their account, but used it to siphon off money.

2. Similar treatment like public services –

  • The Survey treats personal data (such as date of birth, mobile numbers and addresses) the same way as data on rainfall, temperatures and road networks.
  • In the examples above, the fraudsters had to get access to people’s data. The Survey is proposing that these be sold for a price.
  • In early July, the Union Minister of Road Transport and Highways, Nitin Gadkari, informed Parliament that the department had earned ₹65 crore from the sale of vehicle registration and licence data.
  • Imagine the consequences of your health data being sold to private health insurance companies; or your data on your earnings being sold, or data being used in the way Cambridge Analytica did.

Other faultlines

If data can be toxic, centralising and consolidating it, as advocated by the Survey, increases its toxicity exponentially.

1.Centralising the data –

  • Contrary to the widely advocated principle of decentralised/disaggregated data silos as a first line of defence by data security experts, the Survey portrays decentralisation as an obstacle.
  • With decentralised data, data mining companies employ sophisticated tools to combine distinct data silos to create profiles of individuals.
  • Consolidating it, for example if a unique number such as Aadhaar links them, reduces the company costs for profiling and targeting.
  • Centralising it (in one data silo) means that a single data breach can compromise all aspects of your life.

2. Without Consent –

  • Often they are collected and shared without our consent or knowledge, for example, CCTVs or web browsing histories.
  • When our data are used by opaque algorithms to make crucial decisions about our lives, such as shortlisting for jobs, getting health insurance or whether you were speeding, we cannot question them.

Case study of Aadhar –

  • Given the government’s track record on Aadhaar, these laws are unlikely to protect citizen’s rights adequately.
  • Further, privacy and data protection laws will face unique implementation challenges in India.
  • This is on account of low levels of tech-digital and legal literacy combined with pre-existing social inequalities which directly bear upon power relations between us (as citizens/consumers) and them (government/corporations).

Conclusion

  • Even where such laws have been put in place, those societies/economies are grappling with the fallout of corporations whose practices can best be described as “digital kleptocracy”.
  • To understand this, take the example of lending and credit scores.
  • The literature documents unscrupulous use of algorithms to identify vulnerable targets such as search histories of single African American mothers in the United States that are used to sell them home or education loans which it is clear they are unlikely to be able to repay.
  • Thus, digital kleptocracy is a means by which rich tech companies mine poor people’s data,in fact, steal; in most cases the person is unaware of their data being harvested and used for profit.
  • What the Economic Survey advocates is not only for the government to facilitate such practices but also climb aboard this bandwagon of digital kleptocrats.
Right To Privacy

[op-ed snap] Flee Market

Mains Paper 3 : Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Falling stock market and slowng growth are causes of worry


CONTEXT

The wheels of India’s multi-year stock market rally are slowly beginning to come off. Since the Union Budget was presented this month, there has been a palpable change in mood among investors, who in June led a mini-rally in the market as signs emerged one after another that the government led by Prime Minister Narendra Modi would be returning to power at the Centre.

Background

  • The Nifty and the Sensex are down roughly by about 5% since the Budget was presented.
  • Foreign portfolio investors have pulled out over ₹2,500 crore in July, in contrast to June when FPIs made a net investment of close to ₹10,400 crore. 
  • Investors who were quite enthusiastic about the prospects of structural reforms that could boost India’s economic growth under the second Modi government, have been quite disappointed by the Budget proposals.
  • Among other things, Finance Minister Nirmala Sitharaman imposed new taxes on the “super rich” and on companies that buy back their own shares, and raised the mandatory minimum public shareholding in listed companies (a move that is seen to be against the interests of promoters).
  • Not surprisingly, investors have been taken aback by these measures, which are seen as increasing the burden on businesses.

Falling stock market

  • Even more worrying is the signal that is sent across by the falling stock market.
  • As stock prices discount the future, lacklustre market performance could well be a prelude to the further worsening of general economic conditions in the near term.
  • There is already a significant downturn in sectors such as automobile with major companies reporting falling sales and earnings, and automobile dealers closing down showrooms and slashing jobs.

Slowing growth

  • The overall gross domestic product growth, which slipped below 6% to hit 5.8% in the fourth quarter, has also been slowly catching up with the bleak picture painted by high-frequency economic indicators for quite some time.
  • The underlying turmoil in Indian markets becomes evident when one looks beyond the Sensex and the Nifty at the mid-cap and small-cap space that has witnessed significant value erosion since the start of 2018.
  • The small-cap index has lost almost a third of its value since January 2018 while the mid-cap index has lost about a fifth of its value.

Conclusion

Interestingly, many industrialists who were previously enthusiastic cheerleaders for the Narendra Modi government have turned vocal about their disappointment at the government not being bold enough in pushing through structural reforms needed to boost economic growth despite the majority it enjoys in Parliament. This suggests the deep sell-off in stocks over the last 18 months may well be a sign of disappointed investors voting with their feet.

Issues related to Economic growth

[op-ed snap] Burning bright: on India’s tiger census

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

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Aunthenticity of tiger census


CONTEXT

If India has increased its population of tigers to an estimated 2,967 individuals in 2018-19, putting behind fiascos such as the Sariska wipeout 15 years ago, it adds to its global standing as a conservation marvel: a populous country that has preserved a lot of its natural heritage even amid fast-paced economic growth.

Background

  • Since the majority of the world’s wild tigers live in India, there is global attention on the counting exercise and the gaps the assessment exposes.
  • The National Tiger Conservation Authority (NTCA) has asserted in its report, ‘Status of Tigers in India 2018’, that 83% of the big cats censused were individually photographed using camera traps, 87% were confirmed through a camera trap-based capture-recapture technique, and other estimation methods were used to establish the total number.
  • Previous estimates for periods between 2006 and 2010 and then up to 2014 indicated a steady increase in tiger abundance.

The debate regarding the numbers

  • Such numbers, however, are the subject of debate among sections of the scientific community, mainly on methodological grounds, since independent studies of even well-protected reserves showed a lower increase.
  • It is important to put all the latest data, which are no doubt encouraging, through rigorous peer review.
  • Conservation achievements — and some failures — can then be the subject of scientific scrutiny and find a place in scientific literature to aid efforts to save tigers.
Present time situation
  • There are several aspects to the latest counting operation — a staggering exercise spread over 3,81,400 sq km and 26,838 camera trap locations — that are of international interest, because some tiger range countries are beginning their own census of the cats.
  • Moreover, even developed countries are trying to revive populations of charismatic wild creatures such as wolves and bears through a more accurate outcome measurement.
  • For India’s tigers, not every landscape is welcoming, as the official report makes clear.
Divergences in population
  • The less accessible Western Ghats has witnessed a steady increase in numbers from 2006, notably in Karnataka, and Central India has an abundance, but there is a marked drop in Chhattisgarh and Odisha; in Buxa, Dampa and Palamau, which are tiger reserves, no trace of the animal was found.
  • It is imperative for the NTCA to analyse why some landscapes have lost tigers, when the entire programme has been receiving high priority and funding for years now at ₹10 lakh per family that is ready to move out of critical habitat.
Conclusion
  • Ultimately, saving tigers depends most on the health of source populations of the species that are estimated to occupy a mere 10% of the habitat.
  • The conflict in opening up reserves to road-building has to end, and identified movement corridors should be cleared of commercial pressures.
  • Hunting of prey animals, such as deer and pig, needs to stop as they form the base for growth of tiger and other carnivore populations.
  • As some scientists caution, faulty numbers may hide the real story.
  • They may only represent a ‘political population’ of a favoured animal, not quite reflective of reality.
Tiger Conservation Efforts – Project Tiger, etc.

Regulatory Sandbox

Mains Paper 3 : Indian Economy |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Regulatory Sandbox

Mains level : Functions of a regulatory sandbox


News

  • The Insurance Regulatory and Development Authority of India (IRDAI) will soon allow the use of regulatory sandbox (RS) to promote new, innovative products and processes in the industry.

Regulatory Sandbox

  • A sandbox approach provides a secure environment for fintech firms to experiment with products under supervision of a regulator.
  • It is an infrastructure that helps fintech players live test their products or solutions, before getting the necessary regulatory approvals for a mass launch, saving start-ups time and cost.
  • The concept of a regulatory sandbox or innovation hub for fintech firms was mooted by a committee headed by then RBI executive director Sudarshan Sen.
  • The panel submitted its report in Nov 2017 has called for a regulatory sandbox to help firms experiment with fintech solutions, where the consequences of failure can be contained and reasons for failure analysed.
  • If the product appears to have the potential to be successful, it might be authorised and brought to the broader market more quickly.
  • The sandbox will enable fintech companies to conduct live or virtual testing of their new products and services.

About IRDAI sandbox

  • For the IRDAI sandbox, an applicant should have a net worth of Rs 10 lakh and a proven financial record of at least one year.
  • Companies will be allowed to test products for up to 12 months in five categories.
  • It has said applicants can test products for up to a period of one year in five categories – insurance solicitation or distribution, insurance products, underwriting, policy and claims servicing.

Why sandbox is necessary?

  • The RS allows the regulator, the innovators, the financial service providers (as potential deployers of the technology) and the customers (as final users) to conduct field tests to collect evidence on the benefits and risks of new financial innovations, while carefully monitoring and containing their risks.
  • India accounts for approximately 6 per cent of insurance premium in Asia and around 2 per cent of the global premium volume.
RBI Notifications

[op-ed of the day] Partnership lessons

Mains Paper 3 : Investment Models |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Lessons from UK in following PPP


Note- Op-ed of the day is the most important editorial of the day. Aspirants should try to cover at least this editorial on a daily basis to have command over most important issues in news. It will help in enhancing and enriching the content in mains answers. Please do not miss at any cost.

CONTEXT

As India deepens private participation in infrastructure through Public-Private Partnerships (PPPs), it is an opportune moment to explore the lessons from the UK, the pioneer in the use of PPPs and privatisation in infrastructure.

 

Public service analysis after following PPP model

1.Health and education –
  • A National Audit Office (CAG equivalent) assessment of the UK’s pioneering Private Finance Initiative (PFI) found that schools and hospitals built with PFI are 40 per cent and 60 per cent more expensive than their respective public sector alternatives.
  • Using the government’s lower borrowing cost to discount the cost of projects, it found that very few PFI projects would have passed the Value for Money test.
  • It concluded that the country had “incurred billions of pounds in extra costs for no clear benefit”.

2.Railways, water and sewage

  • The balance sheet on service quality is not much better.
  • Over 2000-11, the reliability and punctuality of British rail increased from 88 to 91 per cent, a small increment given the advances in digital technology and massive public investments.
  • Skimping on investments on the less salient parts of the privatised water and sewerage utilities has taken its toll on the environment.

Favouring nationalisation

An early 2018 poll by Legatum Institute found that 76-83 per cent favoured renationalising the railways, energy, and water industries.

The Labour party has announced that it would renationalise the utilities. Finally, in his 2018 Budget speech, after 716 projects since 1992, the Chancellor of Exchequer formally brought down the curtain on PFI saying he would never sign a PFI contract.

Relevance for India

1.The difference in public sector efficiency  –

  • In the UK, the starting point in terms of efficiency and service quality was high, and corruption in service delivery low.
  • The Indian public sector suffers from peculiarly Indian constraints.
  • Political interference in recruitment, competitive trade union activity (witness the posters in every railway station), rigidities on salaries and writs in courts on service matters, reduce the efficiency of personnel management in the public sector.
  • Activities of oversight agencies — Vigilance, Comptroller and Auditor General etc — cause extreme risk aversion in decision taking, reducing efficiency of procurement and operational decisions.

A stronger case for PPP

  • The starting point in India may often be a public agency which is inefficient, corrupt at the point of contact with the citizen and providing very poor service.
  • With a much lower starting point, it is quite conceivable that private providers may be operationally more efficient and give better service.
  • To that extent, the case for PPP is stronger in India than in the UK.

Weak regulatory approach

  • On the other hand, the regulatory capacity in India is weaker.
  • The unambiguous lesson from the UK is that capable regulators could not prevent asset stripping and skimping on investments.
  • There is nothing to suggest that this would not be repeated in India.
  • Also, using PPP purely for off-balance sheet financing to reduce the short-run fiscal deficit, is penny-wise and pound-foolish because the cost of borrowing of the private sector is much higher.

Way forward for PPP

1.Improve service quality – For a start, PPP must not be a short cut only to save money or bridge fiscal gaps or transfer risks; it should be used to improve service quality or bring efficiency improvements.

2. Careful selection –

  • Second, project design and the PPP components need to be carefully chosen.
  • For instance, outsourcing labour-intensive and customer-service operations, while retaining pricing and investment in public hands, may bring in efficiencies without under-investment or over-pricing.
  • Given the higher cost of private capital, and the inevitability of delays and related cost over-runs, construction is best financed with public borrowing though the operating asset could then be privately operated.

3. Principles for renegotiations –

  • Third, since it is impossible to write perfect long-term contracts, renegotiations are inevitable.
  • Clear principles and a mechanism for renegotiations without moral hazard need to be planned for

Back2basics

A PPP Project means a project based on a contract or concession agreement, between a Government or statutory entity on the one side and a private sector company on the other side, for delivering a service on payment of user charges. The rights and obligations of all stakeholders including the government, users and the concessionaire flow primarily out of the respective PPP contracts.

Unlike private projects where prices are generally determined competitively and Government resources are not involved, PPP projects typically involve transfer of public assets, delegation of governmental authority for recovery of user charges, private control of monopolistic services and sharing of risks and contingent liabilities by the Government.

The justification for promoting PPP lies in its potential to improve the quality of service at lower costs, besides attracting private capital to fund public projects. For creating a transparent, fair and competitive environment, the Government of India has been relying increasingly on standardising the documents and processes for award and implementation of PPP projects.

PPP Investment Models: HAM, Swiss Challenge, Kelkar Committee

[op-ed snap] Going local

Mains Paper 2 : Governance, Transparency & Accountability, Citizens Charters |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Critical review of data localisation policy for Indian economy


CONTEXT

A high-level government panel has recommended doing away with the requirement of foreign firms needing to store a copy of all personal data within India.

Background

  • Firms will now be able to store and process data abroad, though critical personal data will have to be processed and stored in the country.
  • This approach marks a significant departure from the recommendations of the Justice Srikrishna committee report which had suggested that a copy of personal data must be stored in the country.
  • The panel’s decision comes after a rethink by the Reserve Bank of India, which earlier relaxed its April 2018 circular that had mandated that all payment data generated in the country be stored here.

Impact of rethink

This decision, which is likely to be welcomed by foreign companies, who would have seen a surge in costs to comply with these regulations, suggests that a more considered view on localisation norms is evolving in India.

The arguments in favour of data localisation are straightforward — it will address questions on privacy and security, enable greater governmental access to data, and help develop local data infrastructure.

Costs associated with data localisation

But on each of these issues, it is not very clear if the benefits from localisation outweigh the costs.

 1.No strong data protection law – For instance, in the absence of a strong data protection law, questions of privacy and security are unlikely to be addressed.

2. Bilateral Treaties are better – And while there are reasonable arguments to be made in favour of law enforcement having greater access to data, especially when it is not stored in India, interventions such as bilateral treaties aimed at addressing specific issues might be a more prudent approach.

3. Definition of critical Data

  • The next set of questions are likely to centre around what constitutes critical personal data.
  • The Srikrishna committee report had classified personal data pertaining to finances, health, biometric and genetic data, religious and political beliefs, among others, as sensitive personal data.

4. A single agency

  • It had envisaged a data protection agency which would list out further categories of sensitive personal data.
  • But it is debatable whether a single agency is best suited to draw up this list. As, globally, the framing of localisation norms has been largely contextual, driven typically by the type of data and the sector it relates to — in Canada, any data may be sensitive based on the context — sector-specific regulators might be better at identifying which data is sensitive.
Cyber Security – CERTs, Policy, etc

[op-ed snap] Talks and terror: on Afghan peace talks

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

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Peace talks in afghanistan are not yielding required results


CONTEXT

The attack on Afghan vice presidential candidate Amrullah Saleh’s office in Kabul on Sunday that killed at least 20 people and injured 50, including Mr Saleh, is a grave reminder of the crisis the war-torn country is going through even amid attempts to find peace.

Background

  • Mr. Saleh, a former intelligence chief and a strong critic of the Taliban and Pakistan, is President Ashraf Ghani’s running-mate for the September 28 election.
  • And the irony is that the assault occurred a few hours after President Ghani officially launched his campaign in which he promised that “peace is coming”.
  • The message the insurgents are trying to send is that even the most fortified political offices in the country or its top politicians are not safe.
  • The insurgents have made it clear they will carry out their offensive irrespective of the peace process, especially when Afghanistan gets down to a full-fledged election campaign.

Peace initiatives

  • In recent months, even when the U.S. and Taliban representatives have held multiple rounds of talks in Doha, Qatar, insurgents have kept up attacks, both on military and civilian locations.
  • The Taliban appears to be trying to leverage these assaults to boost its bargaining position in the talks with the U.S.
  •  And the Kabul government’s inability to prevent them and the U.S.’s apparent decision to delink the negotiations from the daily violence are giving the insurgents a free run in many Afghan cities.

Problems before  Afghanistan

  • Afghanistan’s crises are many.
  • Half the country is either directly controlled or dominated by the Taliban.
  • In the eastern parts, the Islamic State has established a presence and the group targets the country’s religious minorities.
  • The government in Kabul is weak and notorious for chronic corruption.
  • Its failure to ensure the basic safety and security of civilians is in turn eroding the public’s confidence in the system.

Response by government

  • At present, the government appears beleaguered. Its security agencies are strained by the prolonged war. 
  • It is true that Afghanistan needs a political settlement.
  • The war has been in a stalemate for long.
  • The government, even with U.S. support, is not in a position to turn the war around.
  • The Taliban, on the other side, has expanded its reach to the hinterland, but not the urban centres.

Giving too much leeway to the Taliban

  • While a peace process is the best way ahead in such a scenario, the question is whether the U.S. is giving too much leeway to the Taliban in its quest to get out of its longest war.
  • The decision to keep the Afghan government out of the peace process was a big compromise.
  • The absence of a ceasefire even when talks were under way was another.

Conclusion

  • The result is that Afghans continue to suffer even when the Americans and the Taliban talks.
  • This has to change.
  • There has to be more pressure, both political and military, on the Taliban to cease the violence.
  • And the U.S. should back the Afghan government and the coming elections resolutely, while Kabul has to get its act together.
Foreign Policy Watch: India-Afghanistan

[op-ed of the day] Governing India through fiscal math

Mains Paper 3 : Government Budgeting |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Concerns with maintaing Strict Fiscal Deficit approach


Note- Op-ed of the day is the most important editorial of the day. Aspirants should try to cover at least this editorial on a daily basis to have command over most important issues in news. It will help in enhancing and enriching the content in mains answers. Please do not miss at any cost.

CONTEXT

While it is important for a government to pursue a sound economic policy, including management of the public finances, it is yet another matter to make a fetish of any one aspect of it. The latter appears to govern this government’s approach to policy when the fiscal deficit is given pride of place in its self-assessment.

Thread of fiscal discipline

  • Soon after the Budget for 2019-20 was presented, one of the Finance Minister’s predecessors remarked that “fiscal prudence rewards economies”.
  • It figured in the most recent Economic Survey, and its anticipated magnitude for 2019-20 was the final statement in the Budget speech that had followed.
  • The Finance Minister had commenced the speech saying how the government was committed to fiscal discipline.

Fiscal discipline

  • In the context, “fiscal discipline” is understood as taking the economy towards the 3% of the gross domestic product.
  • Actually, the point is two-fold:
    • whether the fiscal deficit should be the sole index of fiscal management
    • what a reduction in the deficit would achieve.

Not always a perfect measure

While a sound fiscal policy is highly desirable, the magnitude of the fiscal deficit is not always and everywhere — think here of the state of the economy — a good measure of soundness.

 Overall imbalance in the Budget

  • First, the fiscal deficit reflects the overall imbalance in the Budget.
  • Embedded in the accounts of the government is the revenue account which is a statement of current receipts and expenditure.
  • A fiscal deficit may or may not contain within it a deficit on the revenue account, termed the “revenue deficit”.
  • The possible embeddedness of a revenue deficit within a fiscal deficit muddies the waters somewhat.
  • For movements in the overall, or fiscal, deficit by itself tell us nothing about what is happening to the revenue deficit.
  • A revenue deficit implies that the government is dissaving.
  • Therefore, unless the revenue deficit is kept explicitly in the picture, we cannot deduce the soundness of economic management from a mere reduction in the fiscal deficit.

Rewards yet to be seen

  • A revenue deficit of the Central government is relatively recent, having been virtually non-existent till the 1980s.
  • After that a rampant populism has taken over all political parties, reflected in revenue deficits accounting for over two thirds of the fiscal deficit such as the case today.

Implications of Revenue deficits

  • Revenue deficits have become structural in India by now.
  • This has three implications:
    • That the public debt is only bound to rise;
    • we are permanently borrowing to consume,
    • And leaving it to future generations to inherit the debt.

International borrowing

  • Of late an entirely new dimension has been added to fiscal management, but here again the appropriateness of conducting economic policy by reference to the magnitude of the fiscal deficit remains the issue.
  • In the last Budget the government has signalled its intention to borrow in foreign currency from the international market.
  • This is an innovation alright as the Government of India has so far never borrowed in the international markets, leaving it to public sector organisations and the private corporate sector to do so.

Justification of the move

  • In the Budget speech of the 17th Lok Sabha, the Finance Minister justified the move in terms of the very low share of foreign debt to GDP.
  • The proposal has received criticism, some of it focussing on the consequences of exchange rate volatility.

Concerns with it 

  • Benefits have been flagged too, such as that Indian sovereign bonds will attract a lower risk premium because the price of the foreign-currency-denominated sovereign bond will now be discoverable.
  • This though ignores the biggest lesson from the global financial crisis of 2007, that the market cannot be relied upon to price risk correctly.
  • And, both arguments overlook the foreign exchange constraint.
  • Dollar-denominated debt has to be repaid in dollars.
  • Right now our reserves are fairly high but this could change.
  • Oil prices could go back to where they were, the trade war initiated by U.S. President Donald Trump holds little prospect for faster export growth, and portfolio investment may flow out.
  • While these are only possibilities, they point to the need to ultimately base your borrowing plan on expected dollar earnings.
  • The opportunity offered by low global interest rates right now is not matched by the likelihood of robust export growth.

Conclusion

  • In the final analysis though, it is not the risk of exchange rate depreciation or stagnant exports or even capital flight that is the issue; it is the rationale for borrowing.
  • With revenue deficits the overwhelming part of the fiscal deficit, we would be borrowing to finance consumption.
  • Dollar denominated sovereign debt is just a matter of shifting this borrowing overseas.
  • That is the real issue.

 

Financial Inclusion in India and Its Challenges

[op-ed snap] Patients and victims

Mains Paper 2 : Health & Education |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Regulation of medical devices


CONTEXT

  • Last year, a series of reports revealed the traumatic experiences of Indian patients who had received faulty hip implants manufactured by the pharma major, Johnson and Johnson
  • Another investigation has revealed that Johnson and Johnson paid hefty compensations to US patients who had received the defective implants.
  • In India, however, the company has challenged government orders to compensate 4,700 patients who had undergone hip replacement surgeries.
  • The reports also highlight that the story is more than that of corporate negligence.
  • That Johnson and Johnson continue to brazen it out in India has much to do with the regulatory deficit in the country.
  • The investigations pertain to implants manufactured under two brand names, ASR and Pinnacle.
  • Both products are not in the market currently.
  • Johnson and Johnson recalled ASR from the global market in 2010, while Pinnacle was withdrawn in 2013.

Recalling of medical Device

  • But recalling a medical device is not like recalling a consumer product.
  • Defective implants can cause crippling pain — even death.
  • Patients who receive such implants need regular monitoring. In several countries, registries track the health of such patients.
  • In fact, Johnson and Johnson’s recalling of ASR owes to the more than 15 warnings, between 2007 and 2009, issued to it by the Australian Joint Registry (though the company describes its decision as “voluntary”).
  • Pinnacle was pulled out of the market after a flurry of lawsuits in the US alerted the country’s Food and Drug Administration (FDA) about the device’s defects.

The slow reaction by India

  • In India, in contrast, regulators were slow to react.
  •  Maharashtra’s FDA red-flagged ASR a few months after Johnson and Johnson withdrew the product from the global market.
  • But it took another year for the Central Drugs Standard Control Organisation to ban the import of ASR.
  • Another year went by before the drug regulator issued an advisory to orthopaedic surgeons asking them to not implant ASR.

Defence by corporate

  • These delays are significant because last year, Johnson and Johnson told a Union Ministry of Health and Family Welfare (MoHFW) expert committee that it cannot trace as many as 3,600 patients who underwent surgeries involving the faulty implant.
  • That India did not have a joint registry when these surgeries happened has compounded the problem.
  • The want of a registry has also come in the way of ascertaining the damage caused by Pinnacle. Johnson and Johnson claims that it has no adverse reports of the device in the country.
  • However, reports in this paper have highlighted the trauma of at least seven patients with Pinnacle implants.

Conclusion

  • In 2017, the MoHFW issued the Medical Devices Rules. However, the country’s base legislation on implants continues to be the Drugs and Cosmetics Act, 1940, which does not have the scope to cover most modern devices, including hip implants.
  • The Indian orthopaedic device market is valued at over 450 million dollars and is expected to grow by 30 per cent per year till 2025.
  • The investigations into faulty hip implants bring out the urgent need for a law to regulate medical devices.
Health Sector – UHC, National Health Policy, Family Planning, Health Insurance, etc.

[op-ed snap] Ban or regulate? — On India’s policy on cryptocurrencies

Mains Paper 3 : Mobilization Of Resources |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Regulation of cryptocurrencies


CONTEXT

The recommendation of an inter-ministerial committee that India should ban all private cryptocurrencies, that is, Bitcoin and others like it, hardly comes as a surprise.

Background

  • Indian policymakers and administrators have time and again made clear their distaste for them, their existence owed almost entirely to advanced encryption technologies
  • In his Budget speech in 2018, Finance Minister Arun Jaitley said the government doesn’t consider them legal tender.
  • The Reserve Bank of India has repeatedly warned the public of the risks associated with dealing with cryptocurrencies.
  • Bitcoin, the most prominent among them, has yo-yoed wildly in value, even over short periods of time.

Concerns with cryptocurrencies

  • A May 2019 article by Bloomberg, citing data from blockchain analysis firm Chainalysis, said “speculation remains Bitcoin’s primary use case”.
  • Its use in illegal online marketplaces that deal with drugs and child pornography is well-documented.
  • There have been cases of consumers being defrauded, including in India.
  • Given all this, it is understandable that the committee, under the chairmanship of Subhash Chandra Garg, the former Economic Affairs Secretary, has come across as being wary of private cryptocurrencies even while advocating a central bank-issued cryptocurrency.

No central authority to regulate 

  • Governments and economic regulators across the world are wary of private cryptocurrencies.
  • As they need neither a central issuing authority nor a central validating agency for transactions, these currencies can exist and thrive outside the realm of authority and regulation.
  • They are even deemed a threat to the official currency and monetary system. The question then is whether banning cryptocurrencies is the most effective way to respond.

Drafting a law

  • The inter-ministerial committee believes it is, going so far as to draft a law that mandates a fine and imprisonment of up to 10 years for the offences of mining, generating, holding, selling, dealing in, transferring, disposing of, or issuing cryptocurrencies.
  • But six of the seven jurisdictions that its report cites have not banned cryptocurrencies outright.
  • Many of them, including Canada, Thailand, Russia and Japan, seem to be moving on the path of regulation, so that transactions are within the purview of anti-money laundering and prevention of terror laws.
  • China, which India has taken a cue from, has gone for an outright ban.

Conclusion

  • Even there, the report says, “owing to the network-based nature of cryptocurrencies, after banning domestic crypto exchanges, many traders turned to overseas platforms to continue participating in crypto transactions.”
  • Trading in China is now low but not non-existent.
  • But why would an outright ban be a superior choice to regulation, especially in a field driven by fast-paced technological innovations?
  • The report, unfortunately, doesn’t clarify that point.
Blockchain Technology: Prospects and Challenges

[op-ed pf the day] A matter of deliberation

Mains Paper 2 : Indian Constitution - historical underpinnings, evolution, features, amendments, significant provisions and basic structure |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Need for scrutiny of bills by parliament committee


Note- Op-ed of the day is the most important editorial of the day. Aspirants should try to cover at least this editorial on a daily basis to have command over most important issues in news. It will help in enhancing and enriching the content in mains answers. Please do not miss at any cost.

CONTEXT

  • Earlier this week, the Rajya Sabha was witness to acrimonious scenes during the discussion on the RTI Amendment Bill, which amends the RTI Act of 2005. It provides that the term of office and remuneration of information commissioners (both at the Centre and states) will be prescribed by the central government.
  • The treasury benches and a few other parties were of the opinion that the Bill should be passed after debating it on the floor of the House.
  • Ultimately, the House passed the RTI Amendment after voting down the demand for sending it to a committee.
  • So far, none of the 13 bills passed by Parliament in this session have been referred to a parliamentary committee.
  • Our Parliament broadly has two forums for discussion.
  • One is on the floor of the House where the debate is televised and MPs take positions based on their parties’ stand on a subject.

Parliamentary committees

  • The other is the closed-door forum of parliamentary committees.
  • These committees are made up of MPs either from one or both Houses.
  • Their meetings are not televised and the record of the meetings does not reflect the position taken by an individual MP.
  • Both these forums have their own advantages and disadvantages.
  • A debate on the floor of the House allows for the cut and thrust of political debate and can be wrapped up in a few hours.
  • Debates in committees are more technical but the deliberations require time and stretch for a few months.

The rationale behind the committee system

1.Specialised forum for deliberation – The idea behind the establishment of the committee system in Parliament was to provide a specialised forum for deliberation on national policy issues, which was not constrained by the limited number of sitting days (less than three months a year) of Parliament.

2. Objectives –

  • In 1993, when this modern subject committee system took shape, the then the Vice President of India summed up the objectives of parliamentary committees: “…
  • The main purpose, of course, is to ensure the accountability of Government to Parliament through more detailed consideration of measures in these committees.
  • The purpose is not to weaken or criticise the administration but to strengthen it by investing it with more meaningful parliamentary support.
  • The committee, over the years, has worked well in strengthening our legislative process.

Process of a committee

  • The scrutiny of a bill by a committee usually takes a few months. If a bill is referred to a committee, its legislative journey slows down as it can only be debated after the committee has submitted its report.
  • This slow down of legislation has been been a source of continued tension between the ruling party and Opposition over the last five years.
  • A bill can usually be referred to a parliamentary committee in three ways.

1.First way – First, the minister piloting the bill can seek the permission of the House to refer the Bill to a committee.

2.Second Way

  • Second, the Chairman/Speaker has the discretion in referring the bill to a committee.
  • When ministers are trying to build political consensus on a bill, they welcome its referring to a committee.
  • However, when they are in a hurry to get their legislative proposals approved by Parliament, they impress upon the Chairman/ Speaker not to refer the bill to a committee.

3.Third Way

  • This is when the third mechanism kicks in.
  • When a bill reaches a House where the government does not have a majority, the MPs of the House can marshall the numbers to move a motion to refer the bill to a committee.
  • This leads to the government blaming the Opposition for the slowdown, which counters by accusing the government of trying to bulldoze legislation through Parliament.
  • A robust lawmaking process requires thorough scrutiny by Parliament.
  • Such scrutiny should not be impacted by either the strength of numbers in Parliament or political agreement on issues.
  • This robustness can be ensured by requiring that all Bills be referred to Parliamentary committees.
  • Exceptions to this rule should be strictly defined and the exceptions explained to Parliament.
  • In addition, the committees should be strengthened to scrutinise and present their reports in a timely fashion.
  • These mechanisms will ensure that all bills passed by Parliament, irrespective of the party in power, go through a well laid-out process of debate.
Legislative Council in States: Issues & Way Forward

[op-ed snap] Uncertain again

Mains Paper 3 : Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Short term gain proposals in Budget may harm long term interests


CONTEXT

The recent Economic Survey made a strong case for reducing uncertainty in economic policy.

Suggestions

  • Investors, both domestic and foreign, favour consistent and predictable policy regimes.
  • As the Survey noted, “surges in economic policy uncertainty increase the systematic risk, and thereby the cost of capital in the economy.
  • As a result, higher economic policy uncertainty lowers investment, especially because of the irreversibility of investment.”
  • The Survey also pointed out that policy uncertainty has steadily declined in India since the days when the term “policy paralysis” dominated public discourse.
  • Recent events seem to have, unfortunately, reversed the trend.

1. Income tax surcharge on super rich

  • Take, for instance, the tax proposals in the Union budget. In an attempt to raise resources, the finance minister proposed to increase the income tax surcharge on super rich individuals and association of persons (AOPs).
  • As many foreign portfolio investors are structured as AOPs, limited liability partnerships or trusts, the proposal effectively increased the tax liability of foreign investors as well.
  • Faced with a backlash, the government reportedly considered issuing a clarification on the matter.
  • But, later on, it stood its ground, instead advising FPIs to structure themselves as corporate entities.
  • Amid the confusion, foreign investors pulled out thousands of crores in the weeks thereafter.

2.Tariffs

  • Another such proposal was the decision to raise tariffs on several import items, with a view to protecting the domestic industry.
  • The decision marks a departure from the post-1991 trend of a gradual lowering of tariffs — hardly a positive signal to send, especially at a time when India aims for greater integration with global supply chains.
  • Such unpredictable tax policies, driven by short-term revenue considerations, will have long-term repercussions.

3.Borrowing through foreign currency loan

  • Another example is that of the proposal to raise a part of the government’s borrowing through foreign currency loans.
  • The domestic bond market welcomed the move, notwithstanding concerns raised by former RBI governors.
  • Bond yields fell by more than 30 basis points in the weeks following the announcement.

Conclusion

  • While there has been no official announcement on the bond issuance following the bureaucratic reshuffle, the uncertainty surrounding it has pushed bond yields by as much as 12 basis points.
  • Such uncertainty undermines the ability of investors to take informed decisions.
  • Reducing policy uncertainty is critical for maintaining the country’s attractiveness as an investment decision, else capital will simply move elsewhere.
  • The government would do well to pay heed to its chief economic adviser.
Tax Reforms

[op-ed snap] Twenty years ago

Mains Paper 1 : Modern Indian History |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Background of Kargil War


CONTEXT

India and Pakistan had fought three wars before the Kargil War 20 years ago: In 1948, 1965 and 1971.

Special about Kargil War

  • There was something different about the Kargil War.
  • The two countries had become declared nuclear weapon states in 1998, a war was never formally declared in 1999 and it ended without a ceasefire, as in 1948 or 1965, or a surrender document, as in 1971.
  • Moreover, it was limited to about a 150-km frontage of the Line of Control (LoC) in Kashmir by the Atal Bihari Vajpayee government by choice, contrary to what Lal Bahadur Shastri did in 1965 when he chose to open a front in Punjab.
  • Fought in the full glare of the media, it was a war which captured the Indian imagination.
  • As it occurred during the 1999 election campaign, the military victory was closely enmeshed with the political narrative of the period.
  • In late 1998, four generals in Pakistan conspired to launch intrusions on the LoC in the Kargil-Dras sector for the purpose of internationalising the Kashmir issue — remember, this was before 9/11 — and cutting the India lifeline to Siachen glacier.
  • By the first four months of 1999, Pakistani soldiers established approximately 140 posts and pickets.
  • The intrusions went undetected till early May when they were grossly underestimated by the Army, which thus pushed soldiers piecemeal, leading to heavy losses with no breakthrough in the initial stages.
  • The army eventually pushed more than 30,000 soldiers in the area, flooded it with Bofors guns and attained some initial success as the Indian Air Force was also brought in.
  • Eventually half of the Pakistani pickets and posts were captured by the Indian military.
  • Under huge global diplomatic pressure, Pakistan vacated the rest of the posts, which almost restored the status quo ante.

Result of war

  • In the final analysis, it was a humiliating military and diplomatic loss for Pakistan.
  • While it is true that Pakistan achieved initial tactical surprise, it failed abysmally when confronted by a determined Indian military.
  • Globally, Pakistan came to be seen as an irresponsible country despite possessing nuclear weapons.
  • The Kargil war also punctured the Pakistani myth that no conventional conflict was possible under a nuclear umbrella.
  • It demonstrated that there was enough space for a limited conflict, and that principle has only been buttressed since, as seen at Balakot.

Conclusion

  • Pakistan refused to learn the lessons but India established a review committee under K Subrahmanyam and followed up on most of the recommendations.
  • Twenty years on, undertaking reforms in the spirit of the Kargil review committee to prepare for the challenges for the future will be the best tribute to the 527 soldiers who lost their lives on the icy heights of Kargil.
Foreign Policy Watch: India-Pakistan