Note4Students
From UPSC perspective, the following things are important :
Prelims level: Bad bank
Mains level: Paper 3- Advantages of bad bank
The article explains the important role bad bank can play in cleaning up the balance sheets of the banks.
How India banks dealt successfully with pandemic
- Indian banks were written off in the early days of the pandemic due to expectations of an exponential jump in non-performing assets.
- Only after the banks consistently talked about the lower number of restructuring requests, and the higher provision coverage ratios that the markets began to get convinced.
- What finally turned the corner were the budget announcements related to the financial sector
- There are several reasons for this good performance by the banks.
- First, banks in India and globally were much better capitalised prior to the pandemic.
- Second, Indian banks had built up a sizeable buffer to provide for bad assets negating any surprise on balance sheets during and even after the pandemic.
- Third, independent research shows that as the size of the middle class grows to about two-thirds of Asian households.
- Banks in Asia, including in India, have begun to adjust for this steady growth in the size of pie by experimenting with new business models, rationalising costs and providing faster and superior customer digital experience, as was clear during pandemic.
- Fourth, Indian banks and the RBI brought about financial discipline much before the pandemic.
Creation of Bad Bank
- The budget this year has the provision for reation of a bad bank.
- The proposed structure envisages setting up of a National Asset Reconstruction Company (NARC) to acquire stressed assets in an aggregated manner from lenders, which will be resolved by the National Asset Management Company (NAMC).
- A skilled and professional set-up dedicated for Stressed Asset Resolution will be ably supported by attracting institutional funding in stressed assets through strategic investors, AIFs, special situation funds, stressed asset funds, etc for participation in the resolution process.
- The net effect of this approach would be to build an open architecture and a vibrant market for stressed assets.
How it will work
- Banks may first transfer those assets to the proposed bad bank with a 100 per cent provision on its book and then based on the experience they will decide on transferring assets with less than 100 per cent provisioning at a later date.
- It is also being speculated that of the total amounts recovered, a specified percentage will be in the form of security receipts.
- These receipts will reside in the bank balance sheets, but will carry a zero-risk weight, with full government guarantees for a specified period of time.
How it will benefit the banks
- The benefits of this process includes the recovered value, and significant lending leverage because of three factors:
- One, capital being freed up from less than fully provisioned bad assets.
- Two, capital freed up from security receipts because of a sovereign guarantee.
- Three, cash receipts that come back to the banks and can be leveraged for lending, also freeing up provisions from the balance sheet.
- There are several international success stories of a bad bank accomplishing its mission and there is no reason to believe why India cannot accomplish its objective.
- The current Indian approach will drive consolidation of stressed assets under the AMC for better and faster decision making.
- This will free up management bandwidth of banks enabling them to focus on credit growth, leading to an enhancement in their valuations.
- Governance of the AMC and its independence is central to its successful functioning, there are multiple suggestions to make.
- These include keeping majority ownership in the private sector, putting together a strong and independent board, a professional team, and linking AMC compensation to returns delivered to investors.
Consider the question “What is a bad bank? How its creation could help the banking sector?”
Conclusion
The creation of a bad bank will help the banking sector contribute more in the growth of the country
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Lessons to improve India-Pakistan relations
There is a sharp contrast between India’s relations with its neighbours two neighbours: Pakistan and Bangladesh. The article suggest drawing on the lessons from Indo-Bangladesh relations to mend Indo-Pak relations.
Indo-Bangladesh relations
- Prime Minister of India will travel to Dhaka this week to commemorate Bangladesh’s Declaration of Independence from Pakistan 50 years ago.
- From being one of the world’s poorest countries in 1972, Bangladesh is now racing to be in the world’s top 25 economies by the end of this decade.
- It is also a time for deeper reflection — on the inability of the region to come to a closure on the two Partitions of the subcontinent, the first in 1947 and the second in 1971.
- Delhi and Dhaka have started finding ways to overcome the tragedy of the Partition to chart a new course of bilateral and regional cooperation.
- Prime Minister Sheikh Hasina has provided strong leadership in advancing ties with India over the last decade and more.
- Recently the Indian government mobilised enough political support to get a boundary settlement agreement with Bangladesh approved by the Parliament.
- India also backed an international tribunal’s award resolving the maritime territorial dispute with Bangladesh.
- The steady improvement in bilateral relations over the last decade has reflected in growing trade volumes, expanding trans-border connectivity, mutual cooperation on terrorism, and widening regional cooperation.
Applying lessons from Indo-Bangladesh relations to Indo-Pak relations
- Positive changes in India’s relations with Pakistan have been elusive.
- Hopes have been rekindled by the agreement late last month between the two military establishments to a ceasefire on the border and to address each other’s concerns.
- Following are the lessons we can learn and apply productively to Indo-Pak relations
1) Importance of political stability
- First lesson is the importance of political stability and policy continuity that have helped Delhi and Dhaka deepen bilateral ties over the last decade.
- In contrast, the political cycles in Delhi and Islamabad have rarely been in sync.
- Pakistan’s mainstream civilian leaders have all supported engagement with India.
- In fact, it is the military that is yet to make up its collective mind.
2) Concerns for mutual security
- Cooperation in countering terrorism built deep mutual trust between Dhaka and Delhi.
- That trust helped deal with many complex issues facing the relationship.
- In the case of Pakistan, its army has sought to use cross-border terrorism as a political lever to compel India to negotiate on Kashmir.
- If sponsoring terror seemed a smart strategy in the past, it has now become the source of international political and economic pressure on Pakistan.
3) Depoliticise national economic interests
- Delhi and Dhaka have steadily moved forward on issues relating to trade, transit and connectivity by dealing with them on their own specific merits.
- Pakistan, on the other hand, has made sensible bilateral commercial cooperation and regional economic integration hostages to the Kashmir question.
- It is not clear if Pakistan is ready to separate the two and expand trade ties while talking to India on Kashmir.
Consider the question “The steady improvement in bilateral relations with Bangladesh over the last decade can offer valuable lessons to be applied to India-Pakistan relations. In light of this, examine the factors that India and Pakistan need to focus on to achieve improvement in bilateral relations.”
Conclusion
Both India and Pakistan need to recognise the importance of pursuing the national well being through regional cooperation. That is exactly what Bangladesh has done in the last decade.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: JCPOA
Mains level: Paper 2- Role IAEA can play in rescuing JCPOA
The article explains how IAEA could play an important role in finding a solution to the stalemate between the U.S. and Iran on JCPOA.
Issue of Iran’s return to JCPOA
- There is uncertainty between the U.S. and Iran on the Joint Comprehensive Plan of Action (JCPOA) as to whether Iranian compliance comes first or the lifting of sanctions by the U.S.
- In this context, the International Atomic Energy Agency (IAEA) is back on the stage to rescue the JCPOA.
- The U.S. tried to pressurise Iran by proposing a resolution in the IAEA Board of Governors meeting criticising Iranian non-compliance with the JCPOA and its alleged IAEA safeguards violations.
- This comes amidst rumours that Iran might withdraw from the Non-Proliferation Treaty (NPT).
Iran may follow Indian model on creating a deterrent
- Foreign Policy recently noted that Iranian society increasingly see the weapon not just as an ultimate deterrent but as a panacea for Iran’s chronic security problems and challenges to its sovereignty by foreign powers.
- If the stalemate continues on JCPOA, because of the U.S. pressure, public opinion may shift towards the Indian model of creating a deterrent and then seeking a special dispensation to avoid severe sanctions.
- But the risks involved in such a policy will be grave, including the possibility of military action by Israel.
Relation between IAEA and NPT
- The IAEA is neither the Secretariat of the NPT nor is it empowered to request States to adhere to it.
- . It does, however, have formal responsibility in the context of implementing Article III of the Treaty.
- At the broadest level, the IAEA provides two service functions under the NPT.
- 1) It facilitates and provides a channel for endeavours aimed at further development of the applications of nuclear energy for peaceful purposes.
- 2) It administer international nuclear safeguards, in accordance with Article III of the Treaty, to verify fulfilment of the non-proliferation commitment assumed by non-nuclear-weapon States party to the Treaty.
- The NPT assigns to the IAEA the responsibility for verifying, at the global level, through its safeguards system, that non-nuclear weapon States fulfil their obligations not to use their peaceful nuclear activities to develop any nuclear explosive devices of any kind.
How IAEA could play role in JCPOA
- Accordingly, the Iranian file could go back to the IAEA to start fresh negotiations to restrain Iran to remain within the permissible level of enrichment of uranium.
- This may mean going back to the pre-six nation initiative, when the IAEA could not certify that Iran was not engaged in weapon activities.
- With the experience of the JCPOA, any new arrangement has to ensure the following:
- 1) Iran must have sanctions relief.
- 2) The stockpile of enriched uranium should not exceed the limits established.
- 3) There should be guarantees that Iran will not violate the safeguards agreement.
- The test is whether these can be accomplished within the framework of the IAEA.
Way forward
- Since the IAEA is a technical body, its deliberations may be kept at the technical level.
- At the same time, since it is open for the IAEA to report to the Security Council for necessary action, the IAEA will have the necessary clout to insist on the implementation of the NPT and its additional protocol.
- A new avenue may open for Iran to continue its peaceful nuclear activities as permitted in the NPT.
Consider the question “Examine the role played by IAEA under NPT. How this role can help IAEA in breaking the ice between Iran and the U.S. on JCPOA?”
Conclusion
Thus, IAEA can play an important role in ending the statement JCPOA finds itself in and ensure compliance from Iran on JCPOA and lifting sanctions by the U.S.
Back2Basics: Article III of NPT
- This article provides for the application of safeguards to ensure that nuclear material in non-nuclear weapon states (NNWS) isn’t diverted to nuclear weapons or other nuclear explosive devices.
- NNWS must place all nuclear materials in all peaceful nuclear activities under IAEA safeguards.
- Each nuclear weapon state (NWS) will not provide nuclear materials or equipment to a NNWS without an IAEA safeguards agreement.
- The safeguards should comply with Article IV of the NPT, and should not hamper peaceful uses of nuclear technology or economic/technical development in general.
- Safeguards agreements can be concluded on an individual or group basis.
- After the entry into force of the NPT, state parties had 180 days to commence negotiation of a safeguards agreement. Currently, state parties must begin negotiations by the date they deposit their instruments of ratification or accession.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Factors driving FDI in India
The article explains the four factors that explain the FDI inflows in India.
India’s economic decade
- Almost every major global company is either contemplating or operating on the assumption that India is a key part of their growth story.
- Google, Facebook, Walmart, Samsung, Foxconn, and Silver Lake have been just a handful of the firms that made huge investments in Inda.
- As a result, India saw the fastest growth in Foreign Direct Investment (FDI) inflows among all the major economies last year.
- Meanwhile, India’s latest FDI totals still lags behind the highest tallies in other markets such as China and Brazil.
Issues faced by investors and factors driving investment
- Frequent shifts in the policy landscape and persistent market access barriers are standard complaints levied against India by the business community.
- The government’s push to build a “self-reliant” India has also rattled skittish investors and smaller companies that lack the resources to navigate on-the-ground hurdles.
- Still, investors recognise that doing business in India — or any emerging market — comes with inherent risks but that adaptation in approach is critical to success.
- Four core dynamics drive this calculus and explain why multinational companies are making India an essential part of their growth story.
4 Factors driving FDI in India
1) India’s population
- What India offers through its nearly 1.4 billion people and their growing purchasing power is uniquely valuable for multinationals with global ambitions.
- No other country outside of China has a market that houses nearly one in six people on the planet and a rising middle class of 600 million.
2) Shifting geopolitics
- Rising U.S.-China competition is forcing multinationals to rethink their footprints and production hubs.
- Savvy countries such as Vietnam have capitalised on this opportunity to great effect, but India is finally getting serious about attracting large-scale production and exports.
3) Digital connectivity
- Cheap mobile data have powered a revolution across India’s digital economy and connected an estimated 700 million Indians to the Internet.
- More than 500 million Indians still remain offline, this is a key reason why leading global tech companies are investing in India and weathering acute policy pressure.
- Domestic Indian companies have also demonstrated their ability to innovate and deliver high quality services at scale.
- The partnerships and FDI flows linking multinationals and Indian tech firms will continue to unlock shared market opportunities for years to come.
4) National resilience
- Despite facing the scourge of the novel coronavirus head on, India has managed the pandemic better than many of its western peers and restored economic activity even before implementing a mass vaccination programme.
- These are remarkable developments, and yet they speak to India’s underlying resilience even in the face of historic challenges.
Shared value creation
- Unlocking opportunities in the Indian market cannot take the form of a one-way wealth transfer.
- Companies need to demonstrate their commitment to India.
- Successful companies do this by placing shared value creation at the heart of their business strategy.
- They tie corporate success to India’s growth and development.
- They forge enduring partnerships and lasting relationships, elevate and invest in Indian talent, align products with Indian tastes, and ultimately tackle the hardest problems facing India today.
Consider the question “Despite the issues faced by the investors, India witnessed the fastest growth in the FDI inflows among all the major economies amid pandemic. In light of this, examine the factors driving the FDI in India.”
Conclusion
For leading companies with global ambitions and a willingness to make big bets, the rewards of investing in the Indian market are substantial and well worth pursuing.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- India's nuanced approach to Quad
The article discusses the outcomes of the recently concluded first Quad Summit in the context of India.
Message to China after Quad summit
- The first Learders’ Summit of the Quadrilateral Framework was held on March 12.
- This Summit conveyed a three-pronged message to China:
- 1) Under the new U.S. President, “America is back” in terms of its desire to play a leading role in other regions.
- 2) It views China as its primary challenger for that leadership.
- 3) The Quad partnership is ready to mount a counter-challenge, albeit in “soft-power” terms at present, in order to do so.
- For both Japan and Australia the outcomes of the summit, both in terms of the “3C’s”working groups established on COVID-19 vaccines, Climate Change and Critical Technology and in terms of this messaging to the “4th C” (China) are very welcome.
4 Outcomes of Quad Summit for India
- For India the outcomes of the Quad Summit need more nuanced analysis.
1) COVID-19 Vaccine
- India is not only the world’s largest manufacturer of vaccines (by number of doses produced, it has already exported 58 million doses to nearly 71 countries.
- It is also manufacturing a billion doses for South East Asia (under the Quad), over and above its current international commitments.
- India has also planned to vaccinate 300 million people as originally planned by September.
- All this comes down to total 1.8 billion doses which will require a major ramp up in capacity and funding, and will bear testimony to the power of Quad cooperation, if realised.
- However, the effort could have been made much easier had India’s Quad partners also announced dropping their opposition to India’s plea at the World Trade Organization.
- India had filed the plea along with South Africa in October 2020, seeking waiver from certain provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights for the prevention, containment and treatment of COVID-19.
2) Climate change
- On climate change, India has welcomed the return of the U.S. to the Paris accord.
- Mr. Biden has promised to restart the U.S.’s funding of the global Green Climate Fund, which Mr. Trump ended.
- India still awaits a large part of the $1.4 billion commitment by the U.S. to finance solar technology in 2016.
- Mr. Biden might also consider joining the International Solar Alliance, which the other Quad members are a part of, but the U.S.
3) Critical technology
- India will welcome any assistance in reducing its dependence on Chinese telecommunication equipment and in finding new sources of rare-earth minerals.
- India would oppose Quad partners weighing in on international rule-making on the digital economy, or data localisation.
- Such a move had led New Delhi to walk out of the Japan-led “Osaka track declaration” at the G-20 in 2019.
4) Dealing with China
- On this issue, it is still unclear how India can go on the Quad’s intended outcomes.
- While India shares the deep concerns and the tough messaging set out by the Quad on China, especially after the year-long stand-off at the Line of Actual Control (LAC) and the killings at Galwan that India has faced, it has demurred from any non-bilateral statement on it.
- India is the only Quad member not a part of the military alliance that binds the other members.
- India is also the only Quad country with a land boundary with China.
- And it is the only Quad country which lives in a neighbourhood where China has made deep inroads.
- Indian officials are still engaged in LAC disengagement talks and have a long way to go to de-escalation or status quo ante.
3 long term impacts on strategic planning
- The violence at the LAC has also left three long-term impacts on Indian strategic planning:
- First, the government must now expend more resources, troops, infrastructure funds to the LAC and ensure no recurrence of the People’s Liberation Army April 2020 incursions.
- Second, India’s most potent territorial threat will not be from either China or Pakistan, but from both i.e. “two-front situation”.
- Third, that India’s continental threat perception will need to be prioritised against any maritime commitments the Quad may claim, especially further afield in the Pacific Ocean.
Consider the question “The Quad’s ideology of a “diamond of democracies” can only succeed if it does not insist on exclusivity in India’s strategic calculations given that India shares a special place among the Quad members when it comes to its relationship with China. Comment”
Conclusion
Despite last week’s Quad Summit, India’s choices for its Quad strategy will continue to be guided as much by its location on land as it is by its close friendships with fellow democracies.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: MPC
Mains level: Paper 3- Analysing the performance of inflation targeting policies in India
The article analyses the success of the inflation targeting mechanism in India and its impact on the growth of the economy.
Background of the inflation targeting policy in India
- It has been three decades since inflation targeting was first adopted in New Zealand and subsequently by 33 other countries.
- India adopted it in 2016.
- The primary goal of inflation targeting was to contain inflation at around 4 per cent, within the allowable range of 2 to 6 per cent.
- The RBI has announced a formal review of the policy instrument now.
- At the first meeting of the RBI Monetary Policy Committee in October 2016, it was also formally announced that the MPC considered a real repo rate of 1.25 per cent as the neutral real policy rate for the Indian economy.
- By a neutral real policy rate, the RBI meant a policy rate consistent with growth at potential (i.e. growth at full employment).
Has inflation targeting worked in India
- The evaluation of IT must provide answers to the following two questions:
- Did inflation decline post the adoption of inflation targeting and what was the role of IT in the decline in inflation?
- Was the adoption of inflation targeting associated with the policy of the highest real repo rates in India — ever — for almost three years 2017-2019?
- The answer is yes to the latter, but it also needs to be acknowledged that high real repo rates were the primary cause of the GDP growth decline in India from 8 per cent to 5 per cent.
Need to take into account the global context of inflation
- An interesting feature of the Indian defence of inflation targeting is that very few take into account the global context of inflation in which the decline in inflation has occurred in India.
- A research paper by Balasubramanian, Bhalla, Bhasin and Loungani at ORF evaluates inflation targeting in a global context and separately for Advanced Economies (AEs) and Emerging Economies (EES).
- Some facts from the paper are the following.
- First, the annual median inflation in AEs has been consistently low, so low that many central banks have official campaigns to raise the inflation rate.
- One conclusion might be that IT succeeded beyond anyone’s dreams in these economies.
- But attributing this decline in inflation to IT would be erroneous.
- Inflation is global and price-taking by millions of producers in the world means that no one producer or one country can influence the price of any item.
- Oil has ceased to be a factor in global inflation, at least post the mid-1980s.
- The lowest inflation in Indian history occurred during 1999-2005, averaged only 3.9 per cent.
- The average median rate among EM targetters during 2000-04 was 4 per cent, and among the non-targeting countries was 3.8 per cent.
Did fiscal deficit play role in inflation targeting
- In 2003, India passed the FRBM act to control fiscal deficits and inflation.
- There is precious little evidence, either domestically or internationally, about fiscal deficits affecting inflation.
- For three consecutive years preceding the FRBM announcement, the consolidated Centre plus state deficits registered 10.9 per cent(in 2001), 10.4 and 10.9 per cent.
- For the seven-year 1999-2005 period, consolidated fiscal deficits averaged 9.4 per cent of GDP.
- Yet, that these years represented the golden period of Indian inflation — without FRBM and without IT.
Cost of inflation targeting in India
- There are also costs to inflation targeting in India.
- It led to higher real policy rates, in the mistaken belief that high policy rates affect the price of food, oil, or anything else.
- But high real rates affect economic growth, by affecting the cost of domestic capital in this ultra-competitive world.
- It is very likely not a coincidence that potential GDP growth, as acknowledged by RBI, was reached just before the MPC took over decision making in September 2016.
- Since then there was a steady increase in real policy rates, and a steady decline in GDP growth.
Consider the question “How far has the inflation targeting mechanism been successful in India? Give reasons in support of your argument.”
Conclusion
So, in the inflation targeting mechanism has not been successful in containing the inflation though there had a cost associated with it which we paid in the form of growth.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Digital lending and challenges
Digital lending has been on the rise in India. However, there are several concerns about the model. The article discusses these concerns and suggests the policy approach.
3 digital lending models
- Presently, there are three digital-lending models, seen through the regulatory-approach lens:
- 1) Bank/NBFC-owned digital platforms operating under the direct regulatory purview of RBI.
- 2) Fintech companies’ proprietary digital platforms, working in partnership with banks/NBFCs.
- Being mere intermediaries, these platforms are not required to seek any registration with RBI, and are only indirectly regulated through RBI’s outsourcing guidelines applicable to Banks/NBFCs.
- 3) Peer-to-peer (P2P) lending platforms, which usually involve the otherwise unregulated retail lenders.
- RBI has mandated such platforms to seek registration as NBFC-P2P; thus, they are directly regulated by RBI.
Issues with digital lending
- The specific issues are unauthorised lenders, exorbitant rates of interest, use of coercive repayment methods, and non-consensual collection or use of user data.
- These issues entail serious adverse implications for borrowers and have systemic implications, hampering the rise of legitimate fintech players.
Steps taken
- With a view to curb such practices, RBI, in 2020, issued a notification to Banks/NBFCs mandating additional disclosures/compliances, and an advisory to borrowers warning them against such platforms.
- Following the notification, Google removed several such loan apps from its PlayStore.
- The Digital Lenders’ Association of India (DLAI) also issued guidelines to help borrowers identify such unscrupulous platforms.
- In the regulatory pipeline on this front is the report of the working group on digital lending, constituted by RBI in January 2021.
Framing effective policy solutions
- Given the significant contribution of legitimate fintech players, it is important to ensure that any policy solutions to address such issues do not impede the growth of such players.
- The key to this lies in adoption of light-touch regulation, along with the effective implementation of the already proposed regulatory initiatives.
- For instance, the primary cause of the rising supply of unauthorised lending platforms is the existing credit information asymmetry that genuine lenders face in respect of small borrowers.
- Here, operationalising and on-scale implementation of RBI’s proposed ‘Public Credit Registry’ and the ‘Open Credit Enablement Network’ (an infrastructure protocol enabling digital low cost lending to small borrowers through access of consented data) would lead to increased participation of legitimate players and curb proliferation of unauthorised lenders.
- Another foundation for framing effective policy solutions lies in leveraging the interdependence and impact of each individual constituent of the digital lending ecosystem, on other constituents.
- Apart from lenders/platforms/borrowers, these constituents also include the digital lending industry associations, consent managers and technology developers.
- Regulators and industry associations working together can provide the necessary foundations for addressing these issues.
- Other solutions spear-headed by industry associations could be to establish ‘certification system’ based maintenance of a repository of lending platforms for easy identification of genuine players.
- Similarly, on the data protection aspect, a structural solution through coordinated efforts of various digital lending constituents is required.
Consider the question “Examine the factors aiding the growth of digital lending in India. What are the challenges the sector face? Suggest the measures to deal with these challenges.”
Conclusion
For the continued development of the Indian digital lending economy, it is important to implement policy solutions that adequately protect the borrowers from malpractices, while, at the same time, do not dampen innovation in this fast-evolving sector.
Source:-
https://www.financialexpress.com/opinion/soft-touch-regulation-for-digital-lending/2215702/
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From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Making lateral entry a success
It has been a while since the government introduced the provision of lateral entry into civil services. This article suggests the changes that need to be made in the system to attract the best talent and facilitating their success.
Administrative reforms in India
- The lack of administrative reform in India has frustrated many stakeholders for a long time.
- One of the key focus areas of such reform is enabling lateral entry into an otherwise permanent system of administrators.
- Eight professionals were recruited for joint secretary-level positions in various ministries.
- Some other positions at the joint secretary and director-level have been advertised.
Changes needed
1) Entry requirements need to be relaxed
- In the permanent system, IAS officers get promoted to joint secretary level after 17 years of service and remain at that level for ten years.
- If similar experience requirements are used for lateral entry, it is unlikely that the best will join because in the private sector they rise to the top of their profession at that age.
- To attract the best talent from outside at the joint secretary level, entry requirements need to be relaxed so that persons of 35 years of age are eligible.
2) Facilitating lateral entrants for success
- There are many dimensions to this. For a start, there are several joint secretaries in each ministry who handle different portfolios.
- If assigned to an unimportant portfolio, the chances of not making a mark are high.
- A cursory look at the portfolios of the eight laterally-hired joint secretaries doesn’t suggest that they hold critical portfolios.
- There must also be clarity in what precisely is the mandate for the lateral entrant.
- To be disrupters, lateral entrants need to be able to stamp their authority on decision making.
- For this to happen, there need to be more lateral entrants at all levels in ministries.
- In the functioning of government, there is a long chain in decision-making and a minority of one cannot override it.
- Also, it requires an understanding of the system and an ability to work with the “permanent” establishment.
- No training or orientation is provided for this.
Consider the question “What are the advantages of lateral entry in the civil services? What are the challenges in the success of lateral entrants? Suggest the measures to improve it.”
Conclusion
Lateral entry, like competition in any sphere, is a good thing. But serious thinking is required on entry requirements, job assignments, number of personnel and training to make it a force for positive change. Some reform of the “permanent” system — particularly its seniority principle — may be a prerequisite.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- E-commerce to aid MSMEs
Facilitating manufacturing through MSMEs
- A significant major contributor to the India growth story is going to be manufacturing.
- Manufacturing by small units, cottage units and MSMEs, if effectively facilitated, will be the game changer.
- For MSMEs to be sustainable and effective, the need of the hour is not just better automation but also more channels for accessing greater markets and opportunities to become a part of the national and global supply chains.
- E-commerce marketplaces are today the best possible enablers for this transformation at minimal cost, innovation and investment.
Need to invest in digital transformation and technology
- China captured the world market through the traditional method of having guilds and business centres.
- Today, digital empowerment is the key differentiator.
- Without that, our MSMEs will not be future ready.
- E-commerce allows products even from hinterlands to get to the national market, thus, providing opportunities to artisans and small sellers from Tier-2/3 towns to sell online to customers beyond their local catchment.
- By investing in supply chains, the e-commerce sector provides opportunities for MSMEs to partner them in supply and delivery networks.
- Start-ups and young brands are also finding opportunities to build national brands and even going global.
- This leads to additional income generation through multiple livelihood opportunities.
- Many offline stores are also adopting e-commerce to leverage these opportunities and the traditional and modern retail models are moving towards more offline and online collaborations.
Challenges in building robust e-commerce sector
1) No GST threshold exemption
- Sellers on e-commerce marketplaces do not get advantage of GST threshold exemption (of Rs 40 lakh) for intra–state supplies.
- Online suppliers have to “compulsorily register” even though their turnover is low.
- Offline sellers enjoy this exemption up to the turnover threshold of Rs. 40 lakh.
2) Principal place of business issue
- Today, the sellers, as in offline, are required to have a physical PPoB which, given the nature of e-commerce, is not practical.
- The government would do well to simplify the “Principal Place of Business” (PPoB) requirement especially for online sellers by making it digital.
- Replace physical PPoB with Place of Communication.
- Eliminating the need for state specific physical PPoB requirement will facilitate sellers to get state-level GST with a single national place of business.
3) Support MSMEs to understand e-commerce
- MSMEs should be provided with handholding support to understand how e-commerce functions.
- The government can collaborate with e-commerce entities to leverage their expertise and scale to create special on-boarding programmes.
- These can be provided by state governments.
- There is need to examine the existing schemes and benefits for MSMEs, which were formulated with an offline, physical market in mind.
4) Build infrastructure
- There is a need to build infrastructure — both physical and digital infrastructure is important for digital transformation.
- The road and telecom network will facilitate access to the consumer and enable the seller from remote areas to enter the larger national market as well as the export market.
- A robust logistic network and warehouse chains created by e-commerce platforms enable similar access and reach.
- The National Logistics Policy should focus on e-commerce sector needs.
5) Skilling policies for e-commerce sector
- Dovetail the skilling policy and programmes with the requirements of the e-commerce sector to meet future demand of the sector.
6) Steps to increase export via e-commerce
- We need to take specific steps to increase exports via e-commerce.
- There is a need to identify products that have potential for the export market, connect e-commerce with export-oriented manufacturing clusters, encourage tie-ups with sector-specific export promotion councils, leverage existing SEZs to create e-commerce export zones.
- India Posts can play a significant role by creating e-commerce specific small parcel solutions at competitive rates, building a parcel tracking system, and partnering with foreign post offices to enable customs clearances.
Way forward
- There is an urgent need to create a consolidated policy framework for e-commerce exports.
- Policies like the upcoming Foreign Trade Policy needs to be fully leveraged.
- The Foreign Trade Policy should identify areas and include e-commerce export specific provisions in the revised policy that comes into effect in April this year.
Consider the question “E-commerce marketplaces can help MSMEs in accessing greater markets and provide opportunities to become a part of the national and global supply chains. In light of this, examine the opportunities provided by e-commerce also mention the challenge the sector faces in India.”
Conclusion
By facilitating and supporting e-commerce, we can leverage the potential of MSMEs in manufacturing which could help in the economic growth of the country by creating job opportunities.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Fiscal deficits
Mains level: Paper 3- State budgets belies the hopes of public spending led recovery
The article highlights the trends emerging from the State budgets which dashes the hopes of public-spending led economic recovery.
State-level budget trends
- Over the past few weeks, several state governments have presented their budgets for the financial year 2021-22.
- The states, put together, account for a larger share of general government spending than the Centre.
- States’ spending stance is pivotal to the hopes of a government spending-led economic recovery.
5 Broad trends from the state budgets
- The broad state-level budget trends are based on 11 states that account for a little over 60 per cent of India’s GDP.
1) Offsetting the additional spending by Centre
- There is a collapse in states’ revenues and transfers from the Centre.
- Along with it, there is a “reluctance” among some states to borrow more to spend.
- Thus, the aggregate level spending by these states in 2020-21 will end up being lower than what they had budgeted for before the onset of the pandemic.
- The revised estimates peg their total expenditure to decline by around 6 per cent in 2020-21 from their budget estimates.
- If these trends were to hold for the other states as well, then it would imply that the additional spending by the central government, over and above its budget estimate is likely to be offset by the decline in spending by states.
2) From revenue surplus to revenue deficit
- This year, states which typically run revenue surpluses will run revenue deficits.
- The collapse in revenues meant that states that usually borrow to finance capital expenditure have had to borrow to finance their recurring expenditure (revenue expenditure) as well.
- As a consequence, capital spending by states has been cut sharply.
- States, though, expect the situation to reverse in the coming fiscal year, with most projecting a return to revenue surpluses even as the Centre will continue to run revenue deficits.
- This anomaly is unlikely to be resolved unless the root cause of the situation — the nature of the fiscal compact between the Centre and the states — is addressed.
3) Reluctance by states to borrow
- The Centre had raised the ceiling on their market borrowings from 3 to 5 per cent of GSDP.
- Of this 2 percentage point increase in the borrowing limit, part was unconditional while the remaining was subject to fulfilling Centre-mandated reforms.
- As per ICRA’s estimate, 17 states qualified based on the One Nation One Ration Card reforms, 15 qualified based on the ease of doing business reforms, seven partially completed power sector reforms, while six had completed the urban local body reforms.
- But, it is only the low-income states of Bihar, Rajasthan and Madhya Pradesh with already stretched finances that seem to have availed the additional borrowing space.
- The high-income states of Gujarat, Maharashtra and Karnataka, all of whom had greater fiscal headroom going to the crisis, and were better placed to borrow more and spend, have not done so.
4) Aggressive fiscal consolidation
- As is the case with the Centre, states have, remarkably, budgeted for aggressive fiscal consolidation next year.
- The average fiscal deficit across these states is expected to fall by more than 1 percentage point of GSDP, more than twice the decline recommended by the 15th finance commission.
5) Ambitious revenue assumptions
- The aggressive consolidation next year is expected to be achieved not by expenditure compression, as is the case with the Centre, but by significant revenue enhancement.
- However, some revenue assumptions are quite ambitious, to say the least — some states have pegged their GST and VAT collections to grow far in excess of 30 per cent in 2021-22.
- A deterioration in fiscal marksmanship will mean that expenditure in the coming fiscal year will also end up being lower than what has been budgeted for.
Consider the question “The pandemic has upended the States’ fiscal space, which is evident in their budgets. In light of this, examine the trends emerging from the budgets of the States and their implications for the economy.”
Conclusion
Subdued general government spending during these tumultuous years heightens the risks to economic recovery. Considering the possibility of the economy exiting from this period with lower medium-term growth prospects, there is a strong case for greater government spending during these years.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- AI governance
The article highlights the challenges and opportunities offered by the Artificial Intelligence and suggests the ways to deal with them.
AI as a part of our life
- AI is embedded in the recommendations we get on our favourite streaming or shopping site; in GPS mapping technology; in the predictive text that completes our sentences when we try to send an email or complete a web search.
- And the more we use AI, the more data we generate, the smarter it gets.
- In just the last decade, AI has evolved with unprecedented velocity.
How AI could help us
- AI has helped increase crop yields, raised business productivity, improved access to credit and made cancer detection faster and more precise.
- It could contribute more than $15 trillion to the world economy by 2030, adding 14% to global GDP.
- Google has identified over 2,600 use cases of “AI for good” worldwide.
- A study published in Nature reviewing the impact of AI on the Sustainable Development Goals (SDGs) finds that AI may act as an enabler on 134 of all SDG targets.
Concerns with AI
- Yet, the study in Nature also finds that AI can actively hinder 59 — or 35% — of SDG targets.
- AI requires massive computational capacity, which means more power-hungry data centres — and a big carbon footprint.
- AI could compound digital exclusion.
- Many desk jobs will be edged out by AI, such as accountants, financial traders and middle managers.
- Without clear policies on reskilling workers, the promise of new opportunities will in fact create serious new inequalities.
- Investment is likely to shift to countries where AI-related work is already established widening gaps among and within countries.
- AI also presents serious data privacy concerns.
- We shape the algorithms and it is our data AI operate on.
- In 2016, it took less than a day for Microsoft’s Twitter chatbot, “Tay”, to start spewing egregious racist content, based on the material it encountered.
Way forward
- Without ethical guard rails, AI will widen social and economic schisms, amplifying any innate biases.
- Only a “whole of society” approach to AI governance will enable us to develop broad-based ethical principles, cultures and codes of conduct.
- Given the global reach of AI, such a “whole of society” approach must rest on a “whole of world” approach.
- The UN Secretary-General’s Roadmap on Digital Cooperation is a good starting point.
- This approach lays out the need for multi-stakeholder efforts on global cooperation.
- UNESCO has developed a global, comprehensive standard-setting draft Recommendation on the Ethics of Artificial Intelligence to Member States for deliberation and adoption.
- Many countries, including India, are cognisant of the opportunities and the risks, and are striving to strike the right balance between AI promotion and AI governance.
- NITI Aayog’s Responsible AI for All strategy, the culmination of a year-long consultative process, is a case in point.
Consider the question “What are the ways in which Artificial Intelligence in helping humanity? What are the concerns with the promotion and the governance of AI?”
Conclusion
Chellenging part starts where principles meet reality that the ethical issues and conundrums arise in practice, and for which we must be prepared for deep, difficult, multi-stakeholder ethical reflection, analyses and resolve. Only then will AI provide humanity its full promise.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- First Quad summit and its significance
The first-ever Quad summit is an important milestone in the geopolitics of the region. The article highlights its significance.
Significance of the first Quad summit
- The maiden Quadrilateral Security Dialogue summit of the leaders of Australia, India, Japan and the U.S. on March 12 was a defining moment in Asian geopolitics.
- That it was a meeting at the highest political level, occasioned a productive dialogue, and concluded with a substantive joint statement is indicative of its immediate significance.
- If it leads to tangible action and visible cooperation, it will impact the whole region.
Brief background of the Quad
- The Indian Ocean tsunami of 2004 triggered cooperation among the navies and governments of the Quad powers.
- They sought to forge diplomatic cooperation on regional issues in 2006-08.
- But gave up mainly because China objected to it and the hostility to China was not yet a potent enough glue.
- This began to change in 2017 when Beijing’s behaviour turned hostile, climaxing in multiple challenges in 2020.
- This time, U.S. President Joe Biden moved swiftly to host a virtual summit, drawing immediate response from the other three leaders.
5 highlights of the summit
- A more sophisticated approach is being invented, with enhanced emphasis by the U.S. on carrying its allies and strategic partners together.
- The summit’s outcome, therefore, merits close attention for at least five reasons.
1) Compromise over vision of Indo-Pacific
- Past debates over diverse, even differing, visions of the Indo-Pacific are over.
- The joint statement struck a neat compromise:
- To please the U.S. and Japan, it refers to a “free and open” Indo-Pacific, but in the very next sentence it offers an elaboration – “free, open, inclusive, healthy, anchored by democratic values, and unconstrained by coercion” – that amply satisfy India and Australia.
2) Alignment of approach towards China
- The summit leaders have secured an adequate alignment of their approaches towards China.
- Senior officials gave sufficient hints on this score, reinforced by phrases such as “security challenges” and “the rules-based maritime order in the East and South China Seas” in the joint statement.
- Instead of unidimensional antagonism, the Quad members have preferred a smart blend of competition, cooperation and confrontation.
3) Quad’s commitment development and well being of the region
- The Quad has placed a premium on winning the battle for the hearts and minds of people in the Indo-Pacific region.
- This explains the special initiative to ensure equitable access to COVID-19 vaccines for every person in need in the region from the western Pacific to eastern Africa.
4) Working groups
- The establishment of three working groups on vaccine partnership; climate change; and critical and emerging technologies and their new standards, innovation and supply chains is a welcome step.
- All this should get the four national establishments into serious policy coordination and action mode, creating new capacities.
- The careful choice of themes reflects a deep understanding of the long-term challenge posed by China and has global implications.
5) Quad working together in future
- The March 12 summit will not be a one-off.
- The leaders have agreed to meet in-person later this year, possibly at an international event within the region.
- Foreign ministers will gather at least once a year; other relevant officials, more often.
- Thus, will grow the habits of the Quad working together for a common vision and with agreed modalities for cooperation.
How ASEAN and China will react
- The summit has been watched closely by the ASEAN capitals. A few of them may express cautious welcome.
- Beijing seems rattled but resigned to the Quad’s new momentum.
- The Chinese see it in negative terms, targeting New Delhi in particular.
Consider the question “With the first-ever summit, the Quad is moving towards a strong coalition. In light of this, examine the challenges India faces as it deepes its engagement in the grouping.”
Conclusion
The summit and ‘The Spirit of the Quad’ – the inspired title of the joint statement – represented a giant leap forward. Now is the time to back political commitment with a strong mix of resolve, energy, stamina and the fresh ideas of stakeholders and experts outside of government to fulfil the promise of the Quad.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Replacement level of fertility
Mains level: Paper 1- Population stabilisation
Achieving replacement levels of fertility
- The National Population Policy 2000 affirmed a commitment to achieve replacement levels of fertility (total fertility rate of 2.1) by 2010.
- Ten states — Karnataka, Punjab, Gujarat, Assam, Telangana, Andhra Pradesh, West Bengal, Maharashtra, Tamil Nadu and Kerala — and Jammu and Kashmir, have achieved this goal.
- This fertility decline over half of India has cut across all sections of society — the privileged and the poor, those educated or not, and the high and low caste.
- The National Family Health Survey-4 has shown how TFR has reduced even among illiterate women from all religions in the southern states.
Growing gap between North-South
- The difference between the progressive South and the Central- North is becoming disproportionately skewed.
- UP and Bihar are 23 per cent of India’s population and are projected to grow by over 12 per cent and 20 per cent in the next 15 years.
- Their high TFR pervades all religious groups.
- Action to prevent unwanted pregnancies particularly in these two Hindi belt states is urgently required.
- For decades UP has had a dedicated agency — SIFPSA (State Innovations in Family Planning Services Agency). But its website gives dated information.
- Women in rural UP are still giving birth to four or more children.
- In some districts, the contraceptive prevalence rate is less than 10 per cent.
- In many districts neither Hindus nor Muslims use modern family planning methods.
- In such a scenario, demographics will eclipse economic growth and destroy the gains from a young populace.
- UP’s over-reliance on traditional methods of contraception needs to be swiftly replaced with reliable and easy alternatives.
- Bihar has the highest fertility rate in the country and also the highest outmigration.
Which method should be used
- While national and state policies emphasise male vasectomy, politicians never champion its adoption.
- No other country in the world uses female sterilisation as excessively as India.
- Indonesia and Bangladesh introduced injectables right from the late 1980s but India only did so in 2016.
- Executed properly, one jab renders protection from pregnancy for three months.
- This method needs greater impetus given the helplessness of women who carry the burden of unwanted pregnancies.
Way forward
- Three things are needed:
- 1) Incentivise later marriages and child births.
- 2) Make contraception easy for women.
- 3) Promote women’s labour force participation.
- Some other disturbing nationwide trends must also be counteracted without delay because stabilisation isn’t only about controlling population growth.
- A balanced sex ratio is essential to secure social cohesion.
- The inheritance law favouring women’s rights to ancestral property is far from being implemented.
- And then there is ageing. Paradoxically, it is the Southern states that will face problems in future.
- Having largely redeemed their demographic dividend, the cohort of the elderly will start outstripping the working age population.
- The theoretical possibility that younger people from the Central-Northern states may fill the growing gap in services will need strong political support.
- The freeze on the state-wise allocation of seats in Parliament until 2026 was extended through the Constitutional (84th Amendment) Act, 2002, to serve “as a motivational measure to pursue population stabilisation”.
- This goal has not been achieved.
- In the absence of further extension, it will be politically destabilising.
Consider the question “India’s efforts at populations stabilisation still remains work in progress, as the Northern states fail to achieve the targets. Suggest the ways to deal with the issue.”
Conclusion
The population momentum, if managed properly in the Hindi belt, will remain India’s biggest asset until 2055. By 2040, India will be the undisputed king of human capital.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: SCO
Mains level: Paper 3- Changing context of India's strategic autonomy
India is a member of both the Quad and the BRICS. Is not it the contradiction? The article answers this question and maps the transformation of India’s relation with the U.S. over the years.
Is India’s participation in BRICS and Quad contradictory?
- Global Times, the Chinese newspaper last week speculating on the implications of the historic Quad summit for the BRICS.
- In calling the Quad a “negative asset” for the BRICS the Global Times was highlighting what it sees as a contradiction in India’s participation in both the forums.
- The paper argues that India has worsened “India-China and India-Russia relations” and halted progress “in the development of BRICS and SCO”.
- Global Times warns that if India continues to get closer to Washington, India “will eventually lose its strategic autonomy”.
Understanding India’s strategic autonomy
- “Strategic autonomy” is the framework that guided Delhi’s international relations since the Cold War.
- In the early 1990s, strategic autonomy was about creating space for India against the overweening American power.
- Why the space was needed? It was mainly because of the U.S. stance on two important aspects: Kashmir issue and nuclear program.
- President Bill Clinton had questioned the legitimacy of Jammu and Kashmir’s accession to India and declared the US’s intent to resolve Delhi’s Kashmir dispute with Pakistan.
- Washington insisted that rolling back India’s nuclear and missile programmes was a major objective of US foreign policy.
- All that changed over the last three decades.
8 elements of transformation of India’s relations with the U.S and China
- A rising China has emerged as the biggest challenge to India and the US is increasingly an important part of the answer.
- A few elements stand out.
- First, China has become more assertive on the contested boundary, therefore, the support from the US and its Asian allies has been valuable.
- Second, on the Kashmir question, China raises the issue at the UNSC while the US is helping India to block China’s moves.
- Third, on cross-border terrorism, the US puts pressure on Pakistan and China protects Rawalpindi.
- Fourth, the US has facilitated India’s integration with the global nuclear order while Beijing blocks Delhi’s membership of the Nuclear Suppliers Group.
- Fifth, the US backs India’s permanent membership of the UNSC, China does not.
- Sixth, India now sees the trade with China hollowing out India’s manufacturing capability.
- Its objective on diversifying its economy away from China is shared by the US and the Quad partners.
- Seventh, India opposes China’s Belt and Road Initiative as a project that undermines India’s territorial sovereignty and regional primacy.
- India is working with Quad partners to offer alternatives to the BRI.
- Finally, India sees China’s rising military profile in the subcontinent and the Indian Ocean as a problem and is working with Washington to redress the unfolding imbalance in India’s neighbourhood.
India’s approach to BRICS and SCO
- The BRICS was part of India’s strategy in the unipolar moment that dawned at the end of the Cold War.
- India’s current enthusiasm for the Quad is about limiting the dangers of a unipolar Asia dominated by China.
- But India will continue to attach some value — diplomatic if not strategic — to a forum like the BRICS.
- After all, the BRICS forum provides a useful channel of communication between Delhi and Beijing at a very difficult moment in the evolution of their bilateral relations.
- The BRICS is also about India’s enduring partnerships with Russia, Brazil, and South Africa.
- India also values its ties with the Central Asian states in the SCO.
- The BRICS could certainly become a productive forum someday — when Delhi and Beijing mitigate their multiple contentions.
Consider the question “A rising China has emerged as the biggest challenge to India and the US is increasingly an important part of the answer. Examine the elements that support this underlying transformation of India’s relationship with the two countries.”
Conclusion
No amount of words in a BRICS declaration can hide the sharpening contradictions between India and China today. The absence of joint statements did not mask the growing strategic congruence among the Quad nations in recent years.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: CERT-In
Mains level: Paper 3- Identifying the cyber threat
The article highlights the threat of a cyber attack on India’s critical infrastructure and suggests the need to take preventive measures.
Targetting the infrastructure
- The U.S.-based cyber security firm, Recorded Future revealed that the past blackout in Mumbai was linked to the cyber attack from China.
- Recorded Future had also found an increase in malware attacks targeting the Indian government, defence organisations and the public sector.
- Also that, coinciding with Chinese incursions in Eastern Ladakh, certain Indian power facilities had been targets of a cyber attack.
- This indicates that India’s key infrastructure facilities, such as the power sector, are now in the crosshairs of a hostile China.
- Indian government agencies, such as the National Critical Information Infrastructure Protection Centre (NCIIPC) and the Indian Computer Emergency Response Team (CERT-In) needs to be on its guard.
Exploiting vulnerabilities
- China’s cyber offensive is directed against many advanced nations as well.
- In attempting this, what China is doing is essentially exploiting to perfection the many vulnerabilities that software companies (essentially those in the West), have deliberately left open (for offensive purposes at an opportune time).
- Exploiting this loophole, and also turning matters on its head, it is companies in the western world that are now at the receiving end of such antics.
- Chinese cyber espionage sets no limitations on targets.
- Towards the end of 2020, and as the world prepared for large-scale deployment of COVID-19 vaccines, their attention was directed to vaccine distribution supply chains around the world.
Way forward
- Nations should beware and be warned about how cyber attacks can bring a nation to its knees.
- This was well demonstrated way back in 2016 through a major attack on Ukraine’s power grid.
- The Ukraine example should be a wake-up call for India and the world, as in the intervening five years, the sophistication of cyber attacks and the kind of malware available have become more advanced.
- India, could well be blindsided by Chinese cyber attacks on critical infrastructure if the latter sets out to do so, unless prophylactic measures are taken in time.
Consider the question “Examine the threat posed by cyber attack on the critical information infrastructure? Suggest the ways to deal with it.”
Conclusion
Cyber’ could well be one of China’s main threat vectors employed against countries that do not fall in line with China’s world view. Drawing up a comprehensive cyber strategy, one that fully acknowledges the extent of the cyber threat from China, has thus become an imperative and immediate necessity.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Nativism in jobs in the state
The article examines the factors contributing to the States pursuing domicile based employment policies.
What is driving states to provide reservation to locals in private jobs
- The Haryana government has recently passed legislation that mandates companies in Haryana to provide jobs to local Haryanvis first.
- The unemployment rate in Haryana is the highest of all States in India, as per data from the Centre for Monitoring Indian Economy, or CMIE.
- The cabinet of the government of Jharkhand approved similar legislation to reserve jobs for Jharkhand residents.
- The Dravida Munnetra Kazhagam (DMK) in Tamil Nadu announced a similar proposal in its manifesto for the upcoming Assembly elections.
- Such moves have attracted criticism from economists and commentators
- Creating more jobs, not on reserving the few available ones’ is the popular refrain.
- Creation of new jobs is not entirely in the control of State governments. It is a complex interplay of multitude of factors.
Factors playing role in job creation
- Job creation is obviously an outcome of the performance of the larger economy.
- Chief Minister of a State in India has limited control over the management of the larger economy and thereby, attract new investors and businesses who can create jobs.
- Businesses need abundant high quality skilled and unskilled labour, land at affordable prices, uninterrupted supply of electricity, water and other such ‘ease of business’ facilities for its expansion.
- State governments in India can theoretically compete with each on these parameters.
- Further, any tax advantages that a particular State can provide vis-à-vis others will increase its attractiveness.
- But, realistically in India, in very few of these parameters can a poorer State compete against a richer State.
Issues faced by the States
- The availability of skilled local labour is a function of many decades of social progress of the State and cannot be retooled immediately.
- After the introduction of the Goods and Services Tax (GST), State governments in India have lost their fiscal autonomy and have no powers to provide any tax concessions to businesses.
- Beyond all these, the most critical factor in the choice of a location for a large business is what economists term as the ‘agglomeration effect’
- Agglomeration effect is the ecosystem of supply chain, talent, good living conditions and so on attracting the other businesses.
- So, a State with an already well-established network of suppliers, people, schools, etc. are at a greater advantage to attract even more businesses.
- It is due to this agglomeration effect that the three richest large States (Maharashtra, Tamil Nadu and Karnataka) are three times richer than the three poorest large States (Bihar, Uttar Pradesh and Madhya Pradesh), in per-capita income, compared to 1.4 times in 1970.
- In the absence of a level playing field and with no fiscal autonomy, it is enormously difficult for developing States in India to attract new investments and create new jobs.
Consider the question “Examine the factors contributing to the nativist tendencies in the employment within the States. Suggest the measures to deal with the issue.”
Conclusion
Until the economic playing fields for the various States are levelled and much greater fiscal freedom provided to the States, “don’t protect but create jobs” will only remain a topic of a hollow lecture and moral sermons.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: FEMA
Mains level: Paper 3- Security imperatives of FDI
Relaxation on Chinese FDI
- Last April, India had subjected all Chinese FDI to mandatory government screening.
- The aim was to curb opportunistic takeovers of Indian companies, a concern fuelled by sharp corrections in equity markets in March 2020.
- Several economies including the US, Australia, Canada and Germany faced similar concerns.
- They blocked specific takeover attempts, using special laws for national security screening of inward FDI.
- In the absence of similar legislation, India did not differentiate between investments which raised genuine national security concerns and those that did not.
- This is a crucial shortcoming.
- With market indices now hovering at their peaks, reportedly India may allow Chinese FDI up to 25 per cent in equity under the automatic route.
Regulation of FDI and issues with it
- India regulates foreign investments primarily through FEMA.
- FEMA clearly provides two specific macro-prudential objectives — facilitating external trade and payments; and promoting orderly development and maintenance of foreign exchange markets in India.
- Accordingly, it empowers the central government and the RBI, acting in consultation with each other, to regulate capital account transactions.
- These regulations determine who can invest through the FDI route, in which sector and how much.
- In practice, however, FEMA regulations have often responded to concerns not strictly related to macro-prudential objectives.
- One such concern has been national security.
Need for the law to scrutinise FDI from national security angle
- Shortcoming of FEMA underscores the need for India to emulates its western peers and enact a statute specifically designed for national security screening of strategic FDI.
- Unlike FEMA, this new statute must explicitly lay down legal principles for determining when a foreign acquisition of an Indian company poses genuine national security threats.
- In this regard, a policy paper published by the Peterson Institute for International Economics three types of legitimate threats from foreign acquisitions.
3 Types of threat from foreign acquisitions
1) Dependency on foreign supplier
- The first threat arises if a foreign acquisition renders India dependent on a foreign-controlled supplier of goods or services crucial to the functioning of the Indian economy.
- For this threat to be credible, it needs to be further established that the industry in which the acquisition is supposed to take place is tightly concentrated, the number of close substitutes limited, and the switching costs are high.
2) Technology transfer
- The second threat emanates from a proposed acquisition transferring a technology or an expertise to a foreign-controlled entity that might be deployed by that entity or a foreign government in a manner harmful to India’s national interests.
- The credibility of this threat again depends on whether the market for such technology or expertise is tightly concentrated or if they are readily available elsewhere.
3) Threat of infiltration, surveillance or sabotage
- The third threat arises if a proposed acquisition allows insertion of some potential capability for infiltration, surveillance or sabotage via human or non-human agents into the provision of goods or services crucial to the functioning of Indian economy.
- This threat is particularly credible when the target company supplies crucial goods or services to the Indian government, its military or even critical infrastructure units and the switching costs are high.
Way forward
- The above stated 3 types of threats could provide conceptual clarity in the new statute could make national security assessments objective, transparent and amenable to the rule of law.
- On procedure, the statute must empower only the finance minister to reject certain strategic foreign acquisitions on national security grounds.
- Both the power and accountability mechanisms should be hardcoded into the statute itself, as is the case in some mature parliamentary democracies.
- For instance, the Australian Foreign Acquisitions and Takeovers Act, 1975 empowers the treasurer to block certain foreign acquisitions on national security grounds.
- Similarly, the Investment Canada Act, 1985 empowers a minister to reject certain foreign acquisitions.
Consider the question “India needs to recognise the national security threat emanating from strategic FDI. This requires identifying threats. In lights of this, examine the types of threats and suggest the ways to deal with it.”
Conclusion
Overall, India’s tryst with Chinese FDI underscores the importance of identifying specific national security threats emanating from strategic FDI and addressing them objectively. This is too sensitive a matter to be left to capital controls under FEMA. A dedicated statute for national security screening of inward FDI would be best suited for handling such issues.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- India's growing security footprints in West Asia
The article examines the factors that are leading to a growing footprint of Asian economies in West Asia.
Growing interest of Asian Economies in West Asia
- This month, a contingent of the Indian Air Force participated in a multi-nation exercise hosted by the United Arab Emirates (UAE) named Desert Flag (March 3-27).
- Other than India and the UAE, Bahrain, France, Saudi Arabia, South Korea and the United States are also participating.
- While joint exercises in West Asia between Arab states and their western counterparts is common, the 2021 edition’s involvement of contingents from India and South Korea.
- This showcases the growing interests of Asian economies.
- As net importers of crude oil, these Asian economies rely heavily on the West Asian states for their supplies,
- And, by association, Asian economies have increased stakes in the safety and security of the region from the perspective of political and economic stability.
- And more importantly, in the protection of vital sea lanes in areas such as the Strait of Hormuz, the Gulf of Aden and the Red Sea stretching out into the Arabian Sea and the wider Indian Ocean.
Declining U.S. influence
- In April 2020, Saudi Arabia was India’s top supplier of oil followed by Iraq.
- For South Korea, in late 2019, it was also Saudi Arabia as the top supplier.
- The participation of both India and South Korea in these exercises in the Persian Gulf is reflective of these trends and growing concerns in Asian capitals over an eroding U.S. security blanket in the region.
Tension in Iran-U.S. relations
- Both India and South Korea have found themselves caught in regional tensions as the pressure on Iran to restart the 2015 nuclear agreement (Joint Comprehensive Plan of Action, or JCPOA) increases.
- Both India and South Korea have faced carbon-copy consequences over the past decade as the West first negotiated with Iran, and later tried to manage the fallout of the JCPOA collapse.
India’s role in protecting it’s energy interests
- The idea of Asian nations having to band together to protect their energy interests in West Asia is not new.
- Former Indian diplomats have even suggested an idea equitable to an ‘importers OPEC’ led by Asian states which today have a much larger stake in West Asia’s oil than the West.
- The Indian Navy has made multiple port calls from the UAE and Kuwait to Iran and Qatar in recent years.
- In 2020, India had also planned its first bilateral naval exercise with Saudi Arabia.
Consider the question “Examine the factors responsible for India’s growing security footprint in West Asia and how India is achieving its objectives?”
Conclusion
Regional states will become more responsible for their own security, and as Asian economies become stronger stakeholders, their geopolitics will become more visible across this geography.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- India's manufacturing capacity
The article highlights how India could offer the solution to the tactical issue faced by the Quad: matching China’s manufacturing capacity.
Strategic case for the Quad
- The strategic case for the Quadrilateral Security Dialogue, better known as the Quad, has always been sound.
- A rising China, with its authoritarian one-party system, is a challenge to the democratic order.
- The strategic case for the Quad has, however, always faced a tactical hurdle.
- China was the factory of the world.
- It had become an almost indispensable cog in the global supply chain owing to its low-cost manufacturing prowess at a mass scale.
- How could any grouping hope to challenge China’s power-play dynamics while at the same time being dependent on its factories to sustain its economies?
Two recent development that changed the dynamic
- Two recent developments have completely changed the dynamic.
- First, Australia returned to the Malabar Naval exercises in 2020, after 13 years.
- Second, on March 12, the first summit-level meet of the Quad — comprising the US, India, Japan and Australia — is scheduled to take place.
Rise in India’s manufacturing ability
- What has changed between 2007 and 2020 that Quad 2.0 has become viable is the globally visible rise in India’s manufacturing ability.
- Consider the following examples.
1) PPE Kit manufacturing
- First, the success in PPE kits.
- At the beginning of the COVID-19 pandemic, India was manufacturing zero PPE kits.
- India not just created an overnight world-class manufacturing capacity to meet its own needs but also started exporting PPE kits.
2) Vaccine Maitri
- Second, the soft power of Vaccine Maitri.
- The developed countries are scrambling to secure vaccines for their domestic population.
- India is not only vaccinating its own people faster than any other country but is also exporting millions of vaccines to countries in need.
- From Canada to Pakistan and from the Caribbean Islands to Brazil — Made in India vaccines have been a life vest across the globe.
3) India’s private industry
- Third, the enterprise of India’s private industry — a hallmark of the deepening manufacturing base.
- As a recent New York Times report noted, when it came to syringes — without which the vaccines were useless — the global scramble again led to Indian manufactures.
- Hindustan Syringes alone has ramped up its manufacturing capacity to almost 6,000 syringes a minute.
4) Precision high-end manufacturing
- The PLI scheme launched for electronics’ manufacturing evinced unprecedented global interest with 22 top companies, including the top manufactures for Apple and Samsung mobile phones.
- Over the next five years, a manufacturing capacity of over $150 billion and exports of $100 billion have been tied up through this scheme.
5) Figher plane manufacturing
- Fifth, the success of India’s fourth-generation fighter jet programme and the orders placed by the Indian Air Force for 83 Tejas jets.
- India’s success is one more milestone in its journey towards emerging as a global manufacturing destination.
Policy changes to make India manufacturing destination
- Concurrently, India has been reforming its economic policies to make it even more attractive as a manufacturing destination.
- India has the lowest tax rate anywhere in the world — 15 per cent for new manufacturing units.
- FDI norms have been relaxed across the board and automatic approval processes instituted for FDI even up to 100 per cent.
- Privatisation of PSUs is now an established process.
- Labour laws have been finally reformed and compliance burdens significantly eased.
- Taxation is now faceless, thus ending the spectre of rent-seeking.
- A well-functioning, world-class bankruptcy law is in place. Interest rates are low.
- And India’s digital infrastructure rivals the best in the world and in many cases beats it.
Consider the question “India’s growing prowess as the manufacturing hub could provide the Quad tactical basis by replacing China. Comment.“
Conclusion
The only arrow that was missing in the quiver of the Quad has now been attained. The strategic case for the Quad was never in doubt. The dependence on China’s factories is what kept the grouping of democracies from emerging. India has raised its hand to solve that problem.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Improving the colleges
The article highlights the important role students can play in improving the quality of colleges and institution in India.
Improving the colleges
- The global QS ranking is out and India has 12 universities and institutions in the top-100 in particular subjects.
- We have many colleges offering higher education but typically they are not very good.
- Today, with a huge number of students going to college, education is tied strongly to career prospects.
- If studying and thinking harder do not lead to even a decent chance of career improvement, it is natural for most students to lose academic ambition.
Career prospects in various colleges
- For admission in IIT, many work extremely hard to secure admission, but then lose motivation and drift towards near-certain graduation.
- IIT admission is a value signal to future employers who do not see much relevance in the actual syllabus.
- The entry wall is high, the exit wall is low, and the four-year syllabus is an obstacle course between the student and an employer with whom eye contact was made from atop the entry wall itself.
- Students of varied subjects thus remain uninterested in their core syllabi.
- Lower-ranked colleges may attract a slightly different mix of employment prospects, some in core areas.
- In many colleges, both good and bad ones, high grades correlate only loosely with career outcomes.
Improving the college
- Very few jobs actually require the highest quality education — the best academic and research jobs.
- In such a system, it may not be worthwhile or even practical for a mediocre college to unilaterally improve itself.
- Having improved, it remains to convince society that it deserves to displace the pre-eminent colleges at the top.
- For lower-ranking colleges to improve itself, its students must first see useful value in a better education.
- That requires system-wide growth in opportunity.
How to achieve system-wide growth in opportunity
- Such growth cannot be legislated from above. It must occur organically, from below.
- There are several stakeholders involved in such transition.
- 1) At the top are policymakers.
- Policymakers are trying and have achieved many things.
- In recent years, however, our demographics have caught up with us.
- We have more than 650 million people under age 25.
- No other country is close. We need more than policies.
- 2) Next is industry. It faces a learning curve for technology.
- Countries that wish to lead must develop their own technology, even at high cost.
- Indian industry can often choose between importing slightly older technology from outside or developing things in-house.
- A slow growth in the latter has begun and may pull our college system upward over time.
- 3) Our next stakeholders are college teachers.
- For a college to flourish, it needs many students who compete to enroll.
- Our entrance exams for good engineering colleges are hard.
- Our nationally renowned degree colleges which admit based on board marks are frequently forced to set very high cutoffs.
- The need for more engineering colleges, for many students who are clearly good enough, has led to the creation of several private colleges that teach well in large volumes.
- Quality of teachers’ is improving.
- College teachers improve as their employers aim higher, and as their students bring more into the classroom.
- 4) Finally, we have students. If students demand better instruction, colleges will sooner or later supply it.
Way forward for students
- Students must aim to relate their learning to society.
- They must see their learning not as an obstacle course but as an initiation into a process that yields tangible long-term value.
- Indian society does not merely have people looking for work.
- It also has work looking for people: Work in food, health, design, manufacturing, transport, safety, garbage, water, energy, farming, and a hundred other things that we can do better.
- Room for improvement is plentiful, though the market models may not be efficient or mature yet.
- The walls between our classrooms and our lives must be broken, if our colleges are to flourish.
- In recent decades, India has also attracted much work from overseas. Growth in that direction may well be sustained.
Consider the question “India has many colleges and institutions offering higher education but few could get the spot in the list of top global institutes. Examine the factors responsible for this. Suggest the measures to deal with this issue.”
Conclusion
Such change, driven by student aspirations, will be organic, bottom-up, and unstoppable.
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