Note4Students
From UPSC perspective, the following things are important :
Prelims level: MDR, IMPS, RTGS, NEFT
Mains level: Paper 3- Role of NPCI in transforming digital payment infrastructure in India
The article tracks the evolution of digital payments system in India and the transformational role played by the NPCI in it.
Adoption of digital payments in India
- Digital payments have found strong ground in India reducing all other modes of payments to the background.
- Through a faster system of simultaneous debits and credits, the money value is transferred from one account to the other across banks.
- With such versatility and ease of settling financial transactions, the growth of digital payments is going to be phenomenal, supported by banks and Fin-Tech companies.
Evolution of digital payments in India
- A major thrust toward large value payments was effected through the Real Time Gross Settlement System, or RTGS, launched by the RBI in March 2004.
- The large value payments on stock trading, government bond trading and other customer payments were covered under the RTGS.
- It substantially reduced the time taken for settlements.
- Around the same time, the RBI introduced National Electronic Funds Transfer, or NEFT to support retail payments.
- Now, NEFT is available round the clock and RTGS will follow from December 2020 — only a few countries have achieved this.
- These systems were seeded and reinforced with the setting up of the umbrella retail payments institution: National Payments Corporation of India (NPCI).
- NPCI was set up by 10 lead banks at the instance of the RBI in 2009.
- The NPCI as a not-for-profit company
How NPCI transformed retail payment systems in India
- The NPCI’s success against deeply entranced formidable international players, supported by innovative technology, viz. Unified Payments Interface (UPI) and Immediate Payment Service (IMPS), is well recognised by central banks in many other countries.
- The Bank for International Settlements’s endorsement of the NPCI model in 2019 is a major accolade.
- With digital payment being a public good like currency notes, it was necessary that the corporation was fully supported by the RBI and the government as an extended arm of the sovereign.
- It was also necessary to contain expectations on profits, avoiding direct or indirect control by powerful private interests could dilute the public good character of the outfit.
Issue of converting NPCI into for-profit
- Converting NPCI intro for-profit company will be a retrograde step with huge potential for loss of consumer surplus along with other strategic implications.
- Instead the strategy should be to assist the NPCI financially, either by the RBI or the government, to provide retail payment services at reduced price (in certain priority areas).
- This may also help support expansion of the payment system network and infrastructure in rural and semi-urban areas in partnership with Fin-Tech companies and banks.
Issue fo MDR
- In Budget 2020-21, the government prescribed zero Merchant Discount Rate (MDR) for RuPay and UPI, both NPCI products.
- Zero MDR on UPI and RuPay will help to popularise digital payments benefiting both customers and merchants.
- There is justification in this zero MDR prescription by the government.
- It is justified because depositors implicitly pay around 3% to banks as net interest margin, being the difference between saving and risk free bond rate, for enjoying certain payments services traditionally.
- When banks enjoy such a huge amount of current account savings account (CASA) deposits, in return, is it not incumbent on them to provide such payment services?
- The government left out other providers of digital payment products from this MDR prescription.
- Taking advantage of this dichotomy, many issuing banks switched to mainly Visa and Master cards for monetary gains.
- As customers were induced by such supplier banks, it created a kind of indirect market segmentation and cartel formation, though there is hardly any quality difference in payment products.
- It may be noted that even the European Central Bank imposed a ceiling on MDR for all, protecting consumer interest.
- It is hoped that the government will take corrective action in the next Budget to ensure a level playing field and to relieve the NPCI from such policy-induced market imperfection.
Pricing for digital payments
- The ideal pricing for digital payments products should be based on an analysis of-(i) producer surplus (ii) consumer surplus (i.e. gain or loss of utility due to pricing) (iii) social welfare for which we need cost-volume-price data.
- A factor which needs to be reckoned is the float funds digital payments allow (cash withdrawal is a drain on the banking system), which is a source of sizeable income for banks.
- The RBI will do well to study and arrive at a rational structure of pricing including MDR (possibly also penalty on default by customer).
Consider the question “Elaborate on how the NPCI has been successful in transforming the digital payment landscape in the country through innovations? What are the challenges facing retail payments infrastructures?”
Conclusion
Given that the digital payment system is like a national superhighway, for which the government has a crucial role to play in protecting consumers against exploitation.
Back2Basics: RTGS and NEFT
- With NEFT (National Electronic Funds Transfer)
you can transfer any amount to the recipient’s account in a one-on-one transfer basis.
- NEFT transactions don’t have a maximum limit for funds that can be transferred in a single day.
- The NEFT system is available round the clock throughout the year on all days (24x7x365).
- Funds are transferred in batches that are settled in 48 half-hourly time slots throughout the day.
- There is no maximum or minimum limit on the amount of funds that could be transferred through NEFT.
RTGS (Real Time Gross Settlement)
- Business owners can use RTGS when they need to transfer large amounts instantly.
- One advantage that RTGS has over the other methods is the transaction speed, since the entire amount is transferred in real time.
- The available hours for RTGS transactions vary based on the individual banks and their branches.
- There’s a minimum limit of Rs. 2 lakhs for RTGS transactions, and there’s no maximum limit as such.
What is MDR?
- The merchant discount rate (MDR) is charged to merchants for processing debit and credit card transactions.
- To accept debit and credit cards, merchants must set up this service and agree to the rate.
- The merchant discount rate is a fee, typically between 1%-3%, that merchants must consider when managing business costs
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: The offset clause
Mains level: Paper 3- Implications of dilutions of offset clause in defence procurement
The ‘offset clause’ could help the country achieve the technological expertise and consequently self-reliance. However, India recently relaxed some norms in the policy. The article discusses the stated reasons for tweaking and its implications for the defence manufacturing industry in India.
Context
- Recently, the government diluted the “offset” policy in defence procurement, reportedly in response to a Comptroller and Auditor General (CAG) of India’s report tabled in Parliament last month.
Let’s understand ‘offset’ policy
- In order to safeguard national interest, most countries restrict trade in defence equipment and advanced technologies.
- Yet, for commercial gains and for global technological recognition, governments and firms do like to expand the trade through negotiated bilateral sales.
- Restrictions are often imposed on the buyer country on use, modification and resale of such equipment and technologies.
- The product and technology compel buyers to stick to them for: the advantages of bulk purchase, and dependence on the supplier for spares and upgrades.
- The price and the terms of the contract often reflect the government’s relative bargaining strength and also domestic political and economic considerations.
- Large buyers such as India seek to exercise their “buying power” to secure not just the lowest price but also try to acquire the technology to upgrade domestic production and build R&D capabilities.
- The offset clause — used globally — is the instrument for securing these goals.
Changes in the offset policy
- Initiated in 2005, the offset clause has following requirements:
- 1) Sourcing 30% of the value of the contract domestically.
- 2) Indigenisation of production in a strict time frame.
- 3) Training Indian professionals in high-tech skills, for promoting domestic R&D.
- However, the policy has been tweaked many times since.
- According to the recent CAG report, between 2007 and 2018, the government reportedly signed 46 offset contracts worth ₹66,427 crore of investments.
- However, the realised investments were merely 8%, or worth ₹5,457 crore.
- Reportedly, technology transfer agreements in the offsets were not implemented, failing to accomplish the stated policy objective.
- Recently, the government has changed this policy further so that the offset clause will not be applicable to bilateral deals and deals with a single (monopoly) seller, to begin with.
Implications of the changes in offset policy
- The dilution means practically giving up the offset clause, and a setback to India’s prospects for boosting defence production and technological self-reliance.
- The government, however, has defended the decision by claiming a cost advantage.
- Howver, price is but one of many factors in such deals, as explained above.
- The higher (upfront) cost of the agreement due to the offset clause would pay for itself by: reducing costs in the long term by indigenisation of production and the potential technology spill-overs for domestic industry.
- Hence, giving up the offset clause is undoubtedly a severe setback.
How did offset policy work for aerospace industry?
- Despite the heft of Hindustan Aeronautics Limited, India is a lightweight in global civilian aircraft manufacturing, as the public sector giant mostly devotes itself to defence production.
- The National Civil Aircraft Development (NCAD) project — to come up with an indigenously designed Regional Transport Aircraft (RTA) — has remained a non-starter from day one.
- However, with the introduction of the offset policy in 2005, things changed dramatically.
- For contracts valued at ₹300 crore or more, 30% of it will result in offsets, implemented through Indian offset partners.
- As aerospace imports rose rapidly, so did the exports via the offsets, by a whopping 544% in 2007, compared to the previous year.
- By 2014, exports increased to $6.7 billion from a paltry $62.5 million in 2005, according to the United Nations Comtrade Database.
- The offset clause enabled India to join the league of the world’s top 10 aerospace exporters; the only country without a major domestic aerospace firm.
- However, exports reduced after the offset clause was relaxed, primarily when the threshold for the policy was raised from the hitherto ₹300 crore to ₹2000 crore, in 2016.
- The offset exports fell to $1.5 billion by 2019.
- The 2005 policy helped promote a vibrant aerospace cluster, mostly micro, small and medium enterprises (MSMEs) around Bengaluru.
Consider the question “How far has the offset clause been successful in enhancing the domestic capabilities of India in defence manufacturing? What are the challenges in achieving the objectives of the policy?”
Conclusion
There are successful examples to draw lessons from, as the aerospace industry episode demonstrates. India needs to re-conceive or re-imagine the offset clause in defence contracts with stricter enforcement of the deals, in national interest, and in order to aim for ‘Atma Nirbhar Bharat Abhiyaan’, or a self-reliant India.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Police reforms
The article highlights the challenges facing the police force in India and suggests the measures to deal with them.
Urgency of the police reforms
- In a well-ordered democracy, the police are supposed to be a disciplined force trained to uphold the law and enforce the functioning of democracy on constitutional lines.
- However, police in India suffers from a triad of malaises:
- 1) The lack of sensitisation of police personnel.
- 2) Absence of accountability.
- 3) Politicisation of the police.
Objectives of the reforms:
1) Police sensitisation about their role in society
- The sensitisation module should aim at bringing about attitudinal change in police — especially pertaining to gender and power relations and police behaviour.
- There has to be promptness of action and decency of behaviour.
- They need to be trained in body language and strictly advised to refrain from abusive behaviour.
- It is necessary to increase public confidence in the police by upgrading levels of police service delivery as well as by investigating and acting in cases of police misconduct.
2) Increasing accountability
- Public confidence in police decreases when the public perceives that police abuses are not investigated effectively.
- Enhancing accountability will improve police legitimacy and increase public confidence, which, in turn, will reinforce the integrity of the system.
- The Police Ombudsman of Northern Ireland, the Danish Independent Police Complaints Authority are some examples of mechanisms for accountability of the police for acts of abuse of power.
3) De-politicisation of the police
- Linked to accountability is de-politicisation of the police force.
- This is a must for the effective functioning of the country’s criminal justice system.
- The police, as the custodian of maintenance of law and order, must stay away from agenda-driven politics.
Need to resolve the structural issues
In order to achieve the above-stated objectives, structural issues within the force must be given priority.
1) Vacancies and fair representation to women
- According to a report by Common Cause in 2019, the Indian police force is at only 77 per cent of its sanctioned strength.
- India has 144 police personnel for one lakh population and, in some states, the figure is less than 100.
- One in every five posts sanctioned in the Indian Police Service remains vacant.
- In low and middle-rank posts, the vacancies of 5.28 lakh personnel account for nearly one-fourth of the total sanctioned strength of over 22 lakh.
- A fully-staffed police force would only increase India’s police-to-population ratio to 185 against the UN recommended ratio of 222.
- The police-to-people ratio should be improved by at least 50 per cent to meet the challenges faced by the force.
- Women are grossly underrepresented in our police force at less than 7 per cent of our total police strength.
- With the increase in the number of gender crimes, it has become a necessity to augment the strength of police by recruiting more and more women police personnel.
- The situation in Uttar Pradesh is the worst where police are at roughly 50 per cent of sanctioned strength.
- When the numbers are inadequate, police personnel are stretched, leading to shoddy policing.
2) Lack of in-service training
- The existing police personnel are also not adequately trained. Less than 7 per cent police get in-service training.
- Gujarat scores the lowest, with less than one per cent having received any in-service training.
3) Implementation of guidelines and recommendations
- After the National Police Commission in 1977, several committees were set up, including the Gore Committee, Padmanabhaiah Committee and Malimath Committee.
- These commissions and committees have made far-reaching recommendations.
- The top police leadership should be selected by apolitical representatives and an impartial body as suggested by Dharma Vira Commission have farsighted implications.
- It was a strong antidote to opportunistic appointments and transfers.
- Recommendations of the commission, if implemented, along with the Supreme Court directives of 2006 by Justice Sabharwal, in true letter and spirit, will go a long way in police reform.
4) Reforms in criminal justice system
- Reforms in the criminal justice system and separation of law and order from investigation and prosecution are the other areas that need the attention of the authorities.
- These aspects have been highlighted by many commissions and committees constituted by the Centre.
Consider the question “What are the challenges facing the police force in the country? Suggest the measures to deal with these challenges.”
Conclusion
A new role and new philosophy have to be defined for the police to not only make it a capable and effective body but also one accountable to the law of the land and to the people whom they serve.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: BBIN, SAARC
Mains level: Paper 2- Economic progress of Bangladesh and its implications for the subcontinent
Bangladesh is expected to cross India in terms per capita income. This speaks volumes about the achievements of Bangladesh when contrasted with Pakistan. At the same time, it has several implications for the region. The elaborates on such implications.
What other countries can learn from Bangladesh
- The International Monetary Fund’s latest World Economic Outlook published recently predicts that Bangladesh’s per capita GDP will overtake that of India this year.
- The projected difference is rather small — $1,888 to $1,877 — and unlikely to last beyond this year.
- International development institutions are convinced that the rest of the subcontinent and developing countries around the world can learn much from Dhaka’s experience — the so-called “Bangladesh model”.
5 Implications for the region
1) Rising global interest in the subcontinent
- Rapid and sustained economic growth in Bangladesh has begun to alter the world’s perception of the subcontinent.
- India and Pakistan dominated the region and other countries were considered small.
- But Bangladesh was far from being small, demographically it’s the eighth-largest nation in the world.
- The economic rise of Bangladesh is changing some of that.
2) Changing economic weights of Bangladesh and Pakistan
- This year, Bangladesh’s GDP is expected to reach about $320 billion.
- The IMF did not have the 2020 numbers from Pakistan to report but in 2019, Pakistan’s economy was at $275 billion.
- The IMF suggests that Pakistan’s economy will contract further this year.
- Bangladesh has controlled its population growth and Pakistan has not.
- Dhaka has a grip over its inflation and Islamabad does not.
- There is no question that Pakistan’s negative geopolitical weight in the world will endure.
- But Bangladesh’s growing economic muscle will help Dhaka steadily accumulate geopolitical salience in the years ahead.
3) Accelerate regional integration
- Bangladesh’s economic growth can accelerate regional integration in the eastern subcontinent.
- The region’s prospects for a collective economic advance are rather dim.
- Due to Pakistan’s opposition to economic cooperation with India and its support for cross-border terror, the main regional forum for the subcontinent, the South Asian Association for Regional Cooperation (Saarc), is dormant.
- Instead of merely praying for the revival of Saarc, Delhi could usefully focus on the BBIN.
- BBIN is sub-regional forum among Bangladesh, Bhutan, India and Nepal, activated in the middle of last decade — has not advanced fast enough.
- It is time for Delhi and Dhaka to take a fresh look at the forum and find ways to widen the scope and pace of BBIN activity.
- Meanwhile, there is growing interest in Bhutan and Nepal for economic integration with Bangladesh.
4) Increasing importance of Bangladesh in geopolitics of Indo-Pacific
- The economic success of Bangladesh is drawing attention from a range of countries in East Asia, including China, Japan, South Korea, and Singapore.
- The US, which traditionally focused on India and Pakistan, has woken up to the possibilities in Bangladesh.
- Bangladesh does not want to get into the fight between Beijing and Washington, but the great power wooing of Dhaka is bound to intensify in the new geopolitics of the Indo-Pacific.
5) Development of India’s eastern and north-eastern states could accelerate
- Bangladesh’s economy is now one-and-a-half times as large as that of West Bengal; better integration between the two would provide a huge boost for eastern India.
- Also, connectivity between India’s landlocked Northeast and Bangladesh would provide a boost to the development of north-eastern states.
- Delhi and Dhaka are eager to promote greater cooperation, but there has been little political enthusiasm in Kolkata.
- In Assam, the issue of migration continues to impose major political constraints.
Way forward
- Parliamentary approval of the boundary settlement in 2015, despite the opposition, was a step in the right direction from India.
- So was the acceptance of the 2014 international arbitration award on the maritime boundary dispute between India and Bangladesh.
- But the positive dynamic surrounding the bilateral relationship acquired a negative tone in the second amidst the poisonous rhetoric in India around the Citizenship Amendment Act.
- There is much room for course correction in Delhi and to shift the focus from legacy issues to future possibilities.
Conclusion
Both the countries need to jointly develop and pursue with Dhaka an ambitious framework for shared prosperity.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Doha Accord
Mains level: Paper 3- Threat of terrorism
We have been spared of some unfortunate news of terrorist attacks in the recent past, however, it would be mistake to discount the threat posed by the terrorist organisations especially when we consider the backdrop of Doha Accord. The article deals with the threat of terrorism.
Declining support
- Terrorist organisations like Taliban, al-Qaeda, Islamic State, Lashkar-e-Taiba (LeT) and Jaish-e-Mohammed (JeM) have been dormant during a pandemic.
- This is partly explained by the fact that open terror attacks have been reducing, presumably because:
- 1) Terror outfits lack resources.
- 2) Because of temporary loss of support from those normally hostile to the non-Islamic world and tolerant Muslims.
- However, given their past resilience, they continue to pose threats to modern society, especially to India and its neighbourhood.
But threat persists
- These terrorist organisations continue to be attractive to misguided youth in India whose loyalties are extraterritorial.
- Their numbers may not be formidable, but they can cause a ripple effect that cannot be underestimated.
- Terrorist cells are probably engaged in the quiet process of collecting resources for future lethal assaults against India and other countries in the neighbourhood.
- Once the pandemic eases, we may see a resurgence of terror.
- The aggravation of poverty in developing nations due to COVID-19 could offer a fertile ground for recruitment.
- The al-Qaeda and the Islamic State are carrying out their recruitment undiminished by the problems posed by the pandemic.
- Only these two outfits have an impressive global reach backed by global ambitions.
What are the implications of Doha Accord?
- The Doha Accord signed this year between the Taliban and the U.S., which has brought about an improved relationship between the two.
- The U.S. has agreed to a near-total withdrawal of its troops in return for the Taliban’s promise to preserve peace in Afghanistan.
- The Taliban and the al-Qaeda need each other in many areas.
- Both are friendly towards Pakistan and could pose a problem or two to India in the near future.
- Many recent raids by the National Investigation Agency point to an al-Qaeda network in India.
- Once the situation gets better, the al-Qaeda, in cahoots with other aggressive Islamic outfits in and around Pakistan, is bound to escalate the offensive against India.
- This is one factor that makes the al-Qaeda and other terror outfits still relevant to India’s security calculus.
Consider the question “What are the implications of Doha Acord for India’s security architecture?”
Conclusion
The threat posed by the changing geopolitical landscape is bound to increase in the coming days and hence India should prepare itself to tackle the challenge.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Regulatory sandbox
Mains level: Paper 3- Regulatory sandbox
The International Financial Services Centres Authority (IFSCA) has introduced a framework for Regulatory Sandbox to tap into innovative Fin-tech solutions.
Try answering this simple question:
Q.What is Regulatory Sandbox? What are its salient features?
Regulatory Sandbox
- A regulatory sandbox usually refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may permit certain regulatory relaxations for the limited purpose of the testing.
- The objective of the sandbox is to foster responsible innovation in financial services, promote efficiency and bring benefit to consumers.
- It 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.
Its inception
- 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.
What is the new framework?
- IFSCA has introduced a framework for “Regulatory Sandbox”.
Under this Sandbox framework, entities operating in the capital market, banking, insurance and financial services space shall be granted certain facilities and flexibilities.
- It will experiment with innovative FinTech solutions in a live environment with a limited set of real customers for a limited time frame.
- These features shall be fortified with necessary safeguards for investor protection and risk mitigation. The Regulatory Sandbox shall operate within the IFSC located at GIFT City (Gandhinagar).
- IFSCA shall assess the applications and extend suitable regulatory relaxations to commence limited purpose testing in the Sandbox.
Other propositions
- As additional steps towards creating an innovation-centric ecosystem, the IFSCA has proposed the creation of an “Innovation Sandbox”.
- It will be a testing environment where Fin-tech firms can test their solutions in isolation from the live market.
- This would be based on market related data made available by the Market Infrastructure Institutions (MIIs) operating in the IFSC.
- The Innovation Sandbox will be managed and facilitated by the MIIs operating within the IFSC.
Back2Basics: GIFT City, Gandhinagar
- GIFT city is India’s first operational smart city and international financial services centre (much like a modern IT park).
- The idea for GIFT was conceived during the Vibrant Gujarat Global Investor Summit 2007 and the initial planning was done by East China Architectural Design & Research Institute (ECADI).
- Currently approximately 225 units/companies are operational with more than 12000 professionals employed in the City.
- The entire city is based on concept of FTTX (Fibre to the home / office).The fiber optic is laid in fault tolerant ring architecture so as to ensure maximum uptime of services.
- Every building in GIFT City is an intelligent building. There is piped supply of cooking gas. India’s first city-level DCS (district cooling system) is also operational at GIFT City.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: District Development Councils
Mains level: Paper 2- DDCs in J and K
The Centre has amended the Jammu and Kashmir Panchayati Raj Act, 1989, to facilitate the setting up of District Development Councils (DDC).
Tap to read more about: Reorganization of J&K
What are DDCs?
- DDCs structure will include a DDC and a District Planning Committee (DPC).
- The J&K administration has also amended the J&K Panchayati Raj Rules, 1996, to provide for establishment of elected District Development Councils in J&K.
- This system effectively replaces the District Planning and Development Boards in all districts, and will prepare and approve district plans and capital expenditure.
Composition of DDCs
- Their key feature, however, is that the DDCs will have elected representatives from each district.
- Their number has been specified at 14 elected members per district representing its rural areas, alongside the Members of
- Legislative Assembly chairpersons of all Block Development Councils within the district.
Term of reference
- The term of the DDC will be five years, and the electoral process will allow for reservations for Scheduled Castes, Scheduled Tribes and women.
- The Additional District Development Commissioner (or the Additional DC) of the district shall be the Chief Executive Officer of the District Development Council.
- The council, as stated in the Act, will hold at least four “general meetings” in a year, one in each quarter.
What will be the process here onward?
- The 14 constituencies for electing representatives to the DDC will have to be delimited.
- These constituencies will be carved out of the rural areas of the district, and elected members will subsequently elect a chairperson and a vice-chairperson of the DDC from among themselves.
Within the third tier, where do the DDCs fit in?
- The DDCs replace the District Planning and Development Boards (DDBs) that were headed by a cabinet minister of the erstwhile state of Jammu and Kashmir.
- For Jammu and Srinagar districts, as winter and summer capitals, the DDBs were headed by the Chief Minister.
However, for Leh and Kargil districts, the Autonomous Hill Development Councils performed the functions designated for the DDBs.
How will DPC work, then?
- For every district there will be DPC comprising MPs representing the area, Members of the State Legislature representing the areas within the District etc. among others.
- The MP will function as the chairperson of this committee.
- The committee will “consider and guide” the formulation of development programmes for the district.
- It would indicate priorities for various schemes and consider issues relating to the speedy development and economic uplift of the district.
- It would function as a working group for formulation of periodic and annual plans for the district; and formulate and finalise the plan and non-plan budget for the district.
Centre’s objective behind this new structure
- The J&K administration in a statement said that the move to have an elected third tier of the Panchayati Raj institution marks the implementation of the entire 73rd Amendment Act in J&K.
- The idea is that systems that had been made defunct by earlier J&K governments such as the panchayati raj system are being revived under the Centre’s rule in the state through the Lieutenant Governor’s administration.
- In the absence of elected representatives in the UT, senior government officials argue that DDCs will effectively become representative bodies for development at the grassroots in the 20 districts of the UT.
- They hope that this may draw some former legislators in as well.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Constitutional provisions related to the Governor
Mains level: Paper 2- Misuse of discretionary power by the Governor
The article deals with the role of Governor in the state and issue of misuse of discretionary power vested in him.
Constitutional provision related to Governor
- Various Raj Bhavans have become embroiled in controversies over the decade.
- This is partly because the Constitution of India does allow a certain discretion to the Governor.
- And a discretion invariably does get abused.
- The framers of the Constitution had rejected an elected Governor because they were unambiguously clear that political power would only be vested with elected executives.
- Yet, they were not inclined to put in a formal Instrument of Instructions for the Governors and were content to believe that political decencies and correctness would be observed both by the Governor and the Chief Minister.
As the distinguished constitutional expert, Nani A. Palkhivala explained it “the Constitution intended that the Governor should be the instrument to maintain the fundamental equilibrium of the people of the State and to ensure that the mandates of the Constitution are respected in the State”.
Misuse of ‘discretion’ by Governors
- As an appointee of the Union Government, the Governors have been prone to act on the instructions by ruling party at the Centre.
- Inevitably the “discretion” in choosing a Chief Minister, or requiring a Chief Minister to prove his/her majority, or dismissing a Chief Minister, dissolving the legislature, recommending President’s Rule — came to be tainted with partisan political considerations.
- More often than not, the governor’s discretion was abused, sometimes absurdly, even whimsically.
- In the S.R. Bommai case, the Supreme Court did try through its judgment to prevent the misuse of power.
Conclusion
The guidelines given in the S.R. Bommai case should be adhered to by the Governor and should avoid conflict with the elected governments in the States.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Police reforms
The police have been in the news for incidents involving violence and killings. These instances points to the urgent need for the implementation of the Supreme Court directives given in the Prakash Singh case. The article deals with the issues of delay in the implementation.
Need for immediate remedial measures
- Police has been in the news for incidents involving police brutalities like thrashing of a Dalit Ahirwar couple by the police Madhya Pradesh, torture and killing of father-son duo in Tamil Nadu and killing of gangster in UP.
- These incidents and several others show that we need immediate remedial measures.
Past attempts for police reforms
- The first serious attempt was when the National Police Commission (NPC) was set up in 1977.
- The NPC submitted eight reports to the Ministry of Home Affairs between 1979 and 1981.
- Seven of these reports were circulated to the States in 1983.
Prakash Sing Case
- No action was taken on the reports of the reports until 1996.
- In 1996 Prakash Singh, a retired IPS officer, filed a PIL in the apex court in 1996 demanding the implementation of the NPC’s recommendations.
- In 2006, the Supreme Court issued a slew of directives on police reform.
Status of implementation of directives by Staes
- The one directive that would hurt the most is the setting up of a State Security Commission (SSC) in each State.
- State Security Commission would divest the political leaders of the unbridled power that they wield at present.
- Of the States that constituted an SSC, only Andhra Pradesh and Karnataka have made SSC recommendations binding on the State government.
- Only six States provided a minimum tenure of two years to the Director General of Police (DGP).
- Many States have not implemented a single directive of the Supreme Court.
Way forward
- Expecting political will to implement police reforms is difficult to come by, it is for the judiciary to step in and enforce the directives it had passed.
- Fourteen years is too long a period for any further relaxation.
- The Court has to ensure that its directives are not dismissed lightly.
Consider the question “What are the issues facing police administration? What are the reasons for lack of full implementation of the directives given by the Supreme Court in the Prakash Singh case?
Conclusion
A bold step towards bringing down crimes is possible only when the politicians-criminals-police nexus is strangled.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
The article analyses some trends in India’s population growth as found in the Sample Registration System Statistical Report (2018).
Context
- There have been some encouraging trends in India’s population in the Sample Registration System (SRS) Statistical Report (2018) and global population projections made by the Institute of Health Metrics and Evaluation (IHME), US.
Declining TFR
- SRS report estimated the Total Fertility Rate (TFR), the number of children a mother would have at the current pattern of fertility during her lifetime, as 2.2 in the year 2018.
- It is estimated that replacement TFR of 2.1 would soon be, if not already, reached for India as a whole.
- As fertility declines, so does the population growth rate.
- This report estimated the natural annual population growth rate to be 1.38 per cent in 2018.
- A comparison of 2011 and 2018 SRS statistical reports shows that TFR declined from 2.4 to 2.2 during this period.
- Fertility declined in all major states.
- In 2011, 10 states had a fertility rate below the replacement rate. This increased to 14 states.
- The annual natural population growth rate also declined from 1.47 to 1.38 per cent during this period.
So, when will India’s population stabilise
- Duet to population momentum effect, a result of more people entering the reproductive age group of 15-49 years due to the past high-level of fertility, population stabilisation will take some time.
- The UN Population Division has estimated that India’s population would possibly peak at 161 crore around 2061.
- Recently, IHME estimated that it will peak at 160 crore in 2048.
- Some of this momentum effect can be mitigated if young people delay childbearing and space their children.
Factors affecting fertility rates
- Fertility largely depends upon social setting and programme strength.
- Programme strength is indicated by the unmet need for contraception, which has several components.
- The National Family Health Survey (2015-16) provides us estimates for the unmet need at 12.9 per cent and contraceptive prevalence of 53.5 per cent for India.
- Female education is a key indicator for social setting, higher the female education level, lower the fertility.
- As the literacy of women in the reproductive age group is improving rapidly, we can be sanguine about continued fertility reduction.
Declining sex ratio at birth: Cause for concerrn
- The SRS reports show that sex ratio at birth in India, measured as the number of females per 1,000 males, declined marginally from 906 in 2011 to 899 in 2018.
- Biologically normal sex ratio at birth is 950 females to 1,000 males.
- The UNFPA State of World Population 2020 estimated the sex ratio at birth in India as 910, lower than all the countries in the world except China.
- This is a cause for concern for following 2 reasons:
- 1) This adverse ratio results in a gross imbalance in the number of men and women.
- 2) Impact on marriage systems as well as other harms to women.
- Increasing female education and economic prosperity help to improve the ratio.
- It is hoped that a balanced sex ratio at birth could be realised over time, although this does not seem to be happening during the period 2011-18.
Conclusion
In conclusion, there is an urgent need to reach young people both for reproductive health education and services as well as to cultivate gender equity norms. This could reduce the effect of population momentum and accelerate progress towards reaching a more normal sex-ratio at birth. India’s population future depends on it.
Back2Basics: Total Fertility Rate and Replacement rate
- Total fertility rate (TFR) in simple terms refers to total number of children born or likely to be born to a woman in her life time if she were subject to the prevailing rate of age-specific fertility in the population.
- TFR of about 2.1 children per woman is called Replacement-level fertility (UN, Population Division).
- This value represents the average number of children a woman would need to have to reproduce herself by bearing a daughter who survives to childbearing age.
- If replacement level fertility is sustained over a sufficiently long period, each generation will exactly replace itself without any need for the country to balance the population by international migration.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Various UN bodies
Mains level: Paper 2- Opportunity for India to push for institutional changes at the UN
The article analyses the changing geopolitical context against the background of the pandemic. China has been facing some challenges at the UN of late. Multilateralism faces an unprecedented crisis. This context provides an opportunity for India to push for reforms in international institutions.
China facing difficulty in elections to UN bodies
- Recently, India besting China in the elections for a seat on the UN’s Commission on the Status of Women (CSW).
- Soon after the CSW vote, it lost another election, this time to tiny Samoa for a seat on the UN Statistical Commission.
- And a couple of days ago, it just about managed to get elected to the UN High Rights Council, coming fourth out of five contestants for four vacancies.
- Earlier, China’s candidate had lost to a Singaporean in the race for DG World Intellectual Property Organization.
China’s strengths
- Taking advantage of its position as a member of the P-5 and as a huge aid giver, China made itself invincible in UN elections.
- It won among others, the top positions at the Food and Agriculture Organization (FAO), the UN Industrial Development Organization (UNIDO), the International Telecommunication Union (ITU) and the International Civil Aviation Organization (ICAO).
Historical background on China’s rise at the UN
- World War II saw strong U.S.-China collaboration against the Japanese, including U.S. operations conducted from India.
- Their bilateral ties saw the U.S. include the Chinese in a group of the most important countries for ensuring world peace post- World War II, along with the U.S., the USSR and the U.K.
- This enlarged into the P-5, with France being added by the UK at the San Francisco conference held in 1945 where the UN charter was finalised.
- The pure multilateralism of the League of Nations was thus infused with a multipolarity, with the U.S. as the sheet anchor.
Challenges to multilateralism and the need for reform in the international institutions
- Multilateralism is under stress due to COVID-19 pandemic and a certain disenchantment with globalisation.
- At the root is the rise of China and its challenge to U.S. global hegemony.
- But in the current scenario multilateralism backed by strong multipolarity in the need of the hour.
- This demands institutional reform in the UN Security Council (UNSC) and at the Bretton Woods Institutions.
- In this context, it is good that recently India, Germany, Japan and Brazil (G-4) have sought to refocus the UN on UNSC reform.
- As proponents of reform, they must remain focused and determined even if these changes do not happen easily or come soon.
- This is also the way forward for India which is not yet in the front row.
Way forward
- Earlier in the year, India was elected as a non-permanent member of the UNSC for a two-year term.
- India will also host the BRICS Summit next year and G-20 Summit in 2022.
- These are openings for India in collaborating the world in critical areas that require global cooperation especially climate change, pandemics and counter-terrorism.
- India also needs to invest in the UN with increased financial contributions in line with its share of the world economy and by placing its people in key multilateral positions.
Consider the question “The UN, which came into existence in different time fails to take into account the realities of the changing world. In light of this, examine the basis of India’s claim to a permanent seat at the UN. What are the challenges to India’s claim.”
Conclusion
Against the backdrop of pandemic and subsequent pushback against China at the UN, it is also an opportune moment for India and a Reformed Multilateralism.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Criteria for MSMEs
Mains level: Paper 3- Formalisation of MSMEs
The lack of formalisation has several implications for MSMEs. Registering them could help them in various ways. The article deals with the issue of formalisation.
Please read the link shared below for issues related to MSME
The missing large in MSMEs
Steps taken by Government to Formalize MSME
- UAM: In 2015, the government notified the Udyog Aadhaar Memorandum (UAM), an online filing system for MSMEs.
- As of January, 86 lakh MSMEs had registered on the UAM portal.
- In 2016, the government notified rules under which MSMEs had to furnish information relating to their enterprises, online, in an MSME databank.
- As of January, only 1.6 lakh units registered on it.
- A new process of classification and registration for small businesses took off on July 1 called as “Udyam”.
- As of October 1, the MSME ministry has confirmed that only 7 lakh registrations have taken place using the new system.Nudge by the government
- In an attempt to nudge more enterprises to become lifetime Udyam, the government has integrated the system with the Trade Receivables Electronic Discounting System (TReDS) and the Government e-Marketplace (GeM).
- In its updated Priority Sector Lending (PSL) guidelines, the RBI has established that for the purposes of PSL, MSMEs will be identified as per the gazette notification laying down the new process of classification and registration.
Addressing the concerns
- While the Udyam initiative holds more promise, it is important to assess if this will be detrimental to accessing formal finance.
- To this end, the government and RBI should consider whether the registration requirement can be exempted for units with investment and turnover that falls in the lower end of the criteria.
- In 2018, the International Finance Corporation estimated that the overall supply of finance from formal sources met only one-third of the credit demand of the MSME sector.
- Enabling strategies such as PSL could provide a fillip to priority sectors including MSMEs which require increased formal financing.
Conclusion
The costs of formalisation and compliance are high and onerous in many states in India. In such an ecosystem, there are perverse incentives to remaining small and informal. Governments’ efforts towards formalisation should be directed towards addressing these issues.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Need for multilateralism
Multilateralism faces several challenges at the time when it is needed the most. The article highlights the need for more of it in the face of global challenges.
Lack of international collaboration to deal with Covid
- As COVID-19 recognises no boundaries, one would have expected that countries with technological and financial capabilities, would agree to pool their resources together to work on an effective and affordable anti-virus vaccine.
- Instead, there are several parallel national efforts underway even as the World Health Organization (WHO) has put together a Covax alliance for the same purpose.
- Active collaboration would have enhanced our collective ability to overcome what has become a public health-cum-economic crisis.
- But we live in an era when nationalist urges, fuelled by a political opportunism, diminish the appeal of international cooperation.
- The post-pandemic world will have the awful dilemma of global integration without solidarity.
Trends in the global order that suggests the need for multilateralims
1) Global food crisis
- The World Food Program has been awarded this year’s Noble Peace Prize.
- The award is sending a message to the world — that we need multilateralism as an expression of international solidarity.
- According to the WFP, 132 million more people could become malnourished as a consequence of the pandemic.
- To the 690 million people who go to bed each night on an empty stomach, perhaps another 100 million or more will be added.
- The Nobel Prize to the WFP will hopefully nudge our collective conscience to come together and relieve this looming humanitarian crisis.
2) Despite issues, U.N. is still important
- The United Nations is at the centre of multilateral institutions and processes and kept alive the notion of international solidarity and cooperation.
- But it suffers from several disabilities due to the fault of its most powerful member countries.
- They have deprived the UN of resources.
- They have resisted efforts to institute long-overdue reforms.
- Its structure no longer reflects the changes in power equations that have taken place and country such as India continues to be denied permanent membership of the Security Council.
- And yet, the UN is now an essential part of the fabric of international relations for two reasons:
- 1) The salience of global issues has expanded.
- 2) The need for multilateral approaches in finding solutions has greatly increased.
3) Multilateral institutions have become platform for contestation
- In the network of multilateral institutions, several belong to the UN system, others are inter-governmental, still others may be non-governmental of a hybrid character.
- This network performs two important tasks:
- 1) Enable governance in areas which require coordination among nation-states.
- 2) Set norms to regulate the behaviour of states so as to avoid conflict and to ensure both equitable burden-sharing and, equally, a fair distribution of benefits.
- While there are multilateral institutions they have become platforms for contestations among their member states.
- There is recognition of the need to cooperate but this is seen as a compulsion rather than desirable.
4) Globalisation driven by technology will remain here
- Globalisation may have stalled, but as we become increasingly digitised, there will be more, not less, globalisation.
- The pandemic has triggered galloping globalisation in the digital economy.
- Globalisation is driven by technology and as long as the technology remains the key driver of economic growth, there is no escape from globalisation.
- In the contemporary world, the line separating the domestic from the external has become increasingly blurred.
- In tackling domestic challenges deeper external engagement is often indispensable. This is certainly true of climate change.
- The pandemic originated in a third country but soon raged across national borders.
- If there had been a robust and truly global early warning system, perhaps it could have been contained.
5) Interconnectedness of challenges
- We must also take into account the inter-connectedness among various challenges, for example, food, energy and water security are inter-linked with strong feedback loops.
- Enhancing food security may lead to diminished water and energy security.
- It may also have collateral impact on health security.
- It is in recognition of these inter-connections that the international community agreed on a set of Sustainable Development Goals (SDGs).
- The SDGs are cross-domain but also cross-national in character, and hence demand greater multilateral cooperation in order to succeed.
6) Need for more democratic world
- The lack of cooperation from even a single state may frustrate success in tackling a global challenge.
- A fresh pandemic may erupt in any remote corner of the world and spread throughout the globe.
- Prevention cannot be achieved through coercion, only through cooperation. It is only multilateralism that makes this possible.
Conclusion
It is a paradox that precisely at a time when the salience of cross-national and global challenges has significantly increased, nation-states are less willing to cooperate and collaborate in tackling them. So, there is a need for more of multilateralism to deal with the issues of global level.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Inflation targeting mechanism
Mains level: Paper 3- Issues with the inflation targeting mechanism of the RBI
The article analyses the recent changes signalled by the RBI in its policymaking.
Changes in the economic policymaking
- Recently the U.S. Fed declared that the Fed will not let inflation stand in the way of maximising employment.
- The reason for this was that the Phillips Curve, the relationship between inflation and unemployment, may no longer hold in the U.S. economy.
- This is significant, given that the Anglo-American economics has been dominated by Phillips Curve.
Why there was need for change in inflation targeting
- Data show that the model that currently guides India’s inflation control strategy may be quite irrelevant.
- This is seen in the recent behaviour of inflation.
- We know that output contracted by more than 23% in the first quarter of this year.
- Despite this staggering decline the inflation rate did not change,
- This was contrary to experience that inflation reflects an ‘over heating’ economy, one growing too fast in relation to its potential.
- This view represents the RBI’s official understanding of inflation, and presumably forms the basis of its policy of inflation targeting.
- It was endorsed by the Government of India when it legislated the modern monetary policy framework to enable the RBI to pursue inflation targeting.
- If the Phillips Curve, which the RBI’s approach internalises, exists, inflation should have decreased as India’s economy contracted during the lockdown.
- The current inflation targeting mechanism had been imagined with developing economies in mind.
- Inflation targeting mechanism is based on the idea that food prices are an important determinant of inflation along with imported inflation.
- Accordingly, a macroeconomic contraction need not lower inflation.
Role of food prices in India
- A recent working paper of the RBI’s research department suggested that a more eclectic model than the one that underlies inflation targeting does a better job of forecasting inflation in India.
- This model accepts a role for food prices, a possibility that is missed when embracing economic models developed in the western hemisphere, where food prices have stopped trending upwards over half a century ago.
Conclusion
The RBI shifting away from its rigid inflation targeting policy is in tune with the time and signals that the central bank is finally alive to India’s economy.
Back2Basics: What is Philips Curve?
- The Phillips curve is an economic concept, stating that inflation and unemployment have a stable and inverse relationship.
- The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.
- However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Export led growth
Mains level: Paper 3- Contribution of export in the growth
To aim for achieving high growth rate by focusing only on the domestic consumption and domestic demand could result in failure. The article argues for the focus on export to achieve the objective of growth.
Domestic-demand led growth and its limitations
- The debate in India has focused on domestic-demand led growth.
- But there is no known model of domestic demand/consumption-led growth, anywhere that has delivered quick, sustained, and high rates of economic growth for developing countries.
- India’s GDP growth of over 6 per cent after 1991 was associated with real export growth of about 11 per cent.
- Moreover, domestic-demand led growth requires more public spending, tax cuts, private investment, and/or financial sector reforms: which is not feasible in the present context due to pandemic.
- Consumption growth will be limited by the fact that household debt has grown rapidly in the last few years.
- Consumption now can grow only if incomes grow.
- Government spending could be a short run option, but COVID has limited that possibility.
Why India should not follow advanced countries’ fiscal policies
- India’s interest rates are not at zero and are unlikely to be so because of persistent inflation.
- India’s borrowing is still considered risky which is reflected in ratings.
- The favourable interest rate-growth differential that supports expansionary policy in the advanced countries is absent in India.
- India may well have scope for expansionary fiscal policy in the short run but not as a medium run growth strategy.
Why India should focus on export
- Given all the above factors, India does not have the luxury of abandoning export orientation because the alternatives are so limited.
- India’s market is too small to sustain any kind of serious import substitution strategy.
- Small size of the market makes it difficult to offer investors the domestic market as bait and incentivising them to export.
- India’s big, unexploited opportunities are in unskilled labour exports.
- India is vastly under-exporting relative to its labour force.
- Because China’s wages are rising as it has become richer, it has vacated about $140 billion in exports in unskilled-labour intensive sectors.
- Post-COVID, the move of investors away from China will probably accelerate to hedge against supply chain disruptions.
- India did not take advantage of the first China opportunity, now, a second opportunity stemming from geo-politics should be seized by India.
- As India contemplates atmanirbharta, two deeper advantages of export orientation are always worth remembering.
- 1) Foreign demand will always be bigger than domestic demand for any country.
- 2) If domestic producers are competitive internationally, they will be competitive domestically and domestic consumers and firms will also benefit.
Why openness of ecnonomy is important
- Exploiting this opportunity in unskilled exports requires more not less openness.
- To be internationally competitive, many parts and components have to be imported from so many different sources.
- One indicator is the foreign or import contribution to exports.
- China and Vietnam at the time of their export boom in textiles and clothing suggests that exports were highly dependent on imports (between 40 and 45 per cent).
- In contrast, India’s import share is about 16 per cent.
- Achieving Chinese and Vietnamese levels of success will therefore require greater imports and openness.
Way forward
- Export success will require genuine easing of costs of trading and doing business in India.
- In the case of clothing, a key policy change in India will be to eliminate tariffs on all inputs.
- It will also require signing free trade agreements with Europe that still impose high duties on India’s clothing export, while Bangladeshi and Vietnamese exports which enjoy preferential access to world markets.
Consider the question “As India contemplates atmanirbharta, we should not forget that export dynamism is essential for the rapid and sustained high economic growth. Comment.”
Conclusion
In sum, resisting the misleading allure of the domestic market, India should zealously boost export performance and deploy all means to achieve that. Pursuing rapid export growth in manufacturing and services should be an obsession with self-evident justification.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: The Quad
Mains level: Paper 2- Fourth factors the Quad must consider about Asia
The article highlights the 4 issues related to the history and geopolitics of Asian that the Quad members should pay attention to while formulating the future course of action.
The 4 factors
If the Quad is to prosper as a geopolitical construct, it would do well to heed four lessons drawn from the long arc of Asia’s history and geopolitics.
1) Lack of existence of Indo-Pacific system
- There has never been Indo-Pacific system ever since the rise of the port-based kingdoms of Indochina in the first half of the second millennium.
- There were two Asian systems — an Indian Ocean system and an East Asian system — with intricate sub-regional balances.
- The effort by a U.S. to artificially manufacture to combine the Indo and the Pacific into a unitary system is unlikely to succeed.
2) Lack of peaceful existence dominated by any power
- The Indo-Pacific region possesses no prior experience of long period of peace, prosperity and stability engineered from its maritime fringes.
- Rather, dynamic long cycles of Chinese influence radiating outwards have alternated with sharp periods of turmoil.
- The of ASEAN-centred multilateralism is more in tune with regional tradition and historical circumstance.
- For their part, the Indo-Pacific’s ‘flanking powers’, India and Japan, have never balanced Chinese power throughout their illustrious histories.
3) India must use its leverage judiciously
- The sea lines of communication constitute the important links connecting Indian Ocean to the Western Pacific.
- It is also a valuable arena of leverage vis-à-vis Chinese shipping and resource flows.
- This leverage must be wielded judiciously on India’s terms, not on the Quad’s terms.
- The Quad, after all, has little to offer materially with regard to New Delhi’s continental two-front dilemma.
- However, ceding this chokepoint leverage will invite overwhelming Chinese pressure against the full range of India’s South Asian interests — to which the other Quad members possess neither will nor desire to answer.
4) Check on China’s India Ocean Ambitions
- The Quad has a valuable role to play as a check on China’s Indian Ocean ambitions.
- India must develop ingrained habits of interoperable cooperation with its Quad partners.
- This interoperable cooperation could pre-emptively dissuade China from mounting a naval challenge in its backyard.
Conclusion
The Quad must consider these factors while formulating the future course of action.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Bond markets, SLR
Mains level: Paper 3- Issues with the financial markets in India
The article discusses the themes of the recently published books by Viral Acharya and Urjit Patel. Both the books deal with the issues with the financial markets in India
Context
- Two recently published books by Viral Acharya and Urjit Patel throws light on the issues with India’s finance market and role of RBI and the government.
Importance of financial markets
- Banks along with bond and equity markets oversee the matching of savers with borrowers.
- Without financial markets, businesses would be restricted to investing out of retained earnings alone.
- The financial markets have to satisfy the return appetites of savers while minimising their risk exposure.
Undue preference to fiscal interest of the government
- A major theme of Acharya’s book is the rampant subjugation of the financial and monetary infrastructure to the fiscal interests of the government.
- Consider, for example, the conduct of monetary policy.
- Since bank assets are marked to market, cuts in interest rates induce treasury gains for banks that effectively recapitalises them.
- Consequently, rate cuts are preferred by governments needing to inject capital into public sector banks (PSBs).
- For the same reasons, liquidity injections, which raise bond prices, are preferred to liquidity absorptions.
- Fiscal compulsions of government can induce liquidity policies that have the opposite effect on the rate-setting by the MPC.
- This contradiction is further complicated by the fact that the RBI is also the debt management agency for the government.
- As a debt management agency, RBI’s key tasks is to sell government bonds at the highest possible price.
- Pressures for regulatory forbearance in recognising NPAs often arise from the government wanting to avoid having to recapitalise PSBs.
- The sameexplains the fact that stock exchanges in India having a 30-day disclosure norm for registered borrowers who default on their bank loans.
- The standard in developed capital markets is immediate disclosure.
- But that would induce an overnight rating downgrade of the concerned borrower thereby triggering additional capital provisioning needs for the lending bank.
Conflict in government owning the PSBs
- Patel’s book deals with conflicts inherent in the state owning the banks that control about three-fourth of total banking assets in India.
- The primary problem with PSBs is that governments have used them as tools for macroeconomic management.
- PSBs are regularly used for resource mobilisation to finance fiscal deficits.
- The government often announces credit policies rather than having the banks allocate credit based on risk-return management criteria.
- PSBs are the favoured instrument for meeting employment targets, supporting farmers through loan write-offs, etc.
What are the implications of government owning PSBs
- This kind of state interface naturally induces extreme levels of moral hazard in the behaviour of both debtors and creditors.
- PSBs are not incentivised to exercise due diligence since they expect regulatory forbearance and recapitalisation in the event of rising NPAs.
- The dilution of efficiency-based principles for banking has implications for all borrowers.
- Creditworthy borrowers pay the risk premia to cover the riskiness due to unhealthy borrowers.
- The worsening risk pool of borrowers is partly to blame for the fact that long term borrowing rates have remained stubbornly high despite repeated rate cuts by the MPC over the past 18 months.
3 Problems and 3 Reforms
Problems
- There are three obvious problems with the existing architecture.
- The first is the state ownership of banks.
- The second is the chronically high fiscal deficit run by the consolidated public sector.
- The third is the widespread perception that market regulators work under close government direction.
Reforms
- Dealing with this will require, at a minimum, three reforms.
- First, there has to be a wholehearted attempt at privatisation of PSBs.
- Second, the RBI needs to be relieved of its public debt management role.
- Third, the RBI has to be empowered to act independently of the government.
Conclusion
The growth of firms, which is a key driver of productivity and growth, requires well-functioning financial markets. India has a lot of work to do.
Back2Basics: How cuts in interest rates induce treasury gains for banks?
- Falling rates across the debt markets increase the demand for instruments that pay higher interest.
- At this stage, prices of bonds which banks had bought when interest rates were high rise.
- Hence, the value of government securities that banks have bought for the SLR requirement rises.
- This increases profits as banks record the market value of these securities in their books.
- Under this process, called marking to market, organisations record profits/losses in their books on a daily basis without actually booking any profit or loss.
- So, more SLR bonds the bank holds, the higher its mark-to-market profit.
- The other reasons bank profits rise when interest rates fall are pick-up in growth as companies borrow at lower rates as well as improvement in liquidity.
Source:-
https://www.businesstoday.in/moneytoday/banking/banks-to-make-huge-treasury-gains-on-bonds-on-rbi-rate-cut/story/193552.html
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: CRISPR-Cas9
Mains level: Paper 3- CRISPR-Cas9-Important tool in gene editing
The Nobel Prize in Chemistry for 2020 has been awarded for the discovery of CRISPR Cas9. The two scientists have pioneered the use of CRISPR – Cas9 (CRISPR-associated protein 9) system as a gene-editing tool.
Background of discovery of CRISPR
- In 1987a group of Japanese researchers observed an unusual homologous DNA sequence bearing direct repeats with spacing in a eubacterial gene.
- In subsequent years CRISPR was discovered and showed to be a bacterial adaptive immune system and to act on DNA targets.
- A notable discovery on the use of CRISPR as a gene-editing tool was by a Lithuanian biochemist, Virginijus Šikšnys, in 2012.
- Šikšnys showed that Cas9 could cut purified DNA in a test tube, the same discovery for which both Charpentier and Doudna were given the credit.
- Thus, the exclusion of Siksnys from this year’s Nobel is going to raise discussions.
Issue of gene-edited babies
- The world was alarmed by such a mission in 2018 when Chinese scientist edited genes in human embryos using the CRISPR-Cas9 system which resulted in the birth of twin girls.
- The incident became known as the case of the first gene-edited babies of the world.
- Following the incident, the World Health Organization formed a panel of gene-editing experts.
- The expert panel suggested a central registry of all human genome editing research in order to create an open and transparent database of ongoing work.
Guidelines and regulations in India
- In India, several rules, guidelines, and policies are notified under the Environment Protection Act, 1986 to regulate genetically modified organisms.
- The above Act and the National Ethical Guidelines for Biomedical and Health Research involving human participants, 2017, by the Indian Council of Medical Research (ICMR), and the Biomedical and Health Research Regulation Bill implies regulation of the gene-editing process.
- This is especially so in the usage of its language “modification, deletion or removal of parts of heritable material”.
- However, there is no explicit mention of the term gene editing.
Consider the question “What is CRISPR-Cas9? How it helps in the gene-editing? What are the concerns with use of it for gene-editing?”
Conclusion
It is time that India came up with a specific law to ban germline editing and put out guidelines for conducting gene-editing research giving rise to modified organisms.
Back2Basics: What is CRISPR?
- CRISPRs: “CRISPR” stands for “clusters of regularly interspaced short palindromic repeats.”
- It is a specialized region of DNA with two distinct characteristics: the presence of nucleotide repeats and spacers.
- Repeated sequences of nucleotides — the building blocks of DNA — are distributed throughout a CRISPR region.
- Spacers are bits of DNA that are interspersed among these repeated sequences.
- In the case of bacteria, the spacers are taken from viruses that previously attacked the organism.
- They serve as a bank of memories, which enables bacteria to recognize the viruses and fight off future attacks.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Delhi air-pollution issue
The article suggests the three-pronged strategy to deal with the emission from transportation and highlights the importance of coordination at various level to deal with the issue of pollution.
Anti-pollution campaign in Delhi
- With air pollution returning to pre-COVID levels, the Delhi administration has launched a major anti-pollution campaign this month.
- The campaign is focused on cutting the deadly smoke from thermal plants and brick kilns in the National Capital Region as well as on chemical treatment of stubble burning from nearby States.
Abating emission from transportation
- Delhi’s long-term solution will depend importantly also on abating emissions from transportation.
- Delhi needs a 65% reduction to meet the national standards for PM2.5.
- Vehicles, including trucks and two-wheelers, contribute 20%-40% of the PM2.5 concentrations.
- Tackling vehicle emissions would be one part of the agenda, as in comparable situations in Bangkok, Beijing, and Mexico City.
Three-part action to combat emissions from transportation
- A three-part action comprises emissions standards, public transport, and electric vehicles.
1) Stricter enforcement of emission controls
- Two-wheelers and three-wheelers were as important as cars and lorries in Beijing’s experience.
- Bangkok ramped up inspection and maintenance to cut emissions.
- The first order of business is to implement the national standards.
2) Strengthening public transport
- Bus Rapid Transit (BRT) around the world show how the sizeable investment cost is more than offset by the benefits, and that financing pays off.
- Delhi has lessons from its BRT experience in designating better BRT lanes, improving the ticketing system and synchronising with the Metro.
- The Supreme Court’s ruling to increase Delhi’s bus fleet and align it with the Metro network must be carried out.
- The ‘odd-even’ number plate policy can help, but the system should reduce exemptions, allow a longer implementation period, and complement it with other measures.
3) Adoption of electric vehicle: A long term solution
- Subsidies and investment will be needed to ensure that EVs are used to a meaningful scale.
- The Delhi government’s three-year policy aims to make EVs account for a quarter of the new vehicles registered in the capital by 2024.
- EVs will gain from purchase incentives, scrappage benefits on older vehicles, loans at favourable interest and a waiver of road taxes.
Need for coordination at various level
- Transport solutions need to be one part of pollution abatement that includes industry and agriculture.
- Delhi’s own actions will not work if the pollution from neighbouring States is not addressed head on.
- Technical solutions need to be underpinned by coordination and transparency across Central, State, and local governments.
- Public opinion matters.
- Citizen participation and the media are vital for sharing the message on pollution and health, using data such as those from the Central Pollution Control Board.
Conclusion
- It is a matter of prioritising people’s health and a brighter future. Once the pandemic is over, Delhi must not stumble into yet another public health emergency. The time to act is now.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: LTRO, Bonds
Mains level: Paper 30- Measures by the RBI to assure the Government bond holders
The article highlights the measures taken by the RBI in the recent MPC meeting to assure the buyers of the Government bonds and ensuring the policy rate transmission.
Dealing with the rate transmission issue and why it matters
- The gap between the repo rate and the average lending rate of banks is at a record high.
- So, the RBI and the MPC focused on improving rate transmission.
- This gap can be broken up into two parts:
- The first is the gap between the RBI-set repo rate and the rate at which the government of India borrows (the GSec yield).
- It is also called the “term premium” can be influenced by the RBI’s actions.
- The second is the gap between the GSec yield and the rate at which individuals or private firms borrow.
- This gap reflects risk aversion in the financial system and a lack of capacity.
- The RBI has avoided directly influencing the term premium, perhaps to maintain its credibility and independence, staying clear of accusations that it is financing the government’s fiscal deficit.
- However, unless the rate at which the government borrows comes down borrowing costs for the whole economy will stay elevated.
Challenge of Balance-of-Payment surplus (i.e. excess dollars)
- Over the past few months, the country’s foreign currency reserves have been growing at an unprecedented rapid pace.
- This means that India is getting far more dollars than it needs. Three factors are responsible for this.
- 1) Some short-term factors responsible are weak imports and a faster normalisation of exports.
- 2) There have also been structural shifts in India’s economic policy which point to a persistent BoP surplus.
- In addition to low energy prices, policies supporting Atmanirbhar Bharat mean lower imports and the push towards making India a participant in global value chains mean higher exports.
- 3) At the same time, India’s capital account is being opened up: The special-category government of India bonds, for example.
Why BoP surplus is opportunity
- When the excess dollar inflows turn into a deluge, as they have over the past six months, the supply of rupees in the domestic economy also becomes excessive.
- If the RBI can direct this surplus into government bonds, it can maintain its independence and credibility, and at the same time achieve its target of rate transmission.
Measures by the RBI to assure the bond market
- The buyers of government bonds need to feel reassured of not getting hurt by the volatility in bond prices.
- When bond prices rise, the yields fall, and vice versa.
- Banks parking trillions of rupees with the RBI at 3.35 per cent overnight would earn nearly 6 per cent if they bought government bonds.
- That they did not was because they were afraid of the bond prices falling, which would offset the gains from higher rates.
- The increase in the Hold-To-Maturity limits by the RBI by one year to March 2022, has assured the banks that they need not fear booking interim losses if bond prices are volatile.
- The announcement that the RBI would purchase state and central government bonds on the market (even if in small sizes) would provide further comfort.
- The change in assessment of inflation should help buyers of government bonds take the risk.
- Banks or other bond investors that refrained from purchasing government bonds because they felt the RBI would increase interest rates at some point to comply with its legal mandate, would be reassured by this clear communication.
- The targeted refinancing operations (TLTRO) should help bring down borrowing rates in the targeted industries.
Conclusion
Economic challenges may persist for the foreseeable future. The economic scars of the last six months are likely to take time to heal. The RBI and the MPC, which have been proactive, creative and accommodative so far, may have to stay so for a while longer.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now