Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3-Indian power sector-Problems faced by the Discoms and their solutions.
Context
Five years after the launch of UDAY, power-sector once again seems to be going deep into the troubles.
Where the Discoms stand now?
- Losses increased: The losses of state-owned distribution companies (discoms) risen.
- Dues increased: Discom’s dues for power purchases have also surged.
- Dues owed by discoms to power producers, both independent and state-run entities, stood at Rs 80,930 crore.
- Of these, Rs 71,673 crore extends beyond the allowed grace period of 60 days.
- Rajasthan leads the states with the most dues, followed by Tamil Nadu and Uttar Pradesh.
Components of UDAY and progress made
- The UDAY scheme, which involved state governments taking over the debt of discoms, had three critical components
- First-Reduction in AT&C losses: While progress has been made on some of these fronts, it hasn’t been in line with the targets laid out under UDAY.
- AT&C (Aggregate Technical and Commercial) losses have declined in some states, but not to the extent envisaged.
- Under UDAY, discoms were to bring down AT&C losses to 15 per cent by FY19.
- Second- Timely revision of tariffs: While some states have raised power tariffs, the hikes have not been sufficient.
- In tariff revision decisions political considerations prevailed over commercial decisions.
- Third- elimination of the gap between per unit of cost and revenue realised: The gap between the average cost per unit of power and the revenue realised has not declined in the manner envisaged.
- Because of this discoms were forced to reduce their power purchases and delay payments to power producers.
Way forward:
- The new plan, being formulated by the government reportedly, aims to address these issues by-
- Reducing electricity losses.
- Eliminating the tariff gap.
- Smart metering.
- Privatising discoms.
- Having distribution franchisees.
- Altering incentive structure: Along with the above, the Centre should also look at altering the incentive structures of states in order to ensure compliance.
- Provision of penalties: Stiff penalties need to be imposed for not meeting the targets laid out in the new scheme.
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- Socio-economic upheaval in Indian economy and its consequences for the Indian economy.
Context
With the Indian economy caught in the middle of a socio-economic upheaval, the government needs to make its focus on the economy clear and pronounced.
India in the middle of a socio-economic upheaval
- Weakening economy: The economy has been weakening for a couple of years now.
- Social upheaval: The social upheaval is new but its seeds have been fermenting for a while.
- Consequences of the two: The social and economic sides of an economy are not divorced from each other.
- Each influences the other and the current quagmire threatens to unleash the worst type of feedback between the two.
Consequences for the employment
- Most severe consequence due to the interaction between the social and economic sides is unemployment.
- Rising unemployment disproportionately affects the young.
- India’s job market: India whose median citizen is in the 30s and which is inducting 10 million new young people to the job market every year.
- Demographic dividend turning into a curse: This dynamic, popularly hailed as India’s demographic dividend, can rapidly turn into a demographic curse if the employment situation doesn’t improve.
Falling investment rate, increased risk perception
- Where will the jobs come from? The job creators are entrepreneurs, conglomerates, and multinationals.
- It is in their nature to take investment risks as long as the returns are high enough.
- Investment rates below 30: In India, investment rate fell well below 30 per cent a while back.
- Falling returns: The returns on investment were not compensating entrepreneurs for the risk.
- The recent social upheaval is only adding to the perceived risk.
- Wait and see approach: The more investors adopt a “wait-and-see” approach, the worse the job situation will become.
Way forward
- Structural reforms: The government needs to announce a clear plan and timeline for structural reforms.
- Prioritising domain competence in staff: The government has to start staffing technical positions by prioritising domain competence and empowering these hires with policy relevance.
- Maintaining the integrity of institutions: The government need to maintain the integrity of institutions tasked with the regulation of corporations and banks, monetary policy management, data collection/dissemination and law enforcement.
- Accommodate dissent: The government also needs to desist from trying to drown out protesting voices with state muscle power.
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- GST-below expected collection, and problems associated with it.
Context
In theory, the shift to GST made eminent sense, yet in practice, some of these expectations have been belied.
Why have GST collections not measured up to expectations?
- This could be due to a combination of three factors:
- First: The tax rates under GST are lower than in the earlier regime-GST was not revenue neutral, to begin with.
- Second: There has been massive tax evasion due to under-reporting, input credit scams and fake invoices
- Third: A slowing economy has impacted firm revenues, and thus tax collections.
GST should have been revenue-neutral but it is not
- Fitment exercises not carried out: The fitment exercise should have been undertaken in a manner so as to ensure that collections pre and post GST are the same.
- But, this fundamental principle was not adhered to, and other considerations dominated.
- Revenue neutrality Vs. Multiple objectives: The GST council began its deliberations not with the single objective of revenue neutrality, but with multiple objectives in mind.
- Closeness to existing tax: Council wanted to ensure that rates were close to the existing tax incidence (accounting for cascading); to ensure minimal impact on inflation.
- Not regressive: The council also wanted the proposed rate structure was not regressive in nature.
- The council wanted that items of mass consumption were not taxed at a higher rate.
- Achieving all these objectives simultaneously proved a difficult task.
The issue of tax evasion
- It is difficult to arrive at firm estimates of the scale of the problem but there are some indications of its size.
- In West Bengal, it was estimated that the value of goods (July 2017 to March 2018) entering a state appeared to be under-reported by around Rs 50,000 crore.
- Rs 60,000 crore in Madhya Pradesh, and Rs 1,50,000 crore in Maharashtra.
- Numerous cases of tax fraud and fake invoice scams have also been detected since then
Problems involve and possible solutions
- Invoice matching: It is argued that invoice matching will help if implemented it from the beginning.
- It could have helped plug the loopholes.
- Issue of under-reporting: It is debatable whether invoice matching can end under-reporting (collusion) and fake invoices.
- Limit of state capacity in handling cases: The Central and state administrations can intervene in only about 3 lakh cases in a year.
- Their capacity to track lakhs of transactions on a daily basis is questionable.
- Slowing economy: Already existing structural issues have been compounded by the slowing economy.
Way forward
- There are certain options available to the government.
- First: Either recalibrate the expectation or carry on the efforts to plug the loopholes and the shortcoming in the system.
- Second: Lower the cut-off for composition scheme. A higher level simply encourages business “splitting”.
- Third: Reduce exemptions.
- Fourth: The council must deliberate on the rate structure, bringing it in line with pre-GST levels.
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- Rising inflation-slowing growth rates and its consequences for Indian economy.
Context
High inflation has reduced the fiscal space available for a rate cut.
RBI target of 6% breached.
- CPI at 7.35 %: Retail inflation, as measured by the consumer price index (CPI), has surged to 7.35 per cent in December 2019.
- Latest inflation data seems to corroborate fears articulated by the Monetary Policy Committee (MPC) in its December meeting.
- In the meeting, MPC refrained from cutting the benchmark repo rate.
Consequences for the economy
- Reduced scope for fiscal slippage: High inflation reduced the space for further easing of policy rates.
- Even after clarity over the extent of the Centre’s fiscal slippage emerged.
- Rise in yield for 10-year securities: The 10-year G-sec yields have reacted sharply to these developments, rising to 6.67 on Tuesday.
- Offsetting operation twist: Rise in yield resulted in offsetting the impact of the RBI’s recent open market operations.
- Inflation targeting under stress: The combination of weak economic activity and higher than expected supply-side inflationary pressures has put the inflation-targeting regime under test.
Reasons for the inflation rise and chances of easing
- Food prices rise: Much of the rise in the headline inflation number can be traced to higher food prices.
- Food inflation has risen to a near six-year high of 14.12 per cent in December 2019, up from 10.01 per cent in the previous month.
- Vegetable prices have surged to 60.5 per cent in December, contributing nearly 3.7 percentage points to the headline numbers.
- Chances of ease in coming months: While vegetable crop cycles tend to be short, and supply-side pressures may ease in the coming months.
- The stickiness in prices of protein items is likely to provide a floor for food inflation.
Bleak outlook for inflation easing
- No short-term return to normal level: Food inflation is unlikely to revert to previous levels in the short term.
- Household inflation expectations, a key metric in the MPC’s assessment, are more responsive to food inflation, this will further exert upward pressure on MPC.
- A factor of hostilities in the Middle East: The uncertainty over oil prices on account of hostilities in the Middle East, adds to the bleak outlook for inflation.
Conclusion
With limited fiscal space for a meaningful stimulus, the government intends to support the economy during this rough patch, and return growth to a higher trajectory.
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-National Education Policy and ASER 2019 report , emphasis on the preschool education and issues associated with it.
Context
The draft NEP (National Education Policy) document points out that close to five crore children currently in elementary school do not have foundational literacy and numeracy skills.
Severe learning crisis: The document cites several possible reasons for this crisis.
- First reason: Many children enter school before age six.
- Lack of options: This is partly due to the lack of affordable and accessible options for pre-schooling.
- Therefore, too many children go to Std. I with limited exposure to early childhood education.
- Consequences for the poor: Children from poor families have a double disadvantage -lack of healthcare and nutrition and the absence of a supportive learning environment on the other.
- Second reason: Lack of developmentally appropriate activities by age and phase.
- The misplaced focus of ICDS: School readiness or early childhood development and education activities have not had a high priority in the ICDS system.
- Acting as an extension of pre-school education: Private preschools that have increased access to preschool but are often designed to be a downward extension of schooling.
- Thus, they bring in school-like features into the pre-school classroom, rather than developmentally appropriate activities by age and phase.
Three clear trends in ASER-2019 data
- First trend: Scope for expansion of Anganwadi network.
- Expansion network: There is considerable scope for expanding Anganwadi outreach for three and four-year-old children.
- All-India data from 2018 shows that slightly less than 30 per cent children at age three and 15.6 per cent of children at age four are not enrolled anywhere.
- Second trend: Under 6 students in class I.
- ASER 2018 data show that 27.6 per cent of all children in Std I are under six.
- It is commonly assumed that children enter Standard I at age six and that they proceed year by year from Std I to Std VIII.
- The Right to Education Act also refers to free and compulsory education for the age group six to 14.
- However, the practice on the ground is quite different.
- Third trend: There are important age implications for children’s learning.
- Association with learning output: ASER-2019 indicate the higher learning output associated with age in the same class.
- In Std. I, the ability to do cognitive activities among seven-eight-year olds can be 20 percentage points higher than their friends who are five years old but in the same class.
- In terms of reading levels in Std. I, 37.1 per cent children who are under six can recognise letters whereas 76 per cent of those who are seven or eight can do the same.
- Age distribution in Std. I vary considerably between government and private schools.
- Private schools in many states have a relatively older age distribution.
Way forward
- Understanding the children: Understanding the challenges that children face when they are young is critical if we want to solve these problems early in children’s life.
- Providing for developmentally appropriate skill: Instead of focusing on the pre-school years as the downward extension of school years there is a need for providing developmentally appropriate skill in these years.
- Pedagogy: On the pedagogy side reworking of curriculum and activity is urgently needed for entire age band of four to eight.
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- Economic reform-sudden or persistent and incremental, sustainable.
Context
Rather than big bang measures or a stealthy agenda, India can count on small but significant improvements.
Reforms only in crisis or by stealth
- The accepted conventional wisdom is that economic reforms in India happen only in a crisis or by stealth.
- Reforms in the crisis
- Reforms of 1991 : The big example of the former are the 1991 reforms.
- In 1991 the country faced a huge foreign exchange crisis, resulting partly from the fiscal profligacy of the previous decade.
- 1999 telecom sector reforms: Another example is from 1999 when the telecom sector was in near bankruptcy, and that crisis led to the shift away from fixed fee for spectrum to revenue sharing.
- The situation of no other choice: In both cases, there was considerable opposition to those reforms, but they were pushed through because the crisis left no other choice.
- Reform by stealth: Other than a crisis, more often than not, it has been economic reform by stealth.
- In the form of executive orders: These reforms are often in the form of an executive decision rather than legislation. Following are the examples of it-
- Expansion of the list under licence: The expansion of the list of items under the Open General Licence for imports, which is a reform of protectionism, or the reduction in the set of industries reserved for small-scale businesses.
- Electoral bond introduction: A more recent example of stealth reform was the insertion of an electoral bond scheme in the Finance Bill of 2018.
- Advantages of going stealth: Reform by stealth offers the advantage of going in either direction.
- In 2013, faced with a potential currency crisis, the Reserve Bank of India (RBI) quietly retracted the limits on the liberalized remittance scheme (LRS).
- Problem with stealth reforms: Stealth reforms are introduced stealthily but when they do not yield the desired result they are rolled back unpredictably, increasing uncertainty in policies of the government.
Persistent, encompassing, creative incrementalism in reforms
- The Economic Survey of 2015 pretty much ruled out Big Bang reforms in India, calling instead for “persistent, encompassing, creative incrementalism” on them.
- This is the right mantra.
- What incrementalism means: It implies continuity, not slowness, a sustainable speed that gives reforms predictability and stability. Following are its examples of it-
- Reform in food subsidy: Example of incrementalism could be reforms that are being carried out in food subsidies.
- First: Reduce the leakages of the subsidy to non-farmers.
- Thus, when procurement is done, payments go directly to their Aadhaar-linked accounts.
- This will lead to non-farmers getting eliminated,
- Second-Pay subsidy only to the poor: It will lead to subsidy savings, allowing us to limit the subsidy only to poor farmers.
- Sovereign gold bond scheme: The use of paper gold greatly reduces imports of the physical metal and outgoes of foreign exchange.
- The sale of these bonds is being expanded, and they would eventually be everywhere, even at post offices.
- Aggregate licence by RBI: The next example is from a new category called account aggregators licensed by RBI.
- It allows users’ control over the digital data trail that their transactions generate, and they can monetize it or use it to enhance their creditworthiness.
- This is an incremental reform with huge ramifications.
Conclusion
- The reforms cited above are incremental, not a big bang, persistent but not slow, open and not by stealth, and finally, imaginative too, since they respond to real needs.
- Effective reforms are those that are done brick by brick, the boring measures that chip away at everything that constrains high, inclusive and sustainable growth.
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- India's foreign relation with 'Middle Power' countries-Prospects and opportunities.
Context:
As the world is moving from an era of predictability to an era of unpredictability led by the US and China, a new Middle Power coalition is the need of an hour.
The “Rising India” narrative and challenges
- The narrative was scripted over the two post-Cold War decades, 1991 to 2011.
- Narrative of plural secular democracy: It was based on the improving performance of the economy and India’s political ability to deal with many longstanding diplomatic challenges within a paradigm of realism.
- Three successive prime ministers – scripted the narrative of India rising as a plural, secular democracy, as opposed to China’s rise within an authoritarian system.
- Opening of new vistas: India’s improving economic performance had opened up new vistas for cooperation with major powers and neighbours.
- New challenges to the narrative: Now the economy’s subdued performance and domestic political issues have created new challenges for Indian foreign policy.
- The new approach to relations with India adopted by both President Donald Trump and President Xi Jinping has created a more challenging external environment.
Relations with the US
- New demands from the US: Each time New Delhi has tried to meet a US demand, Washington DC has come up with new demands.
- US-China dispute resolution and effects for India: Any resolution of US differences with China, can only reduce whatever little bargaining clout India has.
- Complaint at WTO: The US has, in fact, actively lodged complaints against India at the World Trade Organisation.
- Geopolitical effects for India: On the geopolitical side, US intervention in West Asia has always imposed an additional economic burden on India.
Relations with China
- Consistent policy: There has been continuity and consistency in India-China policy over the past two decades, with some ups and downs.
- Effects of power difference with China: As the bilateral power differential widens, China has little incentive or compulsion to be accommodative of Indian concerns, much less the interests.
- China never fails to remind India of the growing power differential between the two.
- Building strength to deal with China: In dealing with China, India will have to, paraphrasing Deng Xiaoping, “build its strength and bide its time.
Russia’s focus
- It will remain focused on Eurasian geopolitics.
- It will also be concerned with the geo-economics of energy.
- Implications for India: Both these factors define Russia’s relations with China, and increasingly, with Pakistan, posing a challenge for India.
Way forward in the relations with Pakistan
- The government’s Pakistan policy has run its course.
- It yielded some short-term results thanks to Pakistan’s efforts not to get “black-listed” by the Financial Action Task Force (FATF).
- But the rest of the world is doing business with Pakistan, lending billions in aid.
- The global community may increasingly accept future pleas from Pakistan that terror attacks in India are home-grown.
- related to the situation in Kashmir or concerns about the welfare of Muslims, unless incontrovertible evidence to the contrary is offered.
- The need for a new Pakistan policy: Backchannel talks should be resumed and visas should be given liberally to Pakistani intellectuals, media and entertainers to improve cross-border perceptions as a first step towards improving relations.
The Middle Powers and opportunities for India
- What are the middle powers? It is a mix of developed and developing economies, some friends of the US and other friends of China.
- It is an amorphous group but can emerge into a grouping of the like-minded in a world of uncertainty capable of taming both the US and China.
- A new Middle Powers coalition may be the need of the year.
- Which countries can be part of it? Germany, France, Japan, Australia, Brazil, Indonesia, Vietnam and perhaps South Korea. One could include Russia, Nigeria and South Africa also in this group.
- Stakes involved but no influence: Like India, these countries have a stake in what the US and China do, but little influence over either.
- What India can do? These countries which constitute the part of the Middle Powers should engage the attention of India’s external affairs minister.
Disruptive policies not an option
- Adoption of disruptive approach: There is a view among some policy analysts that India too can adopt a “disruptive” approach as a clever tactic in foreign affairs.
- Disruption is not an end in itself. It has to be a means to an end.
- Powerful nations can afford disruption as tactics.
- Unchanged strategic elements: The strategic elements defining Indian foreign policy in the post-Cold War era have not changed.
- Not an option: India cannot risk such tactics without measuring the risk they pose to strategy.
Conclusion
With the changing geopolitical atmosphere particularly with respect to the US and Chiana, India needs to adopt a suitable approach to its foreign policy especially involving the Middle Powers.
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- Events in the Middle East, especially involving Iran and its implications for India.
Context
In the aftermath of recent events, Iran needs a new compact to deal with the domestic crisis and also a framework to deal with the US.
The threat of “regime change” in Iran
- The US policy-The temptation for a policy of “regime change” in Iran has never disappeared from the US policy towards Iran.
- The policy is based on the hope that mounting external pressure and deepening internal dissent will combine to produce a “regime collapse” in Tehran.
- US President has often insisted that he is not seeking to overthrow the clerical regime in Tehran led by Ayatollah Ali Khamenei.
- The Us demands were an end to the nuclear and missile programmes, stop supporting terror in the region and end the interference in the internal affairs of its Arab neighbours.
- Iran’s success in fending off these threats: Iran has been successful so far in fending off these external and internal challenges.
- Iran has put down repeated mass uprisings and neutered attempts from within the elite to reform the system.
De-escalation of the tension after the war-like situation
- Fear of escalation: The widespread assessment after the killing of Soleimani was that Iran would inevitably escalate the confrontation.
- Tehran set up a token retaliation for domestic political consumption and quickly called for de-escalation.
- The message of peace from the US: Trump also told the Iranian leaders that America “is ready to embrace peace with all who seek it”.
The shooting of a passenger jet and the aftermath
- The shooting of the jet:
- The Ukrainian passenger jet was shot-down near Tehran killing all 176 passengers and crew on-board.
- It included 82 Iranian nationals and many Canadian citizens of Iranian origin
- After initial denial, Tehran was forced to accept responsibility for shooting down the plane.
- The aftermath of the shooting of the plane
- Protests: Soon after the confession, protests broke out against the government.
- Demand for accountability: Iranians are angry at the attempt of the government to cover up initially and are demanding full accountability.
The general discontent of the people against the government
- The latest round of protests must be seen as a continuation of those that have raged since the end of 2017.
- Reasons for the discontent: Economic grievances, frustration with widespread corruption, demands for liberalising the restrictions on women and political opposition to the regime are the reasons.
- Discontent against external adventures: There was also strong criticism of the government’s costly external adventures in the Middle East amidst the deteriorating economic conditions.
- There is little love for the Revolutionary Guards, the principal face of state oppression.
- External pressure: As the regime cracks down on the protests against the airliner shooting, the external pressures against Iran are only likely to mount.
Available option and their dangers
- As sanctions squeeze the Iranian economy, the costs of regional overreach become apparent, and internal protests become persistent, Khamenei has few good options.
- The option of the new political compact: Offering a new political compact to the people of Iran or a new framework to deal with the Arab neighbours and the US would seem reasonable goals.
- But they involve considerable risk for the regime.
- The option of pragmatism: All revolutionary regimes come to a point when they need to replace ideological fervour with pragmatism.
- But the change from ideological fervour to pragmatism is also the time of the greatest vulnerability for the regime.
Conclusion
India as a friend of Iran will surely begin to debate if privately, the implications of the deepening regime crisis in Iran.
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: Types of NBFC.
Mains level: Paper 3- NBFC crisis.
Context
While India was trying to deal with the problems arising out of the large NPA accumulated by the commercial banks, the Indian financial sector was dealt with another blow in the form of the NBFC crisis.
Effects of IL&FS and DHFL collapse:
- Balance sheets affected: The collapse of these two big entities affected the balance sheets of banks and mutual fund companies.
- Credit crunch: It also resulted in a credit crunch that dampened demand and pushed a slowing economy towards recession.
- Tarnished image of NBFCs: Being leaders in the industry, their failure has tarnished the image of the NBFC sector as a whole.
Types of NBFCs and their numbers
- Total number: As of September 2019 there were a total 9,642 NBFCs in India.
- Deposit-taking NBFC (NBFCs-D): Only 82 of India’s NBFCs were deposit-taking institutions (NBFCs-D) permitted to mobilise and hold deposits.
- Non-deposit taking NBFCs (NBFCs-ND): The rest of the NBFCs which are not deposit-taking, are categorised as non-deposit taking NBFCs.
- They did not have access to the savings of ordinary households.
- For this reason, the majority of these institutions were not considered to be entities that needed strict regulation
- Systematically important (NBFCs-ND-SI): Of a large number of non-deposit taking NBFCs (NBFCs-ND), only 274 were identified as being systematically important (NBFCs-ND-SI), by virtue of having an asset size of ₹500 crores or more.
Significance of NBFCs as expressed by assets holdings
- A significant player in the financial markets: As at the end of March 2019, these two sets-NBFCs-D and NBFC-ND-SI- held assets that amounted to almost a fifth of that held by the scheduled commercial banks.
- This made them significant players in the web of credit, as well as large enough as a group to affect the health of the financial sector.
- Non-deposit taking NBFCs must rely on resources garnered from the “market,” including the banking system, besides the market for bonds, debentures, and short-term paper.
- Extension of financial entities: Individual investors would only be marginally involved in direct investment in these instruments.
- So, the NBFCs are essentially extensions of the activity of other financial entities such as banks, insurance companies, and mutual funds.
Concentrated lending by NBFCs
- Industry getting lion’s share: Industry accounted for the biggest chunk of lending, amounting to 57% of gross advances in September 2019.
- Much of this lending to industry went to the infrastructural sector.
- At second place-retail sector: A second major target for lending by the NBFCs was the retail sector, with retail loans accounting for 20% of gross advances.
- Within the retail sector, vehicle/auto loans accounted for as much as 44% of loans.
What went wrong?
- Diversification by commercial banks: Following a surge in capital flows into India which began in 2004, banks were flush with liquidity.
- Under pressure to lend and invest to cover the costs of capital and intermediation and earn a profit, banks were looking for new areas into which they could move
- Increase in retail lending by banks: The pressure resulted in a significant increase in retail lending, with lending for housing, automobiles and consumer durables.
- There was also a substantial increase in lending to the infrastructural sector and commercial real estate.
- Why NBFCs flourished even in the face of competition by banks? What the growth of the NBFCs indicates is that banks were unable to exhaust the liquidity at their disposal.
- Banks were also unable to satisfy the potential for lending to these sectors, providing a space for NBFCs to flourish.
- The willingness of NBFCs suited the banks: The willingness of the NBFCs to enter these areas suited the banks in two ways.
- First, it permitted the banks to use their liquidity even when they themselves were stretched and could not discover, scrutinise and monitor new borrowers.
- Banks could lend to the NBFCs, which could then take on the tasks associated with expanding the universe of borrowers to match the increased access to liquid funds.
- The second was that it helped the banks to move risks out of their own books.
- Short term lending to NBFCs, and long-term lending by NBFCs: Banks accepts short term deposits, so there is limit in their ability to lend that short term deposits as a long term debt.
- On the other hand, these were the sectors to which additional credit could be easily pushed.
- Lending to NBFCs that in turn lent to these sectors, appeared to be a solution to the problem.
- Bank lending to the NBFCs was short term, and the latter used these short-term funds to provide long-maturity loans
- NBFCs expected that they would be able to roll over much of these loans so that they were not capital short.
- Role of rating agencies: What they needed for the purpose were ratings that ranked their instruments as safe.
- The ratings companies were more than willing to provide such ranks.
- The two risks involved in this model: The NBFC-credit build-up was an edifice that was burdened with two kinds of risks.
- First risk: A possible default on the part of borrowers.
- The probability of which only increases as the universe of borrowers is expanded rapidly to exhaust the liquidity at hand.
- The second risk: The second was the possibility that developments in the banking sector and other segments of the financial sector would reduce the appetite of these investors for the debentures, bonds and commercial paper issued by the NBFCs
- Since the NBFCs banked on being able to roll-over short-term debt to sustain long-term lending.
- A slowdown in or halt to the flow of funds would lead to a liquidity crunch that can damage the balance sheet of these institutions.
- Which of the two risks is involved in the present crisis? The crisis that affected the NBFCs was a result of both kinds of setbacks.
- First setback: Loans to areas like infrastructure, commercial real estate and housing went bad.
- Second setback: With the non-performing assets problem in the commercial banking sector curtailing their access to bank lending.
- Why the problem turned systemic? Given the importance of ratings and “image” in ensuring access to capital, some firms with the requisite image were able to mobilise large sums of capital and expand their business.
- When entities like that go bust, the response of lenders and investors to the event tends to be drastic, with systemic effects on the sector as a whole.
Conclusion
The episode was a shadow banking crisis that has had far-reaching consequences for the economy as a whole. Therefore, its high time that measures are taken to avoid the occurrence of such a crisis in the future.
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-Federal system.
Context
The government-imposed deadline of October 31 for concluding talks with Naga groups has passed. And nothing concrete has come out of the Framework Agreement signed in 2015.
Events so far
- Framework Agreement with Naga rebel leader Thuingaleng Muivah was signed in 2015.
- The agreement expresses an intent to work towards the final agreement.
- The progress on the said agreement has stalled since then.
- Problem with the Framework Agreement: It was signed only with Muivah’s leading faction, National Socialist Council of Nagalim (Isak-Muivah), or NSCN (I-M).
- Exclusion of major players: The agreement excluded half a dozen more groups, besides Naga citizenry in Nagaland and contiguous Naga homelands in the neighbouring states of Manipur, Arunachal Pradesh, and Assam.
- This weakened the process.
Efforts made by the government
- Appointment of an interlocutor: The government-appointed R.N. Ravi as the government’s interlocutor. That move signalled the seriousness from the government’s side.
- Reach out toward the other players: The government reached out to Nagas across the board.
- The government reached out to other rebel factions, much to the irritation of NSCN (I-M), and began peace talks with them in end-2017.
- A breakaway faction of I-M’s arch enemies, NSCN’s Khaplang, joined the process in 2019.
- Government-led outreach attempted to bring on board non-Naga people in Manipur, Arunachal Pradesh, and Assam.
What is offered in the process and related issues
- Disarmament, rehabilitation, and assimilation: A talks with I-M spelt out disarmament, rehabilitation, and assimilation of cadres and leaders through induction in paramilitary forces and political structures
- Expanded legislature: An expanded legislature in Nagaland, for inducting the rebels and more legislative representation and relative autonomy in Naga homelands outside Nagaland.
- Disagreement over flang and the separate state-constitution: Other Naga rebel groups agreed to what was offered by the government.
- I-M remained intransigent over the dual use of a Naga flag alongside the Indian flag, and its constitution—
- This I-M-scripted constitution is regressive, offers far less than what Nagas enjoy under Indian constitutional provisions, and effectively proposes Muivah as the overarching figure of Naga politics, development and destiny.
- Unacceptance by the other groups: This is evidently unacceptable to numerous Nagas—let alone non-Nagas—for whom Muivah, a Tangkhul Naga from Manipur’s Ukhrul region, remains a divisive figure.
Conclusion
There is a need to reconcile the difference between the different groups and reach a proposed agreement as soon as possible for the welfare of the communities and the region as a whole.
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- Indian Constitution's approach to secularism.
Context
While extending the scope and extent of the freedom of religion, the SC would face the difficult question of balancing it with the other provisions and rights enshrined in the Constitution.
What the 9-Judge bench will deliberate on?
- The establishment of the Bench emanated out of an order of reference made on review petitions filed against the Sabarimala judgment.
- The scope and extent of religious liberty: It will answer a series of wide-ranging questions and expound the scope and extent of the Constitution’s religious liberty clauses.
- It will also deliberate on cases including the practice of female genital mutilation and the rights of Parsi women to enter fire temples.
The question of balance
- Within the Constitution of India, there are two impulses that may, at times, come into conflict with one another.
- First impulse-Religious freedom: India is a pluralist and diverse nation, where groups and communities — whether religious or cultural — have always played an important role in society.
- Religious freedom: Following up on this impulse, the Constitution recognises both the freedom of religion as an individual right (Article 25), as well as the right of religious denominations to manage their own affairs in matters of religion (Article 26).
- The second impulse-Protection of an individual: The second impulse, recognises that while the community can be a source of solidarity at the best of times, it can also be a terrain of oppression and exclusion.
- So, both Articles 25 and 26 are subject to public order, morality, and health.
- Article 25 is also subject to other fundamental rights guaranteed by the Constitution, and to the state’s power to bring in social reform laws.
Finding the middle ground
- The middle ground involves respecting and balancing the following-
- The autonomy of communities: It involves respecting the autonomy of cultural and religious communities.
- Individual rights: It involves ensuring that individual rights are not entirely sacrificed at the altar of the community.
- Essential practice doctrine: Over the years, the Supreme Court has found the middle ground by carving out a jurisprudence that virtually allows it to sit in theological judgments.
- What is constitutionally protected? It recognising that it is only those practices that are “essential” to religion that enjoys constitutional protection.
- Any other ritual is seen as secular and amenable to the state’s interference.
- This doctrine was used to rule, in 2004, that the performance of the Tandava dance was not an essential tenet of the religious faith of the Ananda Margis.
- The SC said that the “essential religious practices” test is indeed the only way it can reconcile the two impulses.
Anti-exclusion principle
- What are the options with the SC?
- Continue with the “essential practice” doctrine: One option before the nine-judge Bench would simply be to affirm existing jurisprudence, as it stands.
- Anti-exclusion principle: The second option would be to ask whether the effect of the disputed religious practice is to cause harm to individual rights.
- The enquiry, thus, is not whether the practice is truly religious, but whether its effect is to subordinate, exclude, or otherwise send a signal that one set of members is entitled to lesser respect and concern than others.
- In Sabrimala case — both the concurring opinion of Justice D.Y. Chandrachud and the dissenting opinion of Justice Indu Malhotra agreed that this ought to be the test.
- Protection of dissenters
- Top-down nature: Many religious communities, norms, and practices are shaped and imposed from above, by community leaders, and then enforced with the force of social sanction.
- Dissenters are then faced with an impossible choice: Either comply with discriminatory practices or make a painful exit from the community.
- Judicial intervention: It is here that the Constitution can help by ensuring that the oppressed and excluded among communities can call upon the Court for aid.
Conclusion
- The nine-judge Bench will face a difficult and delicate task of constitutional interpretation. Much will ride upon its decision: the rights of women in particular and of many other vulnerable groups in general.
- Also will depend on its decision the constitutional vision of ensuring a life of dignity and equality to all, both in the public sphere and in the sphere of community.
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- Violations of human rights.
Context
The human rights situation in Jammu and Kashmir following the dilution of Article 370 and the passage of the Citizenship (Amendment) Act (CAA) have brought renewed international focus on India’s human rights practice.
Evolution of the modern Human Rights
- Classical approach: Countries made agreements on the premise that a sovereign state had the exclusive right to take any action it thought fit to deal with its nationals.
- No recognition of individuals’ rights: Classic international law governed the conduct between states and did not recognise the rights of individuals.
- The classical notion was challenged in the 19th century.
- Modern Human Rights: Slavery Convention adopted by the League of Nations prohibiting the slave trade heralded the first human rights treaty.
- It was based on the principle of dignity of a human being.
- The Universal Declaration of Human Rights: Adopted in 1948 by the United Nations, was the first comprehensive international human rights document.
- The weakening of Unrestricted sovereignty: The evolution of international human rights law is also about the gradual weakening of the concept of unrestricted sovereignty.
India and Human Rights
- Unwarranted international scrutiny: The Indian government’s response to its human rights practice has always been that international scrutiny is unwarranted.
- Why India claims so?: Since the country is the largest democracy in the world with an independent judiciary, free media, and an active civil society no international scrutiny is required.
- Indian has always assured the international community that the judiciary (the SC) would provide adequate remedies to victims of human rights violations.
- These claims sound less credible after the recent developments in J&K and the passage of the CAA.
- Human rights and Discriminatory nature of CAA: Non–discrimination is a fundamental principle of human rights.
- The Office of the High Commissioner for Human Rights (OHCHR) said that CAA is fundamentally discriminatory in nature”.
Role of Civil Society and Media
- Media’s questionable role: Responding to international concerns the Indian government also refers to the role of free media and civil society in protecting human rights.
- However, the media’s role in J and K and after CAA is questionable.
- Weakened Civil Society: The government has imposed various curbs on it since 2014.
- It has become difficult for it to receive foreign contribution.
- Use of FRCA: Since 2014, the government has canceled the registration of about 14,000 NGOs under the Foreign Contribution Regulation Act (FCRA).
Conclusion
- It is possible for the Indian government, due to its diplomatic clout, to avoid robust intervention by the UN Human Rights Council and other UN human rights mechanisms.
- But it would be difficult to avoid scrutiny by the international community. So, the government must take steps to allay international concerns and avoid situations where it is seen as a violator of human rights.
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: Dengue vaccine
Mains level: Paper 2-Dealing with Dengue, stategies, suggestion, and holistic approach.
Context
The advent of a new tetravalent vaccine against the dengue virus has thrown new light into the evidence-based management of dengue.
Why the holistic approach is needed
- Apart from promoting the use of the vaccine, gaining control over dengue will also require a holistic approach that has to include within its ambit vector control and proper case management.
- Tetravalent vaccine: The vaccine is tetravalent i.e. it provides protection against all the four types of dengue viruses.
- The vaccine confers about 80% protection to children vaccinated between 4 and 16 years of age without any major side effects.
- Climatic factors: It is essentially a tropical disease that occurs in the countries around the Equator; hot weather and intermittent rainfall favour the sustenance of Aedes aegypti.
- Aedes eggs can remain dormant for more than a year and will hatch once they come in contact with water.
- Risk factors: Urbanisation, poor town planning, and improper sanitation are the major risk factors for the multiplication of such mosquitoes.
- Aedes eggs can remain dormant for more than a year and will hatch once they come in contact with water.
- Aedes mosquitoes cannot fly beyond a hundred meters. Hence, keeping the ambiance clean can help prevent their breeding.
- Further, these mosquitoes bite during the daytime, so keeping the windows shut in the day hours is also useful.
What needs to be done?
- Source reduction activities: Activities like preventing water stagnation and using chemical larvicides and adulticides.
- These chemicals need to be applied in periodic cycles to kill the larvae that remain even after the first spray.
- Dealing with the manpower shortage: The number of skilled workers available for such measures is low; many posts in government departments remain vacant despite there being a dire public health need.
- Due to this deficiency of manpower, active surveillance is not being done in India, says the National Vector Borne Disease Control Program.
- Ending the Under-reporting: Dengue cases are often under-reported due to political reasons and also to avoid spreading panic among the common people. Under-reporting needs to be dealt with.
- Increasing coordination: There is a lack of coordination between the local bodies and health departments in the delivery of public health measures.
- A comprehensive mechanism is required to address these issues.
- Need for epidemiological measures: Any communicable disease needs the epidemiological approach. Singapore uses one successful model of mapping and analysing data on dengue, using Geographical Information System (GIS).
- The use of GIS involves mapping the streets with dengue cases for vector densities.
- Emphasis on the WHO guidelines: Fluid management in the body is the cornerstone in the management of severe diseases like dengue hemorrhagic fever and dengue shock syndrome.
- According to the guidelines, coagulation abnormalities are not due to a reduction in the number of platelets alone.
- This is why the WHO recommends fresh whole blood or packed cell transfusion in the event of bleeding.
- Caution in using alternative medicine drugs: Modern medicine is not against any complementary medicine; when such a medicine is approved after rigorous testing.
- However, in the absence of evidence, the efficacy of such medicines remains in the realm of belief instead of science.
- So, medicines like Nilavembu kudineer and papaya leaf extract are only belief based.
Conclusion
The communicable nature of Dengue and its asymptomatic nature requires the holistic approach to successfully tackle the disease.
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- Restrictions on the fundamental rights, Constitutional protection to the use of internet.
Context
The SC verdict on the restrictions has some important takeaways.
What the SC verdict means
- Infinite ban on internet impermissible: It states categorically that an indefinite ban on the internet is impermissible, but fails to direct the restoration of services.
- Section 144 and legitimate expression of opinion: The SC said that Section 144 of the Code of Criminal Procedure “cannot be used as a tool to prevent the legitimate expression of opinion or grievance or exercise of any democratic rights”.
- No ruling on the Govt. actions: The disappointing aspect of the verdict is the court’s failure to give a ruling on the validity of the government’s actions.
- The ruling fails to hold the government to account for the manner in which it exercised its powers.
- It states categorically that an indefinite ban on the internet is impermissible, but fails to direct the restoration of services.
- The SC does not go beyond directing the authorities to review all their orders and restrictions forthwith.
The key takeaways from the verdict
- Internet use constitutionally protected: The use of the Internet as a medium for free speech as well as for trade and commerce is constitutionally protected.
- Test of proportionality: It also lays down that any reasonable restriction on fundamental rights, be it an Internet ban or a Section 144 order, will have to survive the test of proportionality.
- The proportionality test means that is, the restriction should be proportionate to the necessity for such a measure.
- At the same time, it cautions against the “excessive utility” of the proportionality doctrine in matters of national security.
- No secret orders: The government is bound to publish all orders it passes regarding such restrictions so that they can be challenged in a court of law.
- While the government’s stand that it could not produce all the orders on the restrictions imposed the SC did not strike them down on that ground.
Conclusion
The SC judgment, while laying down some important principles in a fundamental rights case, appears to have the character of an advisory opinion.
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- Restriction on fundamental rights, use of internet protected by the constitution
Context
The SC verdict on the restrictions has some important takeaways.
What the SC verdict means
- Infinite ban on internet impermissible: It states categorically that an indefinite ban on the internet is impermissible, but fails to direct the restoration of services.
- Section 144 and legitimate expression of opinion: The SC said that Section 144 of the Code of Criminal Procedure “cannot be used as a tool to prevent the legitimate expression of opinion or grievance or exercise of any democratic rights”.
- No ruling on the Govt. actions: The SC stops short of ruling on the validity of the government’s actions.
- The ruling fails to hold the government to account for the manner in which it exercised its powers.
- It states categorically that an indefinite ban on the internet is impermissible, but fails to direct the restoration of services.
- The SC does not go beyond directing the authorities to review all their orders and restrictions forthwith.
The key takeaways from the verdict
- Internet use constitutionally protected: The use of the Internet as a medium for free speech as well as for trade and commerce is constitutionally protected.
- Test of proportionality: It also lays down that any reasonable restriction on fundamental rights, be it an Internet ban or a Section 144 order, will have to survive the test of proportionality.
- The proportionality test means that is, the restriction should be proportionate to the necessity for such a measure.
- At the same time, it cautions against the “excessive utility” of the proportionality doctrine in matters of national security.
- No secret orders: The government is bound to publish all orders it passes regarding such restrictions so that they can be challenged in a court of law.
- While the government’s stand that it could not produce all the orders on the restrictions imposed the SC did not strike them down on that ground.
Conclusion
The SC judgment, while laying down some important principles in a fundamental rights case, appears to have the character of an advisory opinion.
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- Drones, applications and security threats.
Context
Increasing the use of drones in warfare and other areas has brought into focus the potential the use of drones hold and the other issues related to its misuse.
Recent events featuring drones
- A drone was used by the U.S. to fire the missile at Qassem Soleimani to assassinate him.
- A few days before that, less-lethal drones monitored crowds of student protesters rocking India.
A potential area of use of drones
- Military and Policing: Drones are largely used for military or policing purposes, but they also have other uses.
- Recreation and Sports: They are used for recreation and sports. The Chinese company DJI dominates this space.
- Logistics: Logistics is another use, with Amazon developing last-mile drone delivery.
- At scale, this delivery model can save money, energy and time.
- Domino’s extended this logic to deliver its first pizza by drone in New Zealand and is experimenting with scaling this model up in many markets.
- Botswana has had some successful trials where drones have delivered blood and life-saving drugs to villages out in the wilderness.
- Agriculture: A startup called Terraview uses drones with advanced image processing, machine learning, artificial intelligence, and augmented reality to increase the productivity of vineyards.
- A drone can be used to measure the amount of grain that’s piled up after harvest.
- Mining Output: Tata Steel has used drones quite effectively to measure mining output.
- Access the inaccessible places: Drones can go where people cannot.
- So, inspection and repair at remote wind farms on an island, or pipelines in the remote tundra, or equipment in a rainforest can be done more cheaply and precisely.
- Drone surveillance is now widely used by the insurance industry in the aftermath of floods or pest inspections.
- They can provide organizations a 360-degree view of the status of any construction project and its assets.
- Explosive detection and defusing: In many places, it is just safer to send a drone, such as while using explosives in deep mines or defusing suspected bombs.
- Wildlife protection and survey: drones are used to survey wildlife and detect poaching in the jungles of Africa.
Drones as commodity
- Drones will soon become a hardware commodity, much like personal computers.
- It will be the software loaded on it that will be the real force-multiplier.
- Industry 4.0 revolution: Business like “drones-as-a-service” will emerge, dramatically reducing the time taken for tasks and serving as a vital tool in the Industry 4.0 revolution.
A potent tool for Swarm-attack by military
- Perhaps the most fascinating developments will occur where drones originated, in
- Drones will mutate into swarms, where multiple, intelligent, small drones act as one vast network, much like a swarm of birds or locusts.
- Advanced militaries have drone swarms under trial that could revolutionize future conflicts.
- These swarms could overwhelm enemy sensors with sheer numbers and precisely target enemy soldiers and assets using data fed into them.
- They will be difficult to shoot down as there will be hundreds of small flying objects rather than one big ballistic missile.
- The swarm will use real-time ground data to organize itself and operate in concert to achieve its goal.
Issues with drones
- It will be us humans who will decide whether we use drones for beneficial or malevolent ends.
- National Security Issues: Drones have demonstrated the potentials for their threat to the security of a country. Drones are operated remotely and can strike where it want it to strike. Raising serious security issues.
- Terrorism: Drones have been used by various terrorist organisations like ISIS in Syria and Iraq to hit their targets.
- Aviation safety: Drones flying too close to commercial aircraft has called for regulations.
- Privacy: Drones have been used by the paparazzi to take the images of individuals breaching their privacy.
Conclusion
Drones can indeed be a fantastic tool for good projects, from helping save the planet to identifying and nabbing criminals, and preventing the loss of human life. However, for that, we will have to change the DNA that they were born with, as lethal weapons of war. Otherwise, they will remain anonymous killers, wreaking death and destruction as they hover innocuously above.
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-Changes in policy and their effects.
Context
The government eased the regulations for coal mining in India.
What does the opening mean?
- Removal of restrictions: Until now there were restrictions on who could bid for coal mines.
- Only those in power, iron and steel and coal washery business could bid for mines.
- The bidders needed the prior experience of mining in India.
- Who can buy now?: The move will open up the coal mining sector completely, enabling anyone with finances and expertise to bid for blocks and sell the coal freely to any buyer of their choice.
Benefits of opening
- More value extraction: The restrictions limited the potential bidders to a select circle of players and thus limited the value that the government could extract from the bidding.
- Now the Government can extract more value from the auction of the blocks.
- Development of coal market: Second, end-use restrictions inhibited the development of a domestic market for coal.
- Job creation: Large investment will create jobs in the sector.
- Increase in Demand: It will also set off demand in critical sectors such as mining equipment and heavy commercial vehicles.
- Technology infusion: The country may also benefit from an infusion of sophisticated mining technology, especially for underground mines, if multinationals decide to invest.
- Ease on Current account: In value terms, coal imports touched $26.18 billion in 2018-19, up from $15.76 billion in 2016-17.
- This surge in coal imports, along with oil and electronics imports, has exerted pressure on the country’s current account in recent years.
Why the move matters
- 70 % of energy production in India is coal-based.
- Until now Coal India was the only commercial miner in the country for more than four decades accounting for 82 per cent of the coal production in the country.
- The productivity of coal is still an issue in the country. Coal is a very crucial raw material that is used in the power sector and also in cement and metal sectors.
Way forward
The relaxation in regulations, along with previous initiatives such as allowing 100 per cent foreign direct investment through the automatic route in commercial coal production, can aid in boosting coal production in the country and help reduce imports.
Coal India Limited (CIL) has to be nurtured even as private players are welcomed.
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-Slowdown in the economy, supply side-demand side, way forward for recovery.
Context
In order to revive the economy, the Government must choose between tax reductions and increasing rural spending.
The Current Status of the Indian Economy
- 5 % in 2019-20: The first advance estimate pegs India’s economic growth at 5 per cent in 2019-20.
- Cause of the slowdown: The slowdown can be attributed largely to a structural demand problem in the economy along with some cyclical
- Stagnant income and stagnant incomes: Despite largely stagnant incomes, private consumption has been financed over the past few years through lower savings, easy credit, and certain one-offs such as the Seventh Pay Commission led pay-outs.
- Private consumption is the largest driver of growth.
- Depleting savings: The household savings rate has dipped to 17.2 per cent of GDP in FY18, from 22.5 per cent in FY13.
- Depleting credit in the system: Overall credit in the system has dried up.
Rural economy
- Low wages and stagnant incomes: Rural wage growth has averaged around 4.5 per cent over the past five years, but adjusting for inflation it has been only 0.6 per cent.
- Weak real estate sector: The rural population, which was dependent on urban real estate/construction has faced headwinds in the recent past.
- The sector is experiencing lower private sector investments recently.
Limited scope for a sharp recovery
- The following factors render the scope for sharp recovery limited.
- Consumption issue is structural: The slowdown in private consumption is a structural issue linked to low household income growth.
- Low job creation: Low consumption is in turn, linked to the basic problems of low job creation.
- Low Income: Low consumption is also linked with stagnant farm incomes.
- None of the above factors is likely to change suddenly, limiting the scope of recovery.
- Low Investments: Investment is unlikely to rebound sharply given the challenges on both income and balance sheet of the government, private sector, and households.
- Stressed Government consumption: Which has been supporting growth over the past few years, remains under stress.
- The combined Centre and states’ fiscal deficit is close to 6.5 per cent of GDP.
- The public sector is already weighing on the limited domestic financial resources, ruling out space for an aggressive fiscal stimulus.
- NBFC’s role: Recovery will also depend on the health of the financial sector, especially that of NBFCs.
Use of the fiscal space
- Supply-side: The government has shown a clear preference to rely on supply-side measures (like corporate tax cut) to support growth.
- Need to address demand-side: Expectations will be high that the upcoming Union budget addresses the demand side concerns as well.
- Spending on rural infrastructure and employment (MGNREGA, PM-KISAN, PMGSY) can decrease pain in rural areas.
- Given the narrow income tax base, any sacrifice of the fiscal room would be beneficial only for a limited number of people.
Way forward
- Widening of the tax base- Given the narrow income tax base, any sacrifice of the fiscal room would be beneficial only for a limited number of people.
- Broad-basing of the income and consumption profile: Economic reforms in the past have worked to enhance the capacity of the top few hundred million consumers.
- The next set of reforms should enhance the capacity of those in the middle and the bottom of the income pyramid.
- Role of the private sector: Given the huge infrastructure gap in the country, it is essential that the private sector’s role in infrastructure creation is much more inclusive.
Conclusion
Reforms that increase the productivity of the factors of production, provide an enabling environment for competitive production of goods and services and ensure steady and substantial growth in purchasing power for a larger section of the population should be the focus.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now
Context
State of Climate of India report by IMD should occasion interventions to make people resilient to extreme weather events.
What does the report confirm?
- Frequent extreme weather events: The report states that extreme weather events have become par for the course in the country.
- The report notes that excessive heat, cold and rainfall killed 1,562 people during the year.
- Intense dry spells, even droughts, were interspersed with floods in several parts of the country
- Above normal temperature: The mean temperature last year was 0.36 above normal.
- The excess rainfall: The country also recorded excess rainfall during both the southwest and northeast monsoons.
Long-term meteorological trends:
- The IMD report should be seen in conjunction with long-term meteorological trends.
- The warmest decade: The World Meteorological Organisation reckons that the decade starting 2011 remains on track to be the warmest on record.
- Increase in the relative humidity: At the same time, data from the European Centre for Medium-Range Forecast shows that the relative humidity in the mid-troposphere in the Subcontinent has increased by about 2 percent in the past four decades.
- Such warming has increased the capacity of oceans to form intense cyclonic disturbances.
Implications for disaster-preparedness:
- Cyclones: Last year, as the IMD report notes, the Indian Ocean witnessed eight cyclones.
- Cyclones don’t kill but buildings can turn hazardous during such extreme weather events.
- The vulnerability of the poor: In Odisha winds blowing at more than 140 kilometers per hour ripped off roofs and window frames in modern houses and also exposed the vulnerability of the mud and bamboo houses of the poor.
- Guidelines: The Ministry of Housing and Urban Affairs does have guidelines for climate-friendly construction.
- But planners in coastal cities and towns rarely pay heed to its provisions.
- Cooperation between the states: The changing dynamics of weather also demands cooperation between states that share a river basin.
- Maharashtra and Karnataka bickered over opening the gates of the Almatti dam on the Krishna.
Implications for the farmers:
- For farmers, vagaries in nature mean disruptions in the entire cropping cycle.
- This year, Kerala, southern Karnataka, and Gujarat were heavily deficient till July.
- But within a few days in the last week of July, these states recorded surplus rainfall.
- Rainwater storage and use: Increasing their resilience calls for efficient rainwater storage and use.
Conclusion:
It’s clear that dealing with exceptional weather will require interventions at the national, state and local levels. The Statement on Climate of India 2019 drives home the urgency of such interventions.
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-Relations with China and the U.S.
Context
After the gap of 200 years, Asian economies are once again larger than the rest of the world combined.
The Asian Century
- Providing an alternative order: With the rise of India and China, Asia is providing a multilateral alternative to the world base on values.
- Asian Century corresponds to the re-emergence of the two countries, leveraging the size and technological competence
- Civilizational values: Both countries have civilisational values that are different from the west.
- Peaceful existence: In the case of India and China balance of power is a western construct and both lived in peace across the ages.
- The rise of China on the global landscape: In 2013, after attaining 15% of global wealth, announced the multilateral Belt and Road Initiative (BRI). In 2014, launched the Asian Infrastructure Investment Bank, challenging the global governance paradigm.
- India in 2015, established the International Solar Alliance, laying out a distinct global sustainable development framework.
- Current multilateralism and its problems: The U.S. has recognised the ‘Asian Century’ bypassing multilateralism and recognised Indo-Pacific construct.
- The U.S. withdrawal from the Paris Agreement and the inclusion of intellectual property rights into the trade regime point to the colonial origin of the present order.
New Framework- Country-specific to global value chain
- Changing competition: Competition is moving from country-specific to fragmented competition based on global value chains.
- Imposing the U.S. determined national security standards has led to only a handful of countries agreeing to ban Huawei for 5G technology.
- The U.S. imposed sanctions on Iran that have affected India’s interests.
- A different approach of China: It is based on “common interests” as different from the agreed goals of a negotiated treaty. BRI is an example of this.
- It optimise not maximise the financial returns with countries remaining out of it.
- The BRI offers the benefit of integration and connectivity with European markets to the member countries.
Potential of BRI
- It acts as a strategic framework: It provides a strategic framework for new global institution building.
- Its scope is as wide as multilateral treaties.
- Internationalizing the Renminbi: With state-owned enterprises in the infrastructure sector in the sector in BRI and backing from national banks is internationalising the Renminbi.
- Developing blockchain bases infrastructure: As a leader in digital transactions, China is developing blockchain-based infrastructure in BRI countries. Thus reducing the dependence on the dollar.
The shared interest of India and China
- RCEP: China and the rest of the countries are eager that India joins the Regional Comprehensive Economic Partnership (RCEP), which is poised to become the largest trading block.
- Security and border dispute: With the U.S. pivot to Asia, China is eager to resolve the dispute with India to avoid constraints.
- Huawei: India has rejected American opposition to Huawei taking part in 5G trials, India allowed all applicants to participate.
The emergence of new values
- The emergence of the new order should not be seen through a western prism.
- The triumvirate: India, the U.S., and China are intertwined with each other. China was the largest supplier of the goods to the U.S. in 2018 and it has been India’s major trading partner.
- They take part in limited sectoral cooperation on a regional basis.
- Both the U.S. and China have a regular high-level discussions on strategic issues with India.
Area of future differences
- In Asia, differences will center on overlapping priorities.
- Security-The U.S.’s effort to maintain hegemony.
- Economy-China’s emphasis on connectivity, markets, and growth.
- An equitable and sustainable development-India-led framework of digital infrastructure designed as a public good.
Conclusion
With the rise of India and China in Asia and the presence of the U.S. with them is going to make the new order centered around Asia a new reality in the near future.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
Attend Now