Type: op-ed snap

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

How much forex reserve is too much

Economics | Mains Paper 3: Indian Economy
Note4Students

From UPSC perspective, the following things are important :

Prelims level : India's foreign exchange reserves

Mains level : Paper 3-India's foreign exchange reserves.

India’s foreign exchange reserves touched an unprecedented level. Being reserves, the reserves also represent the lost opportunity. This article examines the reasons for and utility of maintaining huge reserves.

Reasons for surge in the forex reserves

  • The recent forex reserves surge was a result of two things:
  • 1) Foreign institutional investors reinvested in the Indian market in May-June after they exited their positions in panic in March.
  • 2) A global fall in fuel prices has reduced India’s oil import bill, allowing it to save up forex reserves.

But why does India keeps huge forex reserves- 3 possibilities

  • Sufficiency of forex reserves is sometimes measured on how many months’ worth of imports a country can afford.
  • While six months is considered sufficient.
  • The RBI in December 2019 said it had enough to sustain for 10 months, the forex reserves were then $0.4 trillion.
  • Today, the cover is 12 months!
  • This is despite having a sufficient credit line from the IMF, should there be a credit shock.
  • So, there are 3 possibilities for why government maintains such huge reserves.
  • 1) Excess forex reserves are likely the government’s contingency fund, in case the economy suddenly topples.
  • The pandemic has increased the government’s insecurity.
  • 2) Another possibility is that the government is accumulating these reserves as “Plan-B” savings should its strategic disinvestment plans fail.
  • 3) Forex reserves are also likely a way for India now to maintain its global rating.
  • The fundamental use of India’s foreign exchange should be to ensure the Rupee (INR) stability.

Stability of Rupee

  •  Despite steadily rising reserves, INR fluctuated between 77 and 75 against the US dollar in the last two months.
  • INR has become one of Asia’s worst currencies.
  • The RBI may allow it to devalue further to support its balance sheet,
  • Devaluation would enable it to transfer a big chunk of its realised profits as dividend to the starving government.

Lost opportunity

  • It is understandable for oil-rich countries to maintain high forex reserves.
  • A single oil trade hiccup can derail their economy.
  • Economists have theorised that holding high forex reserves is unnecessary.
  • In fact, not using them to finance mega infrastructure projects are lost opportunities.
  • And yet the Indian government has held these reserves in liquid, possibly for its feared D-day.

Perils of using forex reserves as emergency funds

  •  Over-reliance on these floating funds to stimulate the economy might be poorly informed.
  • The potential of these funds to switch direction [i.e. they could exit as fast] should not be underestimated.
  • In March alone, foreign institutional investments in India fell by Rs 65,000 crore.
  • India’s foreign exchange reserves registered this impact.
  • Reversing the dip, investments went up in May and now in June with some big corporate deals.
  • If the government intends to use forex reserves as an emergency fund, it should ensure that they do not shrink just when they are most needed.

Consider the question “India’s foreign exchange reserves touched new height recently. This also giver rise to the argument of lost opportunity. In light of this discuss the utility of maintaining foreign exchange reserves and issue of optimum level of foreign exchange reserves.”

Conclusion

Maintaining high foreign exchange reserves definitely entails cost. The cost-benefit analysis and the lost opportunity must be the basis for deciding the level of the reserves.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Why spending on infrastructure matters

Economics | Mains Paper 3: Indian Economy
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Aggregate demand, components of India's growth

Mains level : Paper 3- Importance of spending of infrastructure

Spending on infrastructure can help kickstart the economy. This article highlights the importance of spending on infrastructure and suggests ways to find resources.

Gloomy prospects for Indian economy

  • The IMF estimates the global economy to contract by -4.9 per cent this year.
  • It could still contract should the virus not recede in the latter half of 2020.
  • As for the Indian economy, growth has been decelerating for the past eight quarters.
  • Indications by the RBI suggest that growth is contracting for the first time in four decades.
  •  We must address the elephant in the room — the need to further aid a demand recovery as the economy begins to reopen.

Components of Indias growth

  • Growth in the Indian economy has been dominated by the following components respectively-
  • 1) Consumption.
  • 2) It is followed by investments.
  • 3) Government expenditure.
  • 4) Net exports.
  • However, consumption and investment demand have been subdued for the past few quarters, dragging down overall growth.
  • Keynesian theory suggests that for aggregate demand to increase, at least one of the components of GDP needs to expand.

Declining consumption demand

  • These two components were perhaps casualties of a sharp deceleration in credit supply.
  •  The IL&FS debacle in September 2018 only made matters worse.
  • The NBFC sector, suffered from funding crunches leading to a further squeeze in credit supply.
  • Freeze in credit supply impacted consumption demand.
  • This deceleration is likely to exacerbate going forward.

Declining rate of investment

  • Broad-based utilisation levels, as represented by the RBI, dropped to 68.6 per cent in Q3FY20.
  • This is well below the 75 per cent benchmark for new capacity addition, implying suboptimal levels of fresh investments.
  • A higher rate of investments is essential for sustainable economic growth.
  • The deteriorating economic scenario and increasing levels of debt with rating downgrades for industries are likely to aggravate existing problems.

Importance of expenditure on spending on infrastructure

  • Government expenditure is the only exogenously determined element in a Keynesian framework.
  • The positive push required to aid a demand recovery has to come through the government.
  • However, with sparse resources that India has, we must deploy funds that yield a higher return.
  • One key area that can provide the necessary support is infrastructure investment.
  • A study by S&P Global estimates 1 per cent of GDP spend on infrastructure can boost real growth by 2 per cent while creating 1.3 million direct jobs.
  • Historically, countries have used infrastructure to provide counter-cyclical support to the economy.
  • Notably, infrastructure has strong links to growth and with both supply and demand-side features that help generate employment and long-term assets.
  • India already has an upper hand here.
  • Front-loading key projects with greater visibility from the recently announced National Infrastructure Pipeline (NIP) could aid in a quicker recovery.

Special infrastructure bond

  •  India already has several institutions for infrastructure development purposes from the likes of IIFCL, IRFC to more recently NIIF.
  • Taking a cue from China, floating special infrastructure bonds through this organisation to accelerate the funding of the NIP could aid a speedier recovery.
  • Further, taking a page from the New Deal and its Reconstruction Finance Corporation, this institution’s ability for greater leverage can be used to make amends to our credit channels.
  • This ability could also be used for the development of state government and urban local body bond markets.
  • This could help businesses and bankers overcome risk aversion and bring back trust in the system while financing new paths for growth.

Consider the question “Highlight the role of consumption and investment as the two largest contributors to India’s growth and explain how spending on the infrastructure could help revive the economy hit hard by the pandemic”

Conclusion

The exogenous component in the form of spending by the government could step-in in a greater way, perhaps because, it is the only one that can.

Foreign Policy Watch: India-China

Resistance to China is going to be definitive moment for India

International Relations | Mains Paper 2: India & Its Neighborhood - Relations
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 2- India-China standoff

How India overcomes the challenge posed by China would have far-reaching effects. Role of Russia and the U.S. is important for India. This article discusses these factors and the significance of the outcome of the conflict started at Galwan. 

Two takes on India’s China policy

  • Following Galwan encounter, there are two views about the future of India’s China policy.
  • Some say that structural constraints would limit dramatic changes in policy once the heat of the moment dissipates.
  • While others say that the Galwan clash comes amidst the deepening crisis in bilateral relations over the last decade.
  • Stalled boundary talks, a widening trade deficit, the clash of national interests in the region, and Chinese opposition to India’s global aspirations have together strained Sino-Indian relations.
  • Galwan is the last straw, the argument goes, that broke the camel’s back.

So, what will be the outcome

  •  The relationship is likely to depend on how the current military confrontation in Ladakh is resolved.
  • If it ends with a quick return to the status quo that prevailed in April, inertia is likely to limit radical policy departures.
  • If the Ladakh crisis ends in a setback for India, the pressure on Delhi to radically reorient its China policy will mount.

What if the standoff continues?

  • In that case strengthening India’s military and political hand against China is the immediate objective of Delhi’s post-Galwan diplomacy.
  • The long term steps suggested include the construction of a military alliance with the US and other Western partner.
  • As as well as economic decoupling and diversification.
  • Short term steps are about being able to stare down the Chinese in the current military confrontation and hold its ground.

Role of Russia

  • Three decades after the collapse of the Soviet Union, India’s dependence on Russian arms remains substantive.
  • Rajnath Singh’s visit to Moscow amidst the crisis with China underlines the weight of the past in India’s security policy.
  • India is also pressing other major defence suppliers, including France and Israel, to accelerate deliveries on contracted defence equipment.
  • There have been reports from Russia, that China is pressing Moscow not to sell the new fighter aircraft to India.
  • Russia and China are strong strategic partners today.
  • While the past suggests India has a special claim to Russian affections, there is a Sino-Russian strategic cohabitation today in opposition to America
  • How Russia responds to India’s request will have a major bearing on the future evolution of Delhi’s ties with Moscow.

Role of the U.S.

  • Unlike Russia’s public stance of neutrality between India and China, Washington has come out in favour of Delhi.
  • There was vocal public support of the US defence and foreign policy establishment against Chinese aggression at Galwan.
  •  Media reports from Delhi say the US is already supplying valuable real-time military intelligence of value to the Indian armed forces.
  • Washington is apparently willing to do more but is letting Delhi decide the pace and intensity of that cooperation.

Challenges in the U.S. cooperation

  • The uncertain political moment in the US amidst the general election scheduled for early November can’t be underestimated.
  • A change of guard in Washington will certainly slow things down as the new administration settles down and reviews its priorities.
  • America’s stakes in China are far higher than Russia’s.
  • Profound economic interdependence of the U.S. and China is a significant political constraint on the US’s options.
  • On deeper military cooperation with Washington, Delhi would want to move with care rather than rush into it as it did in 1962.

How will outcomes of the crisis matter for India

  • If Delhi comes out of this crisis wounded, its troubles at home and the world will mount significantly.
  • A weakened India will find recasting its China policy even harder.
  • But victorious India will find its international political stock rising and its options on China expanding.
  •  Successful Indian resistance to China’s expansionism would be a definitive moment in the geopolitical evolution of Asia.
  • The stakes for India and the world, then, are far higher today than in 1962.

Consider the question “Examine the issues that introduce friction in India-China relations. Also, elaborate on the scope of India’s alliance with the U.S to counter the challenges posed by China.”

Conclusion

Outcomes of the resistance will have a profound impact on India’s standing and India’s destiny.

Foreign Policy Watch: India-China

Making sense of moves of China

International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Galwan valley

Mains level : Paper 2- India-China relations, role of intelligence, limits of summit diplomacy

The role played by intelligence and emphasis on Summit diplomacy in relation with China are the two issues discussed in this article. So, what went wrong in Galwan incident from the intelligence point of view? And what are the perils of Summit diplomacy? Read to know...

Galwan-New and fractious phase

  • What occurred in the Galwan heights on June 15, must not be viewed as an aberration.
  • It would be more judicious to view it as signifying a new and fractious phase in China-India relations.
  • Even if the situation reverts to what existed in mid-April India-China relations appear set to witness a “new and different normal”.
  • China’s reaction has been consistent — India must move out of Galwan.
  • This is something that India cannot ignore any longer.
  • Galwan incident cannot be viewed as a mere replay of what took place in Depsang (2013), Chumar (2014) and Doklam (2017).
  • This is a new and different situation and India must not shrink from addressing the core issue that relations between India and China are in a perilous state.

Close and careful analysis of China’s claim is necessary

  • China’s assertion of its claim to the whole of the Galwan Valley needs close and careful analysis for following reasons-
  • 1) Point 14 gives China a virtual stranglehold over the newly completed, and strategically significant, Darbuk-Shyok-Daulat Beg Oldie Road, which leads on to the Karakoram Pass.
  • 2) The strategic implications for India of China’s insistence on keeping the whole of the Galwan Valley are serious as it fundamentally changes the status quo.
  • 3) By laying claim to the Galwan Valley, China has reopened some of the issues left over from the 1962 conflict.
  • And this demonstrates that it is willing to embark on a new confrontation.

LAC and claim line of China

  • Ambiguity has existed regarding the Line of Actual Control (LAC) in this sector.
  • The Chinese “claim line” is that of November 1959.
  • For India the LAC is that of September 1962.
  • In recent years, both sides had refrained from reopening the issue, but China has never given up its claims.
  • By its unilateral declaration now, China is seeking to settle the matter in its favour. India needs to measure up to this challenge.

Importance of Aksai Chin

  • The importance of Aksai Chin for China has greatly increased of late, as it provides direct connectivity between two of the most troubled regions of China, viz., Xinjiang and Tibet.
  • This does not seem to have been adequately factored in our calculations.
  • While Indian policymakers saw the reclassification of Ladakh as purely an internal matter.
  • They overlooked the fact that for China’s military planners it posited a threat to China’s peace and tranquillity.

Intelligence capabilities

  • Admittedly, the timing and nature of China’s actions should have aroused keen interest in intelligence circles about China’s strategic calculations.
  • The Chinese build-up in the Galwan Valley, Pangong Tso and Hotsprings-Gogra did not require any great intelligence effort, since there was little attempt at concealment by the Chinese.
  • India also possesses high-quality imagery intelligence (IMINT) and signals intelligence (SIGINT) capabilities.
  • These capabilities are distributed between the National Technical Research Organisation, the Directorate of Signals Intelligence of the Ministry of Defence and other agencies.
  • Which made it possible to track Chinese movement.
  • Where intelligence can be faulted is with regard to inadequate appreciation of what the build-up meant, and what it portended for India.
  • This is indicative of a weakness in interpretation and analysis of the intelligence available.
  • And also of inability to provide a coherent assessment of China’s real intentions.
  • Intelligence assessment of China’s intentions, clearly fell short of what was required.
  • While India’s technological capabilities for intelligence collection have vastly increased in recent years, the capacity for interpretation and analysis has not kept pace with this.
  • Advances in technology, specially Artificial Intelligence have, across the world, greatly augmented efforts at intelligence analysis.

Who has the responsibility of intelligence assessment and analysis

  • The principal responsibility for intelligence assessment and analysis concerning China, rests with the National Security Council Secretariat (NSCS) and India’s external intelligence agency, the Research and Analysis Wing (R&AW).
  • To a lesser extent, it remains with the Defence Intelligence Agency.
  • The decision of the NSCS to dismantle the Joint Intelligence Committee has contributed to a weakening of the intelligence assessment system.
  • In the case of the R&AW, lack of domain expertise, and an inadequacy of China specialists might also have been a contributory factor.

Adverse impact of certain policy measures

  •  The preference given recently to Summit diplomacy over traditional foreign policy making structures proved to be a severe handicap.
  • Summit diplomacy cannot be a substitute for carefully structured foreign office policy making.
  • Currently, India’s Summit diplomacy has tended to marginalise the External Affairs Ministry with regard to policy making, and we are probably paying a price for it.
  • As it is, the Ministry of External Affairs’s (MEA) stock of China experts seems to be dwindling.
  • And MEA’s general tilt towards the U.S. in most matters, has resulted in an imbalance in the way the MEA perceives problems and situations.

Conclusion

Along with the other factors, India should also focus on intelligence analysis and interpretation and make sure there are enough China experts in the MEA.

RBI Notifications

Governance of the commercial banks

Economics | Mains Paper 3: Indian Economy
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Companies Act 2013

Mains level : Paper 3- Governance issue in the banks

This article discusses the nitty-gritty of the recently released discussion paper by the RBI on governance. Governance in the commercial bank has been in the news following the failures of some banks.

Discussion paper by RBI

  • Recently RBI released a discussion paper on ‘Governance in Commercial Banks in India’.
  • Recently there have been high-profile instances involving governance failures in certain banks.
  • These instances have called into question the adequacy of the existing legal regime for ensuring good governance in commercial banks.
  • Internationally, the question of governance norms in banks is treated differently given the complex nature of functions performed by banks in comparison to other businesses.
  • Functions of the banks make them critical for allocation of resources in the economy, protection of consumer interests and maintenance of financial stability.

Objectives of the discussion paper

  • The stated objective of the discussion paper is to align the current regulatory framework on bank governance with global best practices.
  • Best practices include the guidelines issued by the Basel Committee on Banking Supervision and the Financial Stability Board.

Current regulatory framework

  • To this end, RBI adopts international standards for bank governance into the general corporate governance framework in India.
  • This general governance framework comprises the Companies Act, 2013, and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Requirements, 2015.
  • These governance norms focus on the responsibilities of the board of directors, board structure and practices.
  • And it also includes aspects of risk management, internal audit, compliance, whistle-blowing, vigilance, disclosure and transparency.

Issue of connection between management and owner

  • RBI also constituted an internal working group to review the extant regulatory guidelines relating to ownership and control in private sector banks.
  • This group is expected to submit its report by September 30, 2020.
  • But the assumption that deeper connections between the management and the owners necessarily lead to mismanagement needs to evaluated carefully and recalibrated to ensure balanced reforms.
  • The governance risks attributable to such connections might be relevant for government-owned banks as well.

Key recommendations in the paper

  • (1) The majority of a commercial bank’s board must comprise of independent directors.
  • This is a standard higher than that prescribed under the Companies Act and the SEBI Regulations.
  • (2) The chairperson of the board must be an independent director.
  • (3) Chairpersons of crucial board committees (the audit committee, the risk management committee and the nomination and remuneration committee) must be independent directors who are not chairpersons of any other board committee.
  • (4) The tenures of non-promoter CEOs and WTDs should be limited to 15 years.

Way forward

  • In order to make the reform effective, the appointment process for independent directors also needs to be re-evaluated to limit the role of controlling-shareholders.
  • The liability regime for directors on the boards of banking companies should also be revisited to balance the rights and liabilities of the directors.
  • The efficacy of implementation of norms as prescribed will depend on adequate enforcement.
  • The findings of the report of the working group have to be considered to formulate a comprehensive and effective governance framework for commercial banking in India.

Consider the question “Given the complex nature of functions performed by the banks in comparison to other businesses subjecting them to stricter norms of governance is necessary. In light of this examine the adequacy of existing governance norms and suggest ways to improve them.”

Conclusion

RBI must exercise caution to ensure that the reforms balance the interests of all the stakeholders and do not come at the cost of discouraging investments and entrepreneurship in the Indian banking industry.

Higher Education – RUSA, NIRF, HEFA, etc.

Online education in India

Governance | Mains Paper 2: Health & Education
Note4Students

From UPSC perspective, the following things are important :

Prelims level : MOOC

Mains level : Paper 2- Adopting online mode for education amid pandemic

What are the benefits of Online Learning in distress situations?

  • In pandemic situation like today’s, where due to nationwide lockdown, all schools, colleges, universities were shut down, online learning comes as a savior to students and provided them with an opportunity to continue learning even while at home.
  • There was anxiety, particularly about the graduating batches of students, lest the ongoing session should be declared a ‘zero semester’. There were attempts from individual teachers to keep their students engaged. A few universities made arrangements for teachers to hold their classes virtually through video conferencing services such as Zoom. These are well-meaning attempts to keep the core educational processes going through this period.
  • Many private and government colleges in the country had been conducting online classes. Very small aperture terminals (VSATs) are still used by top Business schools in the country to create a closed user group (CUGs), which offers online classes globally. However, COVID-19 has hastened
  • Online education, a result of the digital world has brought a lot to the learning table at all levels of education, beginning from preschool up to higher level institutions. The move to remote learning has been enabled by several online tech stacks such as Google Classroom, Blackboard, Big Blue Button, Zoom and Microsoft Teams, all of which play an important role in this transformation.
  • With the development of ICT in education, online video-based micro-courses, e-books, simulations, models, graphics, animations, quizzes, games, and e-notes are making learning more accessible, engaging, and contextualized.
  • To ensure that learning never stops, the online education sector, and mobile networks have become the preferred platform. Teachers are preparing lessons using distance learning tools, and parents are learning new teaching techniques at home. Providing aid are the entrepreneurs offering online learning apps like BYJU’s, Adda24x7, Duolingo, Khan Academy, Witkali and several others.
  • Universities like World University of Design, Jawahar Lal Nehru University, Jamia Millia Islamia, Amity, IP University, Lovely Professional University and Mumbai University are offering online classes across different subjects.
  • Schools in 165 countries around the world have closed due to the Corona virus outbreak, according to UNESCO. And, according to the International Telecommunication Union(ITU), more than 1.5 billion school children around the world are using online education, following the global lockdown.
  • Online learning is not for everyone. Schools located in remote areas of the country with limited availability of electricity and internet is making restricted use of WhatsApp to stay connected with their classrooms.

    3.) Less intimidating

    Many students in classroom environments aren’t comfortable speaking in public. In an online environment, it can be much easier to share thoughts with others

    5.) Focus on ideas

    With an estimated 93 percent of communication being non-verbal, online students don’t have to worry about body language interfering with their message. While body language can be effective sometimes, academics are more about ideas, and online education eliminates physical judgments that can cloud rational discussion.

    5.) Focus on ideas

    With an estimated 93 percent of communication being non-verbal, online students don’t have to worry about body language interfering with their message. While body language can be effective sometimes, academics are more about ideas, and online education eliminates physical judgments that can cloud rational discussion.

    8.) Cost

    Although the cost of an online course can be as much or more than a traditional course, students can save money by avoiding many fees typical of campus-based education, including lab fees, commuting costs, parking, hostels, etc. Imagine living in Dhule but going to college in Mumbai.

Issues with draft EIA Notification 2020

Enviro & Biodiversity | Mains Paper 3: Conservation, Environmental Pollution & Degradation, Eia
Note4Students

From UPSC perspective, the following things are important :

Prelims level : EIA

Mains level : Paper 3- Environment Impact Assessment

The changes made in the recent notification gives rise to several issues. These changes and issues that could arise are discussed in this article.

  • Environmental Impact Assessment (EIA) is a process of evaluating the likely environmental impacts of a proposed project or development, taking into account inter-related socio-economic, cultural and human-health impacts, both beneficial and adverse.
  • UNEP defines Environmental Impact Assessment (EIA) as a tool used to identify the environmental, social and economic impacts of a project prior to decision-making.
  • It aims to predict environmental impacts at an early stage in project planning and design, find ways and means to reduce adverse impacts, shape projects to suit the local environment and present the predictions and options to decision-makers.
  • Environment Impact Assessment in India is statutorily backed by the Environment Protection Act, 1986 which contains various provisions on EIA methodology and process.

History of EIA in India

  • The Indian experience with Environmental Impact Assessment began over 20 years back. It started in 1976-77 when the Planning Commission asked the Department of Science and Technology to examine the river-valley projects from an environmental angle.
  • Till 1994, environmental clearance from the Central Government was an administrative decision and lacked legislative support.
  • On 27 January 1994, the then Union Ministry of Environment and Forests, under the Environmental (Protection) Act 1986, promulgated an EIA notification making Environmental Clearance (EC) mandatory for expansion or modernisation of any activity or for setting up new projects listed in Schedule 1 of the notification.
  • The Ministry of Environment, Forests and Climate Change (MoEFCC) notified new EIA legislation in September 2006.
    • The notification makes it mandatory for various projects such as mining, thermal power plants, river valley, infrastructure (road, highway, ports, harbours and airports) and industries including very small electroplating or foundry units to get environment clearance.
    • However, unlike the EIA Notification of 1994, the new legislation has put the onus of clearing projects on the state government depending on the size/capacity of the project.

The EIA Process

EIA involves the steps mentioned below. However, the EIA process is cyclical with interaction between the various steps.

  • Screening: The project plan is screened for scale of investment, location and type of development and if the project needs statutory clearance.
  • Scoping: The project’s potential impacts, zone of impacts, mitigation possibilities and need for monitoring.
  • Collection of baseline data: Baseline data is the environmental status of study area.
  • Impact prediction: Positive and negative, reversible and irreversible and temporary and permanent impacts need to be predicted which presupposes a good understanding of the project by the assessment agency.
  • Mitigation measures and EIA report: The EIA report should include the actions and steps for preventing, minimizing or by passing the impacts or else the level of compensation for probable environmental damage or loss.
  • Public hearing: On completion of the EIA report, public and environmental groups living close to project site may be informed and consulted.
  • Decision making: Impact Assessment Authority along with the experts consult the project-in-charge along with consultant to take the final decision, keeping in mind EIA and EMP (Environment Management Plan).
  • Monitoring and implementation of environmental management plan: The various phases of implementation of the project are monitored.
  • Assessment of Alternatives, Delineation of Mitigation Measures and Environmental Impact Assessment Report: For every project, possible alternatives should be identified, and environmental attributes compared. Alternatives should cover both project location and process technologies.
    • Once alternatives have been reviewed, a mitigation plan should be drawn up for the selected option and is supplemented with an Environmental Management Plan (EMP) to guide the proponent towards environmental improvements.
  • Risk assessment: Inventory analysis and hazard probability and index also form part of EIA procedures.

Importance of Precautionary Principle

  • The basis in global environmental law for the EIA is the “precautionary principle”.
  • Environmental harm is often irreparable and it is cheaper to avoid damage to the environment than to remedy it.
  • We are legally bound to the precautionary principle under international treaties and obligations, as well as by Supreme Court judgments.

What is the issue?

  • Streamlining the EIA process and bringing it in line with recent judgments are the reasons given by the government for latest notification.
  • The Draft EIA Notification disables it, shrinks its scope and removes what teeth it did have.
  • The most devastating blow to the EIA regime is the creation of an ex-post-facto clearance route. 

1.What is ex-post-facto clearance route?

  • It applies to ongoing or completed project for which an EIA clearance was never sought or granted, and the construction of the project took place regardless.[violating the norms]
  • The project now can be slapped with minor fines for the violations and get cleared.
  • Where such ex-post-facto clearances were being granted previously, the courts cracked down on them as illegal.
  • Therefore, what could not be ratified will now find itself notified.
  • The legality of sidestepping the courts is questionable and will have to be tested.

How it will affect?

  •  It will become a business decision as to whether the
  • There is an argument that this route will be an “exception”.
  • But it is difficult to believe in India. Our law has a long history of expanding the exception into the rule.

Time to furnish response shortened

  • The draft notification also shortens the time for the public to furnish responses on the project.
  • For project-affected people, who are frequently forest dwellers or otherwise do not have access to information and technology.
  • This will make it harder to put forth representations.

2.Monitoring requirements reduced

  • Monitoring requirements have been slackened.
  • The draft EIA notification halves the frequency of reporting requirements from every six months to once a year.
  • It also extends the validity period for approvals in critical sectors such as mining.

3.Scope of EIA reduced

  • Industries that previously required a full assessment have been downgraded.
  • The construction industry will be one such beneficiary, where only the largest projects will be scrutinised fully.
  • While defence and national security installations were always understandably exempt, a vague new category of projects “involving other strategic considerations” will also now be free from public consultation requirements.

4.Recent industrial mishaps

  • Oil India Limited’s oil wells in the Tinsukia district, Assam went up in flames this month.
  • It is situated only a few kilometres away from protected forest.
  • Recent processes for expansion and modification apparently took place without fresh environmental clearance.
  • There was a deadly gas leak at LG Polymers’ Visakhapatnam plant in May.
  • The plant had been operating without a valid environmental clearance for decades.

Consider the question “Examine the changes made in the draft EIA Notification and what are the issues with it? “

Way Forward

On a positive note, the 2020 draft notification has a clause dedicated to definitions to several terms related to EIA. It may be beneficial in the sense that it consolidates the EIA rules and has the potential of alleviating some ambiguity in the present law.

  • The ministry, instead of reducing the time for public consultation, should focus on ensuring access to information as well as awareness about the public hearing and its impact upon the whole EIA process.
  • In order to improve ease of doing business, the government should bring down the average delay of 238 days in granting environmental clearance, that emanates from bureaucratic delays and complex laws.
  • Grow now, sustain later should not be the policy, as the notion is dangerously tilted against the concept of sustainable development.

Conclusion

Environmental regulation must balance damage to the environment with sustainable development and possible benefits but the new notification lays more emphasis on the benefits and so must be reconsidered.

Foreign Policy Watch: India-China

India will have to manage its conflict on its own

International Relations | Mains Paper 2: India & Its Neighborhood - Relations
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 2- India-China relations

The Galwan incident marked the new low in the India-China relations. Following it, there have been talks of a closer alliance with the U.S. This article analyses the utility, potential and the limitations of this approach.

Exploring the strategic options

  • As the border stand-off with China deepens, India will have to think of all possible strategic options that gives it leverage.
  • One of the options is new arrangements with other powers.
  • This is the right moment to mobilise international opinion on China.
  • But can this be translated into concerted global action to exert real pressure on China?

Things India should consider while forming alliance with the US

  • International relations are formed in the context of a country’s development paradigm.
  • India’s primary aim should be to preserve the maximum space for its development model, if it can actually formulate one.
  • India is not unique in this respect.
  •  The question for India is not just whether the US has a stake in India’s development, which it might.
  • But it is, rather, to ask whether India’s development needs will fit into the emerging US development paradigm.
  • Will the very same political economy forces that create a disengagement with China also come in the way of a closer relationship with India?
  • Some sections of American big business might favour India.
  • But the underlying political economy dynamics in the US are less favourable.
  • Will the US give India the room it needs on trade, intellectual property, regulation, agriculture, labour mobility, the very areas where freedom is vital for India’s economy?
  • Will a US hell-bent on bringing manufacturing jobs back to the US, easily gel with an “atma nirbhar” Bharat?
  • To see what is at stake, we just need to look how the development paradigm is driving tensions on trade, taxation and regulatory issues between the US and EU.

Why India avoided alignment with the US in the past

  •  But the drivers of this have often been legitimate differences over development, including climate change.
  • It has also been that, at various points, that alignment was against India’s other strategic commitments.
  • India was wise to stay out of the war in Iraq, it was wise not to upset Russia.
  • It is wise not to throw its weight behind the US’s Iran policy.
  • There is more maturity in the US to understand India’s position.

Global reluctance in collective action against China

  • It is an odd moment in global affairs, where there is recognition of a common challenge emanating from China.
  • But there is no global appetite to take concerted action.
  • An interesting example might be the global response to the BRI.
  • Many countries are struggling to meet their BRI debt obligations.
  • But it is difficult to see the rest of the international community helping all these countries to wean their regimes away from dependence on Chinese finance.
  • Similarly, there are now great concerns over frontier areas of conflict like cyber security and space.
  • It is difficult to imagine concerted global action to create rules in these area, partly because Great Powers like the US and Russia will always want to maintain their exceptionalism.

Limitations of global alliance and public opinion in solving local conflicts

  • 1) The international community has not been very effective in neutralising
  •  exercised by some powers.
  • This is the tactic Pakistan has used.
  • 2) Don’t count on the fact that the world will support an Indian escalation beyond a point.
  • The efforts of the international community, in the final analysis, will be to try and throw cold water on the conflict.
  • No one has a serious stake in the fate of the terrain India and China are disputing.
  • At the end of the day, India has to manage China and Pakistan largely on its own.

Conclusion

Even as we deal with the military situation on the border, the test of India’s resolve will be its ability to return to some first principle thinking about its own power.

Food Procurement and Distribution – PDS & NFSA, Shanta Kumar Committee, FCI restructuring, Buffer stock, etc.

Universalising the PDS

Economics | : PDS, Buffer Stock & Food Security
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- PDS and related issues

  • The Public distribution system (PDS) is an Indian food Security Systemestablished under the Ministry of Consumer Affairs, Food, and Public Distribution.
  • PDS evolved as a system of management of scarcity through distribution of food grains at affordable prices.
  • PDS is operated under the joint responsibility of the Central and the State Governments.
    • The Central Government, through Food Corporation of India (FCI), has assumed the responsibility for procurement, storage, transportation and bulk allocation of food grains to the State Governments.
    • The operational responsibilities including allocation within the State, identification of eligible families, issue of Ration Cards and supervision of the functioning of Fair Price Shops (FPSs) etc., rest with the State Governments.
  • Under the PDS, presently the commodities namely wheat, rice, sugar and keroseneare being allocated to the States/UTs for distribution. Some States/UTs also distribute additional items of mass consumption through the PDS outlets such as pulses, edible oils, iodized salt, spices, etc.

Foreign Policy Watch: India-China

Three pronged strategy to deal with China

International Relations | Mains Paper 2: India & Its Neighborhood - Relations
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 2- India-China border dispute

The LAC has been exploited by China as leverage against India. And failure on our part to understand long-term strategic aims and objective of China makes the problem hard to solve. This article suggests a three-pronged approach to deal with China.

Incomprehension of aims and objectives

  •  There is incomprehension among our decision-makers of the long-term strategic aims and objectives that underpin China’s belligerent conduct.
  • We have not devoted adequate intellectual capital, intelligence resources and political attention to acquisition of a clear insight into China and its motivations.
  • Even when intelligence is available, analysis and dissemination have fallen short.

What China’s Defence White Papers suggest

  • These thematic public documents articulate China’s national security aims, objectives and vital interests and also address the “ends-ways-means” issues related to its armed forces.
  • The 11 DWPs issued so far are a model of clarity and vision, and provide many clues to current developments.
  • No Indian government since Independence has deemed it necessary to issue a defence white paper, order a defence review or publish a national security strategy.
  • Had we done so, it may have prepared us for the unexpected and brought order and alacrity to our crisis-response.

China uses LAC as strategic leverage

  • In order to show India its place, China had administered it a “lesson” in 1962.
  • And it may, perhaps, be contemplating another one in 2020, with the objective of preventing the rise of a peer competitor.
  • For China, the line of actual control or LAC, representing an unsettled border, provides strategic leverage.
  • Leverage it can use to keep India on tenterhooks about its next move while repeatedly exposing the latter’s vulnerabilities.

1993 Agreement didn’t benefit India

  • Our diplomats derive considerable satisfaction from the 1993 Border Peace & Tranquility Agreement.
  • This agreement, according to former foreign secretary, Shivshankar Menon, “…effectively delinked settlement of the boundary from the rest of the relationship”.
  • But by failing to use available leverage for 27 years, and not insisting on bilateral exchange of LAC maps, we have created a ticking time-bomb, with the trigger in China’s hands.
  • While “disengagement” may soon take place between troops in contact, it is most unlikely that the PLA will pull back or vacate any occupied position in Ladakh or elsewhere.
  • In which case, India needs to consider a three-pronged strategy.

What should be India’s three-pronged strategy?

1. Reinforce at ground level

  • At the ground-level, we need to visibly reinforce our positions, and move forward to the LAC all along.
  • We should enhance the operational-tempo of the three services as a measure of deterrence.
  • Indian warships should show heightened presence at the Indian Ocean choke-points.
  • Cyber emergency response teams country-wide should remain on high alert.
  • We should build-up stocks of weapons, ammunition and spares.
  • The Ministry of Defence should seize this opportunity to urgently launch some long-term “atma-nirbharta” schemes in defence-production.

2. At strategic level: Modus vivendi

  • At the strategic level, the government should consider sustained process of engagement with China at the highest politico-diplomatic echelons.
  • The negotiations should seek multi-dimensional Sino-Indian modus-vivendi; encompassing the full gamut of bilateral issues like trade, territorial disputes, border-management and security.
  • Simultaneously, at the grand-strategic level, India should initiate a dialogue for the formation of an “Indo-Pacific Concord for Peace and Tranquility”.
  • This Concord should involve inviting four members of the Quad as well as Vietnam, Indonesia, Philippines and Malaysia.

3. Political pragmatism

  • As a nation, we need to be pragmatic enough to realise that neither conquest nor re-conquest of territory is possible in the 21st century.
  • Parliament should, now, resolve to ask the government, “to establish stable, viable and peaceful national boundaries”.

Consider the question “With changing relations with China, India needs to overhaul its strategy on the ground, strategic and political levels in dealing with China”

Conclusion

This three-pronged approach while comprehending the Chines objectives and goals can help India in dealing successfully with the challenge posed by China.

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

We need National Plan for Covid-19

Enviro & Biodiversity | Mains Paper 3: Disaster Management
Note4Students

From UPSC perspective, the following things are important :

Prelims level : PM CARES

Mains level : Paper 3- Disaster Management Act, National Plan

The Disaster Management Act (DMA) 2005 has been invoked by the government to deal with the pandemic. However, National Plan as provided under the Act to deal with Covid-19 is nowhere to be found. Also, the creations of PM CARES violated the provision of the DMA-2005. These two issues are discussed here.

Provisions of DMA 2005

  • The Act, along with other things provides the constitution of a National Authority, a National Executive committee.
  • It also provides for the constitution of an advisory committee of experts in the field to make recommendations and to prepare a national plan.
  • This plan must provide for measures for prevention or mitigation.
  • The Act lays down “guidelines for minimum standards of relief, including ex gratia assistance.

Provision of various Funds under DMA 2005

  • It enables the creation of a National Disaster Response Fund in which the central government must make due contribution.
  • It also requires “any grants that may be made by any person or institution for the purpose of disaster management” to be credited into the same Fund.
  • It also provides for a National Disaster Mitigation Fund, exclusively for mitigation.
  • The Act also provides for State and local-level plans and for creating State Disaster Response Fund among others.

Provision of disaster management plan

  • After the direction by the SC, the government came out with a National Disaster Management Plan (NDMP), 2016.
  • This Plan dealt with various kinds of disasters; it was amended in 2019.
  • Bu this National Plan not in place now.
  • Without it, the fight against COVID-19 is ad hoc and has resulted in thousands of government orders.
  • These orders are confusing those who are to enforce them as well as the public.

NDRF and PM CARES issue

  • On April 3, 2020, the government of India agreed to contribute its share to the NDRF.
  • But a public charitable trust under the name of Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) was set up to receive grants made by persons and institutions out of the NDRF, in violation of Section 46 of the Act.
  • The crores being sent to this fund are not even audited by the Comptroller and Auditor General (CAG) of India.
  • It is a totally opaque exercise.
  • The government of the day has not only ignored the binding law but also circumvented it.
  • The government has been fighting the crisis in an ad hoc and arbitrary manner instead of the organised steps as mandated by the Act.
  • In so doing, the experts have been sidelined.

Consider the question “Describe the various provision of the DMA 2005 to deal with the disaster. In light of this, examine whether the creation of PM CARES conflicts with the provision of his act”

Conclusion

The national plan to deal with the pandemic and making PM CARES more transparent would help the government in its fight against the corona crisis.

Foreign Policy Watch: India-China

Future of relations with China

International Relations | Mains Paper 2: India & Its Neighborhood - Relations
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Galwan river, Shyok River

Mains level : Paper 2- India-China relations

This article calibrates the changes our future engagement with China will experience following the Galwan incident. The first casualty has been the trust between the two countries. And next could be strategic communications between the two countries. So, India’s response to the incident should be based on these changes.

What explains China’s aggression

  • Hubris, internal insecurities in China, the COVID-19 pandemic and the complex and confused external environment explains it.
  • Challenge posed by India from the ideological, strategic and economic points of view can be the other factor.

Violation of many agreements

  • China’s recent military actions in Ladakh clearly violate the signed agreements of 1993, 1996, 2005, etc on maintaining peace and tranquillity along the LAC.
  • These actions are in violation also of other signed agreements, including at the highest level.
  • It also contradict positions taken by Xi himself at the informal Wuhan and Chennai summits in 2018 and 2019.
  • In 2003, two countries signed a Declaration on Principles for Relations and Constructive Cooperation between our two countries.
  • The third principle states: “The two countries are not a threat to each other. Neither side shall use or threaten to use force against the other.”
  •  This was more than reiterated in the agreement signed in April 2005 on the Political Parameters and Guiding Principles for settlement of the India China boundary question.
  • . Article 1 states, inter alia: “Neither side shall use or threaten to use force against the other by any means.”

Doklam and informal summits

  • .A qualitative change though occurred in Chinese perceptions after the Doklam face-off.
  • That necessitated the first informal summit at Wuhan in April 2018.
  • One important outcome of that summit was the agreement to continue to meet at the highest level and to enhance trust and strengthen strategic communication.
  • The second informal summit took place between Xi and Narendra Modi in Chennai in October 2019.
  • It was in the aftermath of the revocation of Article 370 by India and China’s unnecessary and unsuccessful attempt to raise the issue in the UN Security Council.
  • By then, many other developments — both internal and external — had added pressure on China.
  • At Chennai, the Chinese undoubtedly drew some red lines.

Which red lines does China feel India has crossed

  • One fundamental red line is China’s long-held and strategic interest in parts of Jammu and Kashmir.
  • Jammu and Kashmir border Xinjiang and Tibet and allow connectivity between the two.
  • It is wrongly argued that it is Pakistan that is the issue in J&K.
  • China is as big an issue but has quietly hidden behind Pakistan’s cover.
  • That is no longer feasible as democratic India becomes economically and otherwise stronger.

Future of Special Representative process

  • The Special Representatives process to address the boundary question seems stalemated and its usefulness needs review.
  • The 2005 agreement contains the necessary parameters for a boundary settlement but there is obviously not adequate common ground.
  • Some positivity can, however, be brought in if the LAC clarification process is revived and completed in a time-bound manner.
  • But this is easier said than done in the prevailing circumstances.
  • Patrolling procedures will need to be revised, preferably by mutual agreement.

Unsustainable economic partnership

  • The current nature of the economic partnership between India and China is not sustainable.
  • India’s annual trade deficit with China in recent years virtually finances a CPEC a year!
  • China has still not fulfilled all its commitments to India on joining the WTO in 2001.

What should be our trade policy

  • Indian business and industry must stop taking the easy option.
  • Some costs will no doubt go up but there can be environmental advantages of switching to other sources of technology and equipment.
  • There is more than one available source of financial investments in Indian ventures.

What will be the nature of bilateral dialogue

  • Bilateral dialogue mechanisms will continue their desultory course.
  • On issues of interest to India such as terrorism, we get no support from China.
  • Cooperation on river waters has not evolved.
  • On the global agenda, on issues such as climate change, dialogue and cooperation will continue in multilateral fora depending on mutual interest.

What should be the nature of governments response

  • The response to China’s recent actions in Ladakh must be an all-of-government one, indeed an all-India one.
  • It should be covering all sectors including heightened security and be coordinated, consistent.
  • This is not a question of nationalism or patriotism but of self-esteem and self-respect.

Consider the question “What should be the basis of India’s evolving policy response to China’s new approach to the border dispute?”

Conclusion

Bilateral relations between India and China cannot progress unless there is peace on the borders and China recognises that India too has non-negotiable core concerns, aspirations and interests.

Indian Army Updates

Time to revisit the strategies on northern borders

Security Issues | Mains Paper 3: Various Security Forces, Agencies & Their Mandates
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3-Northern border security issue

Two issues have been discussed in this article:change in strategy on northern border and the role of political leaders. Leveraging LAC for premeditated aggression has been part of China’s policy. This makes the change in our policy an imperative.

LAC as leverage against India

  • India and China have had parleys since 1981, meetings of Joint Working Groups from 1988 to 2005 and 22 rounds of Special Representatives talks, in addition to many summit-level meetings.
  • Despite nearly four decades of discussions delineation and demarcation of the boundary has not been possible.
  • Throughout this period CMC/PLA had been at the helm of the defence and foreign policy decision-making,
  • The intrusion at Finger 4/5 of Pangong Tso and the transgression up to LAC in Galwan are instructive.
  • Out of the blue, most inexplicably and without any historical basis, the official Chinese statement came out seeking the “estuary” of Shyok and Galwan rivers.
  • The Chinese have deliberately ensured that the nebulous nature of the LAC is retained as leverage against India.

Modernisation of PLA: So, was Galwan a testbed?

  • The PLA is at the threshold of achieving its interim modernisation goals of informatised, integrated joint operations by 2021.
  • It is well likely that the events of Eastern Ladakh of May-June 2020 are part of a larger testbed.
  • Over the years, the face-offs have witnessed PLA’s jostling and pushing, posse of horses intruding, and scant disregard for the treaties with India.
  • Pangong Tso and Galwan showed a new picture.

Need to strategise and revisit the rules of engagement

  • For the Indian Army units and formations in Eastern Ladakh or elsewhere facing the PLA, there are limits to adherence to good faith and honour.
  •  The Indian Army has to strategise and should revisit its rules of engagement on the Northern Borders.
  • It has to be mindful that troops in tactical situations cannot be shackled by past treaties, which the PLA deals with disdain.
  • The Indian Army has to remain prepared to militarily handle the situations that will arise.
  • PLA has always shown extraordinary interest in Eastern Ladakh, especially Daulat-Beg-Oldi, the Chip-Chap river, Track Junction and Karakoram Pass.
  • The management practices for the Northern Borders have to be revisited, like placing the nearly division-sized force of ITBP in Eastern Ladakh under the army operationally.
  • Real-time intelligence, surveillance equipment and satellite imageries must be available to field formations that need to act on it.
  • This should not be delayed by the bureaucratic maze.

Role of political leadership

  • At political level, there are representative forums like Parliament, the committees and regular briefings to seek clarifications, which is the right of politicians.
  • On national security issues, there must be national unity.
  • There ought to be faith in those at the helm that the issues of national security will not be sacrificed for political gains.
  • Similarly, within the norms and constraints of national security, the establishment must keep the nation informed, to avoid an information vacuum.

Conclusion

We need to strategise for the future, including the modern manifestations of non-contact, non-kinetic warfare. We must avoid unnecessary nitpicking on semantics of statements made in a particular context.

Coronavirus – Economic Issues

Different response to a different economic crisis

Economics | Mains Paper 3: Indian Economy
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Fiscal deficit

Mains level : Paper 3- Monetary and fiscal policy response to deal with the crisis.

The economic crisis in the wake of the pandemic is different from past crises. In the past, the financial crisis led to economic shock. This time its economic shock that that is causing the financial crisis. This also means that our response to this crisis should also be different. This article elaborates on the fiscal and monetary policy response to the crisis.

Pattern followed by economic crises

  • There is a well-established pattern to economic crises in emerging markets (EMs).
  • First, because of loose fiscal and monetary policies, the economy goes into a demand overdrive.
  • Demand overdrive spikes inflation and widens the current account deficit (CAD).
  • Then, CAD is financed by foreign capital chasing the promise of even higher growth and asset prices.
  • At some point, the overdrive is perceived as unsustainable, which triggers a reassessment of growth, inflation, and financial stability.
  • Domestic and foreign investors stop new investments, large capital outflows ensue.
  • Banks stop giving new loans and rolling over old ones on fears of worsening credit quality.
  • Growth collapses and a full-blown economic crisis follows.
  • The 1995 Mexican, the 1997 Asian, the 1999 Russian, the 2008 sub-prime, and the 2013 Taper Tantrum are all examples of such crises.
  • In the case of India, the 1981-82, the 1991-92, and the 2013 crises all had the same characteristics.

Pattern in response to such crises

  • The first response is to restore confidence in policymaking.
  • It means large increases in interest rates, massive withdrawal of liquidity, and deep cuts in fiscal deficit.
  • Just before the crisis assets [which reflects in bank’s balance sheets] are severely overvalued on inflated views of growth, profits, and income prior to the crisis.
  • So, the second step is to restart the economy by restructuring the tattered balance sheets of banks, firms, and households.
  • This means debt restructuring and bank recapitalisation aided by privatisation, closures, and mergers.
  • These measures often need to be bolstered by structural reforms.
  • The economic crisis makes it easier to forge the political consensus for the reforms.

But the economic crisis caused by pandemic is different

  • Why is it different?
  • Because, before the COVID-19 outbreak far from overheating, Indian economy was slowing down.
  • The financial system had virtually shut off the flow of credit as it wrestled with its bad debt burden.
  • This is not an instance of a financial crisis turning into an economic shock weighed down by damaged balance sheets.
  • Instead, this is an instance of an economic shock that could turn into a financial crisis if the damaged balance sheets are not repaired.

So, should the response also be different?

  • Yes.
  • Do the opposite of what is done in a typical EM crisis: Cut interest rates, increase liquidity support, and allow the fiscal deficit to widen.
  • The RBI has done the first two generously, although with the coming disinflation, it needs to cut interest rates much more.
  • But, what about the fiscal policy of the government?

Fiscal policy of the government: Doing not enough

  • The government’s approach to fiscal policy, however, seems ambivalent.
  • The overall fiscal support from the government will be limited to 2 per cent of the GDP.
  • So all the revenue shortfall and the pandemic-related budgetary support must add up to 2 per cent of the GDP.
  • If the revenue shortfall is more than 2 per cent of GDP, then total spending will need to be cut.

Why fiscal policy matters for balance sheets

  • In this crisis, the causality of damage to balance sheets runs opposite.
  • Balance sheets will be damaged not because of prior excesses but because of the collapse in incomes during the lockdown.
  • Consequently, debt doesn’t need to be restructured to resume the flow of credit and get the recovery going.
  • Instead, what is needed is adequate income support to households and firms.
  • Such support will provide the needed time and space for the recovery to take hold.
  • Which, in turn, would repair much of the damage to the balance sheets.
  • But the fiscal response so far has been inexplicably restrained.

What should the government focus on

  •  What matters today is the assurance of medium-term growth and not a few higher or lower points in this year’s fiscal deficit.
  • To do that, the government needs to allow the deficit to rise.
  • This extra deficit should help accommodate the decline in revenue and also provide adequate income support.
  • Some have argued that the government, instead, needs to offset the decline on private demand by increasing public spending.
  • This is an odd argument.
  • It would mean letting demand collapse and then compensating it with higher government spending.
  • Instead, using the same resources to ensure that private demand did not decline was the more natural and efficient response.

What should be the RBI’s response

  • The RBI, too, has a very large role to play.
  • As elsewhere, it is now the only entity that has a strong enough balance sheet to provide any meaningful support.
  • The RBI is keeping markets flush with liquidity and low interest rates.
  • However, the RBI also needs to undertake extensive quantitative easing to keep bond yields from spiking given the likely large increase in deficit.
  • Because of the depth of the growth shock, bad debt will rise.
  • The natural instinct of banks is to cut back credit because of worsening credit quality.
  • To prevent this from happening, the RBI will need to extend substantial regulatory forbearance on accounting norms, provisioning rules, and, if needed, even capital requirements.
  • In addition, like the US Fed and the ECB, the RBI might also need to provide liquidity directly to corporates.
  • As of now, banks are providing liquidity to corporates supported by government guarantees as proposed now.

Consider the question “The economic crisis brought by the corona crisis is not like the ones we faced before. This crisis is about an economic shock turning into the financial crisis. So, what should be fiscal and monetary policy interventions to tackle the crisis?”

Conclusion

This is not a crisis like the ones before. This time around, we need to weigh not the cost of taking these measures but the cost of not taking them.

Foreign Policy Watch: India-China

Faults in our China policy

International Relations | Mains Paper 2: India & Its Neighborhood - Relations
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 2- India-China realtions

This article tracks the faultline in India’s China policy that makes it an enduring tragedy. China never bought into India’s narratives of Asian unity and untied Asian front against the West. Instead, China cultivated its relations with the West and leveraged that for furthering its interests.

Enduring tragedy: India’s China policy

  • That tragedy is rooted in persistent political fantasies.
  • Refusal to learn from past mistakes.
  • And the belief that the US and the West are at the source of India’s problems with China.
  • The problem predates independence.
  • Each generation has been reluctant to discard the illusions that India’s China policy has nurtured over the last century.

Historical background

  •  Tagore went to China in 1924 with the ambition of developing a shared Asian spiritual civilisation.
  • He was accused by Chines of diverting Chins’s attention away from the imperatives of modernisation and, yes, westernisation.
  •  Jawaharlal Nehru approached China as a modernist and nationalist.
  • He met a delegation of Chinese nationalists at Brussels in 1927.
  • There he issued a ringing statement on defeating western imperialism and shaping a new Asian and global order.
  •  But in Second World War, Congress was unwilling to join hands with China in defeating Japanese imperialism.
  • Indian and Chinese nationalists could not come together for they were fighting different imperial powers.

Relations after independence

  • As India’s first PM, Nehru campaigned against the western attempt to isolate China.
  • Afro-Asian conference in Bandung, Indonesia in 1955 was attended by both.
  • Within five years war broke out in 1962.
  • Atal Bihari Vajpayee travelled to China in February 1979 to re-engage Beijing.
  • Before he could head home, Beijing had launched a war against a fellow communist regime in Vietnam.
  • That was an end of hope for Asian solidarity.
  • Rajiv Gandhi in 1988 sought to normalise relations with China while continuing to negotiate on the boundary dispute.

Other issues: Trade entanglement

  • Amid border dispute, other issues have taken a life of their own.
  • For example, the massive annual trade deficits.
  • India’s hope that economic cooperation will improve mutual trust will help resolve other issues was also dashed.
  • India’s massive trade deficit with China is now a little over half of its total trade deficit.
  • India is finding it hard to disentangle the deep economic dependence on imports from China.

Story of political cooperation: From unipolar to bipolar world

  • As the Cold War ended, India began political cooperation with China on global issues.
  • It was hoped that such cooperation will provide the basis for better bilateral relations.
  • It could not have been more wrong.
  • P V Narasimha Rao and his successors joined China and Russia in promoting a “multipolar world” [remember the US dominance].
  • Delhi is now struggling to cope with the emergence of a “unipolar Asia” — with Beijing as its dominant centre.
  • China’s rapid rise has also paved the way for the potential emergence of a “bipolar world” dominated by Washington and Beijing.

Engagement with West

  • China never worked with Indian on the ideas of building coalitions against the West.
  • While India never stopped arguing with the West, China developed a sustained engagement with the US, Europe and Japan.
  • Mao broke with Communist Russia to join forces with the US in the early 1970s.
  • Deng Xiaoping promoted massive economic cooperation with the US to transform China and lay the foundations for its rise.

Will staying away from West lead to good relations with China

  • China has leveraged the deep relationship with the West to elevate itself in the international system.
  • Delhi continues to think that staying away from America is the answer for good relations with Beijing.
  • Beijing sees the world through the lens of power.
  • Delhi tends to resist that realist prism.
  • India has consistently misread China’s interests and ambitions.
  • The longer India takes to shed that strategic lassitude, the greater will be its China trouble.

Facts that India needs to come to terms with

  • India must also recognise that China, like the great powers before it, wants to redeem its territorial claims.
  • China also has the ambition to bend the neighbourhood to its will, reshape the global order to suit its interests.
  • China has not hidden these goals and interests, but India has refused to see what is in plain sight.

Consider the question “Acknowledging Beijing’s rise, scale of challenge it presents, are first steps in crafting a new China policy” Comment.

Conclusion

Acknowledging China’s dramatic rise and recognising the scale of the challenge it presents is essential for Delhi in crafting a new China policy.

Innovations in Biotechnology and Medical Sciences

Celebrating the contributors to agriculture

Science Tech Art Culture | Mains Paper 3: Achievements Of Indians In S&T
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Various personalities that contributed to India's food reaserch

Mains level : Paper 3- Contributors to the India's agri-research

This article introduces us to the Indian winners of the prize that is considered as the Nobel for research in food. Their contribution has benefited agriculture immensely.Here, we’ll get a brief idea about their work.

Word Food Prize

  • The World Food Prize is often described as the Nobel for research in food.
  • It was set up by Ñorman Borlaug.
  • Borlaug won the Nobel Peace Prize in 1972 for his work on hybridisation of wheat and rice.
  • His work led to the Green Revolution in the mid-1960s.

Indian winners of the award

  • The awards to eight Indians of the total of 50 given so far are a tribute to the country’s agricultural university education and research system.
  • The country should celebrate their achievements unabashedly when 7-10 million new productive jobs need to be created annually.
  • And when it accounts for a third of global undernourished.
  • The COVID-19 pandemic has made job creation and improved nutrition and health more urgent than ever.

Let’s look at the contributions made by these personalities

 Rattan Lal

  • Rattan Lal was awarded for developing and mainstreaming a soil-centric approach to increasing food production.
  • This approach also restores and conserves natural resources and mitigates climate change.
  • His research has shown that growing crops on healthy soils produces more food from less land area, less use of agrochemicals, less tillage, less water, and less energy.

M S Swaminathan

  • Swaminathan’s vision transformed India from a “begging bowl” to a “breadbasket” almost overnight.
  • His work helped bringing the total crop yield of wheat from 12 million tonnes to 23 million tonnes in four crop seasons.
  • Which helped in ending India’s dependence on grain imports.

Verghese Kurien

  • Kurien, received the prize in 1989 for India’s white revolution.
  • Under his leadership, milk production increased from 23.3 million tonnes (1968-69) to 100.9 million tonnes (2006-07).
  • And now it is projected to reach 187 million tonnes for 2019-20.
  • This helped in bringing millions of small and marginal farmers, including women into the marketplace.

 Ramlal Barwale

  • Barwale, a small farmer and entrepreneur, received the award in 1996.
  • He made selling seeds of okra and sorghum “hip” and founded the Maharashtra Hybrid Seeds Company.
  • The Crop Science Society of America has called him father of the seed industry in India.
  • He introduced hybrid rice from China to India.

Surinder Vasal

  • Vasal was given the prize in 2000 for developing quality protein maize (QPM).
  • Integrating cereal chemistry and plant breeding techniques, Vasal and Villegas of Mexico collaborated to work on “opaque-2” maize variety using molecular biology techniques.
  • In the mid-1980s, they produced a QPM germplasm with hard kernel characteristics and taste like that of the traditional grain.
  • But it has much higher quality levels of lysine and tryptophan, thereby enhancing the nutrition value.

Mododugu Gupta

  • Gupta received the award in 2005 for starting a blue revolution.
  • He developed two exceptional approaches for increasing fish harvests among the very poor.
  • This helped in increasing the protein and mineral content in the diets of over one million of the world’s most impoverished families.
  •  Gupta’s aquaculture technologies boosted Bangladesh’s fish yields from 304 kg per hectare to over 2,500 kg per hectare in less than a year — including 1,000 kg per hectare harvests in the dry season.

Sanjaya Rajaram

  • Rajaram, who won the prize in 2014.
  • He succeeded Borlaug in leading CIMMYT’s wheat breeding programme.
  • There he went on to develop an astounding 480 varieties that have been widely adopted by both small and large-scale farmers.
  • Rajaram was born near a small farming village in Uttar Pradesh and received his master’s degree from IARI.

Decreasing government support

  • The awardees all come from the time of the green and rainbow revolutions (of dairy and aqua-culture).
  • It was also the time when India invested heavily in agricultural science education and research and Indian scientists shone brightly in the global galaxy of science.
  • Government support for state agricultural universities, and research conducted by the ICAR and the departments of science and technology and biotechnology has slipped in recent years.
  • Today, not a single Indian university is counted among the top 100 in the world.
Consider the question asked by the UPSC in 2019 “How was India benefitted from the contributions of Sir M.Visvesvaraya and Dr M. S. Swaminathan in the fields of water engineering and agricultural science respectively?”

Conclusion

Students and faculty at ICAR and state agricultural universities can follow in their footsteps and achieve scientific excellence, if they receive the resources and their work is supported with incentives.

NPA Crisis

Why bad loans won’t start piling right away

Economics | Mains Paper 3: Indian Economy
Note4Students

From UPSC perspective, the following things are important :

Prelims level : NPA

Mains level : Paper 3- Issue of bad loans

Steps taken by the government have averted the piling up of the bad loans, though for the time being only. When the moratorium period ends, we will see the spike in the bad loans. This article explains the same.

Why bad loans are expected to increase

  •  Consumer spending has collapsed over the last few months due to the pandemic.
  • Though lately there have been some signs of revival, it will take a while before spending comes anywhere near the pre-covid level.
  • This will mean that many businesses will start running out of cash pretty soon if they have not already.
  • A company that starts running out of cash will not be in a position to repay its loans and, thus, will ultimately default.

How individuals will be affected

  • A recent estimate by rating agency Crisil suggests that about 70% of 40,000 companies have cash to cover employee costs for only two quarters.
  • This tells us that companies will fire employees, before, during, or even after defaulting on a loan.
  • If companies do not resort to employee retrenchment, they will cut salaries and many already have.
  • Past payments and future business with vendors and suppliers will be negatively impacted.
  • In this situation, the problem at the company level will impact individuals too.
  • When individuals start having a cash flow problem, it will lead to defaults on retail loans

But why we are not seeing the defaults happening already?

  • A moratorium is a deferment of repayment to provide temporary relief to borrowers. The loan ultimately needs to be repaid.
  • The Reserve Bank of India has let banks and non-banking financial companies (NBFCs) offer a moratorium on loans.
  • Hence, until the end of August, borrowers have an option to not repay the loans, without it being considered as a default.
  • Hence, any loan defaults will start only after August but they won’t be immediately categorized as a non-performing asset or a bad loan.
  • Bad loans are largely those loans that have not been repaid for 90 days or more.
  •  Hence, defaulted loans will be categorized as bad loans only post-November.
  • This will be revealed when banks publish their results for October to December 2020, in January-February 2021.

Conclusion

Even if 20% of loans that end up under a moratorium are defaulted on, the quantum of bad loans, especially those of public sector banks, will go up big time.

Foreign Policy Watch: India-China

What is lacking in our China policy

International Relations | Mains Paper 2: India & Its Neighborhood - Relations
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 2- India-China relations and border dispute

While formulating our response to China’s aggressive policies in Ladakh, we should first understand their objectives. This article explains these objective and suggests the steps to deal with China’s policies.

Statements on Aksai Chin and Pakistan

  • Statements over Aksai Chin and Pakistan-occupied Kashmir (PoK) by India have painted the image of India as a revanchist power in utter disregard of the country’s capabilities.
  • These statements also gave the impression that India precludes any attempt at changing the status quo on either front.
  • Though these statements were justifiable in terms of India’s legal rights to these territories, were ill-timed.

How these statements were perceived by China

  • They were made when Beijing was feeling alarmed at the Indian government’s decision to separate Ladakh from Jammu and Kashmir.
  • The move augmented its perception that it was a prelude to India’s attempt to change the status quo in Aksai Chin.
  • India’s assertion of its claims on PoK that in China’s perception threatened the China-Pakistan Economic Corridor project.

China’s 4 strategic objectives

1. India and China are not equals

  • China wants India to understand that it is not in the same league as China.
  • China resorts to periodic assaults across the Line of Actual Control (LAC) if India tries to assume a position of equality.

2. Keep India away from interfering in Indo-Pacific

  • China wants India not to actively oppose Chinese designs to dominate the Indo-Pacific region.
  • Also, China wants Indias to refrain from aligning with the U.S. and its allies — Japan and Australia, in particular — in an attempt to contain China.

3. Keeping India preoccupied with problems

  • China’s strategy also includes keeping India preoccupied with problems in its immediate neighbourhood.
  • So with these problems, India cannot act as an alternative pole of power to China in the broader Asian region.

4. Supporting Pakistan to neutralise India

  • As part of the last objective, China supports  Pakistan economically and militarily, including the sharing of nuclear weapons designs.
  • China uses Pakistan to neutralise India’s conventional power superiority vis-à-vis that country.

An understanding of these objectives is essential to fashioning a realistic Indian response to China’s aggressive policies in Ladakh and elsewhere along the LAC.

But, what about Pakistan?

  • Pakistan is at best an irritant for India. (so, focus on China)
  • Pakistan can be managed with the use of diplomatic tools, international opprobrium, and superior military force.
  • In fact, the Pakistani challenge to India has become magnified because of its nexus with China.

What India should do?

  • India’s main strategic goal should be the adoption of carefully calculated policies that neutralise China’s diplomatic and military clout in the Asia-Pacific region.
  • While doing so, India should not appear as a surrogate for other powers.
  • And India should also ensure that in making alliances it in not sacrificing the autonomy of decision-making in foreign policy. 

Consider the question “Understanding of China’s objective is essential to formulate a realistic response to its aggressive policies in Ladakh.” Comment.

Conclusion

Understanding the greater threat posed by China vis-a-vis Pakistan should be the basis of India’s policy towards China.

Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

Paying attention to condition of migrant workers

Economics | Mains Paper 3: Issues relating growth and development, employment
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Acts related to workers

Mains level : Paper 3- Migrant workers

Issue of migrant workers caught attention of the nation amid lockdown. This issue has wider implications for the economy. This article highlights need for formulating a program to deal with the migrant labourers’ issue in its entirety.

Issue with many implications: Migrant labour

  • Out of the total labour force of 465 million workers, around 91 per cent (422 million) were informal workers in 2017-18.
  • The Economic Survey (2017) estimated 139 million seasonal or circular migrants.
  • Circular urban migrants perform essential labour and provide services.
  • Hence, this issue has implications for livelihoods, agriculture, food security, and safety net policy as well as programme responses.

Existing and proposed legal provision

  • There exists The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act of 1979.
  • Despite this act, there is no central registry of migrant workers.
  • The Occupational Safety, Health and Working Conditions Code of 2019 has been introduced in Parliament.
  • This code seeks to promote the welfare of migrant workers and legal protection for their rights.
  • The code seeks to merge 13 labour laws, including the Inter-state Migrant Workmen Act, 1979 into a single law.

One nation, one ration card

  • “One nation one ration card” addresses the problem of ration-card portability.
  • The move would benefit nearly 670 million people and will be completed by March 2021.

Provisions in the package for migrant workers, small farmers, street vendors

  • There is a provision of Rs 30,000 crore through NABARD, in addition to the already existing Rs 90,000 crore allocation, for the rabi harvest and post-harvest rabi-related work for small and marginal farmers.
  • Further, Rs 2 lakh crore concessional credit will be provided to two crore farmers across the country.
  • About Rs 11,000 crore was allocated for the urban poor, which includes the migrant workers, for building shelter homes for the homeless.
  • Several government-funded housing projects in major cities would be developed into affordable rental housing complexes on a PPP mode.

Free grains for two months

  • The Centre will transfer 8 lakh metric tonnes of grain and 50,000 metric tonnes of chana to state governments.
  • Form this stave will provide 5 kg of grain (wheat or rice) per labourer and 1kg of chana per family per month for two months free.
  • This is expected to benefit up to eight crore migrant workers.

Program for growth and structural transformation

  • Devicing such a program requires a review of national legal, regulatory and institutional concerns in resettlement and rehabilitation of migrant labourers.
  • There is a need to adopt a human rights approach to address the socio-legal issues.
  • The resolution of contradictions in trade, fiscal, monetary and other policies would also require.
  • Following 3 policy changes are urgently required.
  • 1)The implementation of the report of the task force on migration (2017).
  • 2)Expansion of the outreach of the Integrated Child Development Services– to include migrant women and children.
  • 3) Inclusion of migrant children in the annual work plans of Sarva Shiksha Abhiyan.
  • Given the environment of uncertain livelihoods it is necessary to strengthen the resilience of the financial system and skill workers.
  • The issues and challenges of migrant workers require leveraging information and communication technologies and the JAM trinity.

Consider the question “Migrant workers issue is an issue with many implications. This issue needs to be considered in its entirety to formulate a speedy and effective response. In light of this suggest the required policy changes.”

Conclusion

The debilitating physical effects of the coronavirus necessitate coordinated and concerted efforts by all stakeholders to meet the challenges of the present and the expectations of the future. We shall overcome.

Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

Reshaping the gig economy

Economics | Mains Paper 3: Issues relating growth and development, employment
Note4Students

From UPSC perspective, the following things are important :

Prelims level : Gig economy

Mains level : Paper 3- Gig economy and issue it faces

3 min

The shockwave that pandemic sent through the economy has been reshaping the global job market. Gig economy would have to accommodate the new entrants. This article underlines the changes in the gig economy after the pandemic. Four areas that need attention are also discussed here.

What constitutes gig economy?

  • The word “gig” includes in its current parlance all freelancers, disconnected from the workplace.
  • Example: drivers of Uber, delivery boys of Zomato, plumbers and electricians of Urban Clap.
  • The gig economy is not confined to low-skilled jobs. Skilled professionals are also part of it.

How pandemic is reshaping the gig economy

  • Aviation, hospitality, automobile entertainment and retail are some of the hardest hit sectors.
  • The classic gig anchors- Uber and AirBnB, have laid off thousands of people.
  • In contrast to this, highly skilled professionals —laid off by employers — are joining the gig bandwagon.
  • Surely, job demand will far outstrip supply, at least in the short-term.

What does the future hold?

  • A Deloitte report from April notes that Indian organisations are considering to expand the share of gig workers.
  • Declining full-time jobs will lead to increased assignment-based hiring.
  • For instance, a graphic designer working from home could be in demand with a media house or Netflix may hire AI designer paid by an hour to personalize streaming.
  • But, what is missing in picture? The national database is missing.

4 focus areas of gig economy

1. National database: A missing link

  • National database of job seekers and job creators can connect firms with qualified candidates.
  • A prospective employee would need access to a job database, sorted by skill, geography, duration and emoluments.
  • Companies should be able to dip into the data pool of talent, experience, location, qualification and expectation.
  • Currently, both data sets are fragmented and stored in silos.
  • The government could play the role of a facilitator, in partnership with the private sector.

2. Regulatory protection to gig workforce

  • The gig economy increases employee vulnerability.
  • This segment of the economy so far has been outside the ambit of regulatory labour policies.
  • Social protection like wage protection, health benefits and safety assurance should be made available to gig workers.
  • The Karnataka government has considered introducing a new labour legislation focused on the gig economy.

3. Prepare college students for freelancing

  • Apart from regular campus placements, the placement cells need to reorient and focus on preparing students for freelancing opportunities.
  • For the educated youth, this could be the first step towards entrepreneurship.

4. Gender equality

  • Gender is another crucial dimension of the digital labour markets.
  • The low enrolment of girls for higher education in science, technology, engineering and math would constrict their opportunity in the gig world.
  • Going ahead, this would need greater policy attention to ensure gender parity.

Consider the question “What is the gig economy? Suggest the policy measures to make it more resilient in the present economic context disrupted by the pandemic.”

Conclusion

The government and the private sector would need to collaborate along with academia to build adequate safeguards in the unfolding eco-system.