Mains level: Paper 3- Way out to restart the economy,
Whether to focus on demand side or supply side is the dilemma policymakers dealing with the financial crises have always faced. If we look closely, the focus of the package announced by the government is on the supply side and pushing liquidity in the economy. This article examines the various measure announced in the package and elaborated why such measures are likely to fail.
Focus on credit and liquidity in the package
The government has relied heavily on measures aimed at pushing credit to banks, non-banking financial companies (NBFCs) and businesses big and small.
These are expected to use borrowed funds to lend to others, make payments falling due, compensate employees even while under lockdown, and otherwise spend even while not earning.
The thrust is to get the Reserve Bank of India (RBI) and other public financial institutions to infuse liquidity and increase lending by the financial system.
RBI offered the financial institution capital for longer periods at a repo or policy interest rate that has been cut by more than a percentage point to 4%.
Let’s understand liquidity and its role in crisis
The Prime Minister in his speech calling for a “self-reliant India” identified, besides land, labour and laws, “liquidity” as among the areas of focus of the package.
What is liquidity: In economic and business parlance, liquidity refers to ease of access to cash.
A liquid asset is one that can be easily sold for or replaced with cash.
And a liquid firm or agent is a holder of cash, a line providing access to cash, or assets that can be easily and quickly converted to cash without significant loss of value.
In periods of crisis, individuals, small businesses, firms, financial institutions and even governments tend to experience a liquidity crunch.
Relaxing that crunch is a focus of the government’s crisis-response package.
So, the government has given a much larger role to enhancing liquidity than it does either to direct transfers.
So, let’s look at steps taken by the government to ensure liquidity
1. LTRO and issues with it
Among the first steps taken by the RBI was the launch of special and ‘targeted’ long term repo operations (TLTROs).
LTROs allowed banks to access liquidity at the repo rate to lend to specified clients.
One round of such operations, which was relatively more successful, called for investment of the cheaper capital in higher quality investment grade corporate bonds, commercial paper, and non-convertible debentures.
What went wrong? That funding allowed big business, varying from Reliance and L&T to financial major HDFC, to access cheap capital to substitute for past high-cost debt or finance ongoing projects.
There is little evidence that this is triggering new investment decisions.
2. Focus on saving NBFCs and why it failed to give the desired result?
The second round was geared to saving NBFCs, whose balance sheets were under severe stress even before the COVID-19 strike.
NBFCs were finding it difficult to roll over the short-term debt they had incurred to finance longer-term projects.
Banks were wary about lending to these NBFCs.
Banks feared that their clients could default in amounts that would bring the viability of these institutions into question.
Those fears were confirmed when Franklin Templeton announced that it was shutting down six of its funds.
Franklin Templeton set off redemption requests across the NBFC sector, as investors rushed to take back their money.
This happened at a time when the ability of these institutions to mobilise funds to meet these demands had been impaired.
Not surprisingly, banks were unwilling to respond when liquidity was infused to target lending to the NBFCs.
3. More intermediaries and credit guarantee by the government
Building on these initial liquidity infusion efforts, the COVID-19 package identified more intermediaries.
These intermediaries include the Small Industries Development Bank of India, the National Bank for Agriculture and Rural Development, and the National Housing Bank.
The intermediaries were expected to refinance lending by the banks to different sections.
To persuade the banks and other intermediaries to take up these offers when the clients they must lend to MSME, street vendors, marginal farmers, etc. are themselves stressed, in some instances the government offered them partial or full credit guarantees in case their clients defaulted.
The government also sought to persuade the RBI to lend directly to NBFCs against their paper.
Why the above 3 measure won’t succeed?
These measures, which are only marginally effective even in the best of times, will not work during this crisis.
Consider a bank or NBFC lending to small business.
With economic activity either at a complete stop or at a fraction of the normal, those who can access credit would either not borrow or only do so to protect themselves and not use the funds either to pay their workers or buy and stock inputs.
Even after the lockdown is lifted, the compression of demand resulting from the loss of employment and incomes would be considerable.
It would be aggravated by the fact that spending by a fiscally conservative government would fall sharply because of a collapse in revenue collections.
Faced with sluggish demand, firms are unlikely to meet past and current payments commitments and help the revival effort, just because they have access to credit.
This would mean that credit flow would actually not revive.
This danger is even greater because the government has been measly with its guarantees.
The government doesn’t want to accumulate even contingent liabilities that do not immediately affect the fiscal deficit.
Increasing the disposable income
Another component of the “liquidity” push is the measures that temporarily increase the disposable income of different sections.
Such measures include advance access to savings like provident fund contributions, lower tax deduction at source, reduced provident fund contributions and moratoriums on debt service payments for a few months.
These measures are expected to provide access to cash inflows and reduce cash outflows, to induce agents to meet overdue payments or just spend to enhance the incomes of others.
These are marginal in scope, if relevant at all.
They have been combined with non-measures like adding on pending payments such as income tax refunds to spike “liquidity provision”.
Way forward
What is needed now is government support in the form of new and additional transfers to people in cash and kind, and measures such as wage subsidies, equity support and spending on employment programmes.
That, as many have acknowledged, would require debt financed spending by the government, with borrowing at low-interest rates from the central bank or a “monetisation” of the deficit.
Unfortunately, obsessed as it is with fiscal conservatism and tax forbearance, the government is unwilling to take that route.
Consider the question “Every stimulus package provokes a debate for its emphasis on either supply-side or the demand side. Examine the provision in the stimulus package announced by the government which focuses on the supply side. What are the issues with supply-side focus in the package?”
Conclusion
Overall, the “transmission” of the supply side push from these monetary policy initiatives for relief and revival is bound to be weak. Given the circumstances, the liquidity push, even if partially successful, would only culminate in eventual default, as borrowers use the debt to just stay afloat in the absence of new revenues.
From UPSC perspective, the following things are important :
Prelims level: Various location mentioned in the article.
Mains level: Paper 2- Implications of dispute for India China relation
The article gives an in-depth analysis of the current border dispute between India and China in Ladakh. But the present dispute follows the pattern. China has been encroaching and gaining control over the disputed territory since the 1980s. And this dispute also fits into that pattern.
China acting strategically in Ladakh
While India has pursued its core national interests in J&K, China’s response was strategic — a shift that may have a lasting imprint on geopolitics.
We have been harping on the “differing perception” theory of the LAC for decades.
But in reality China has been gaining control over a massive “disputed territory” in Eastern Ladakh since the 1980s.
Major Chinese encroachment events
The Chinese first made encroachments into the 45-km long Skakjung pastureland in Demchok-Kuyul sector.
This resulted in local Changpas of Chushul, Tsaga, Nidar, Nyoma, Mud, Dungti, Kuyul, Loma villages gradually losing their winter grazing.
Ladakh’s earlier border lay at Kegu Naro — a day-long march from Dumchele.
Starting from the loss of Nagtsang in 1984, followed by Nakung (1991) and Lungma-Serding (1992), the last bit of Skakjung was lost in 2008.
The PLA followed the nomadic Rebo routes for patrolling in contrast to Indian authorities restricting Rebo movements that led to the massive shrinking of pastureland and border defence.
By the 2000s, the PLA’s focus shifted to desolate, inhospitable Chip Chap which remains inaccessible until end-March.
After mid-May, water streams impede vehicles moving across Shyok, Galwan, and Chang-Chenmo rivers leaving only a month and a half for effective patrolling by the Indian side.
No human beings inhabit here, a 1962 war site, an entry point into Ladakh for the Uyghurs and Tibetans.
Local Ladakhi personnel manned the posts here, but patrolling in the 972 sq km Trig Height area has been lax.
Easier accessibility allowed the PLA to intrude into Chip Chap with impunity during July-August — its regulars usually spent a few hours before crossing back.
But, during the 21-day Depsang stand-off in 2013, when Burtse became a flashpoint, the PLA set up remote camps 18-19 km inside Indian territory.
Chinese soldiers virtually prevented Indian troops from getting access to Rakinala near Daulat Beg-Olde (DBO) where the IAF reactivated the world’s highest landing strips in 2008.
2008 Daulat Beg Oldi Stand-off
This plus the reopening of Fukche and Nyoma airbases perhaps provoked the PLA’s intrusion in Depsang.
So, what is the current stand-off about?
Despite topographical challenges, the BRO has lately fast-tracked the 260 km long Shayok-DBO road construction.
That road construction probably triggered the PLA intrusion in early May sparking the current Galwan stand-off.
Towards the south at Pangong Tso, forces had physical scuffles over area-denial for patrolling at Sirijap on May 5-6 and on May 11.
The situation remains tense at Sirijap’s cliff spurs and also at the Tso, where troops are chasing each other in high-speed patrol boats.
Clearly, intrusions are part of China’s never-ending effort to push Indian troops westward of the Indus and Shyok rivers and reach the 1960 claimed line.
Details of the disputed border in Ladakh
Out of the 857 sq km long border in Ladakh only 368 sq km is the International Border, and the rest of the 489 sq km is the LAC.
The two traditional disputed points included Trig Heights and Demchok.
At eight points, the two sides have differing perceptions.
But lately, China has raised two fresh dispute points at Pangong Tso 83 sq km and at Chumur where it claims 80 sq km.
The old dispute sites were at the end point of Pangong Tso and at Chushul — the 1962 battle-site.
Three-pronged strategy
1) The Sirijap range on the northern bank of the lake remains most contested, from which several cliff spurs jut out — the “finger series” 1 to 8.
India’s LAC claim line is at Finger-8, but the actual position is only up to Finger-4.
The Chinese are asserting further west to claim 83 sq km here.
The PLA has built a 4.5 km long road to prevent patrolling by Indian troops.
The PLA’s road network from here extends to Huangyangtan base located near National Highway G219.
2) Further south in Demchok, China claims some 150 sq km.
The PLA has built massive infrastructure on its side, moved armoured troops into Charding Nalla since 2009.
Tibetan nomads pitch tents on Hemis Monastery’s land throughout 2018-2019.
3)In Chumur, China claims 80 sq km and probably wants a straight border from PT-4925 to PT-5318 to bring Tible Mane (stupa) area under its control.
For India, holding of Chumur is critical for the safety of the Manali-Leh route.
PLA demanded removal of India’s fortified positions in Burtse (2013) and Demchok and Chumur (2014) for its retreat.
What could be the implications for India?
Overall, the pattern shows the PLA’s desperate design to snatch the lake at Lukung through a three-pronged strategy of attacking from Sirijap in the north, Chuchul in the south and through the lake water from middle.
This is the key chokepoint from where the Chinese can cut off Indian access to the entire flank of Chip Chap plains, Aksai Chin in the east and Shayok Valley to the north.
Which means that Indian control is pushed to the west of the Shyok river and south of the Indus river, forcing India to accept both rivers as natural boundaries.
And once China gets control of the southern side of the Karakoram it can easily approach Siachen Glacier from the Depsang corridor.
And meet at Tashkurgan junction from where the CPEC crosses into Gilgit-Baltistan.
That would be disastrous for Indian defence, leaving the strategic Nubra vulnerable, possibly impacting even India’s hold over Siachen.
China’s access to Changla-pass through Lukung and Tangtse would threaten the entire Indus Valley.
It is quite possible that China is eyeing the waters of the Shyok, Galwan and Chang-Chenmo rivers, to divert them to the arid Aksai Chin and its Ali region.
Consider the question “What could be the strategic and security implications of China’s claim in Pangong Tso region for India?”
Conclusion
India should resist the Chinese design which could have disastrous consequences for India’s defence and strategic interests. This should involve diplomatic channels rather than skirmishes on the borders.
From UPSC perspective, the following things are important :
Prelims level: Regions of Afghanistan
Mains level: Paper 2- Implications of the return of Taliban for India.
The US-Taliban peace deal signals growing heft of the Taliban in Afghanistan. Pashtuns constitute nearly 42 per cent population of Afghanistan and the Taliban is essentially a Pashtun formation. Also, remember Pakistan: just like the kid who is always up to something. The ethnic fragmentation and Pakistan’s meddling is a recipe for perpetual conflict zone in the region.
The question of India’s engagement with Taliban
Taliban’s effective control of territory in Afghanistan expanded in recent years.
This led to the question of India’s direct dialogue with the Taliban gain some relevance.
It has acquired some immediacy after the US announced plans for a significant draw down of its forces from Afghanistan and signed a peace deal with the Taliban earlier this year.
Also, recently the US Special Envoy for Afghanistan, Zalmay Khalilzad, called on India to open a political conversation with the Taliban.
The interest was further amplified by a signal from the Taliban that it is eager for a productive relationship with India.
So, what should India do?
Those calling for direct engagement with the Taliban say that Delhi can’t ignore such an important force in Afghan politics.
Opponents say there is no reason for Delhi to join the international stampede to embrace the Taliban.
If and when the Taliban becomes a peaceful entity and joins the quest for a political settlement with Kabul, they argue, Delhi should have no objection to direct talks.
So, opening a dialogue with the Taliban is a tactical issue focused on when, how and on what terms.
Pashtun question and India’s enduring interest in Afghanistan
The Taliban remains an important sub-set of the larger and more strategic Pashtun question.
The Pashtun question holds the key to India’s enduring interest in Afghanistan: Promoting a peaceful, independent and a sovereign Afghanistan that is not a subaltern to the Pakistan army.
2 Basic issues that will define the Pashtun question
1. Forming unity among multiple ethnic groups
First is the problem of reconciling the interests of multiple ethnic groups in Afghanistan.
The Pashtuns constitute nearly 42 per cent of the population.
The sizeable Afghan minorities include 27 per cent Tajiks, 9 per cent each of Hazaras and Uzbeks.
Irrespective of the nature of the regimes in Kabul over the last four decades— constructing a stable internal balance has been hard.
That problem will acquire a new intensity as the Taliban stakes claim for a dominant role in Kabul.
But has the Taliban learnt to live in peace with the minorities?
The Taliban, an essentially Pashtun formation, had brutally crushed the minorities during its brief rule in the late 1990s.
There are some indications that the Taliban is now reaching out to the minorities but it is some distance away from winning their trust.
2. Pakistan’s meddling in Afghanistan
The problem of constructing internal balance in Afghanistan has been complicated by Pakistan’s meddling.
Pakistan would like to have the kind of hegemony that the British Raj exercised over Afghanistan.
Neither can Pakistan replicate that dominance nor are the Afghans willing concede it to the Pakistan army.
What about the Pashtun minority in Pakistan?
There are more than twice as many Pashtuns living in Pakistan than in Afghanistan.
The Pashtun population is estimated to be around 15 million in Afghanistan and 35 million in Pakistan.
And as mentioned above, the Taliban is essentially Pashtun formation.
Although Pashtun separatism has long ceased to be a force in Pakistan, Islamabad finds the Pashtun question re-emerge in a different form.
Pakistan can’t really bet that the Taliban will not put Pashtun nationalism above the interests of the Pakistani state.
The Taliban, for example, has never endorsed the Durand Line as the legitimate border with Pakistan.
It is by no means clear if Pakistan’s construction of the Taliban as a conservative religious force has obliterated the group’s ethnic character.
Sufferings of Pakistani Pashtun People: Islamabad’s quest for control over Afghanistan over the last four decades has heaped extraordinary suffering on the Pashtun people on Pakistan’s side of the Durand Line.
As the Pashtun Tahafuz Movement seeks a peaceful redressal of its demands for basic human rights, Pakistan has unleashed massive repression.
India’s importance in Afghanistan
That the Taliban wants to talk to India and Pakistan brands Pashtun leaders as Indian agents only underlines Delhi’s enduring salience in Afghanistan.
Consider the question “After the US-Taliban peace deal, India is forced with a difficult prospect of opening the dialogue with the Taliban. Examine the implications of the return of Taliban in Afghanistan for India. What is your opinion on India starting the dialogue with Afghanistan?”
Conclusion
Pakistan’s expansive military and political investments in Afghanistan have not really resolved Islamabad’s security challenges on its western frontier. If an Afghan triumph eludes Pakistan, Delhi can’t escape the complex geopolitics of the Pashtun lands.
From UPSC perspective, the following things are important :
Prelims level: CoAST India
Mains level: Not Much
India Observatory has come up with a GIS-enabled dashboard called CoAST India to monitor migrants in India.
Here, UPSC may create an illusion on:
India Observatory – open-source database (misleading name): It may be asked in relation to some ISRO project.
CoAST India – COVID related info (again misleading): UPSC may ask it in context to Cyclone Warning Systems.
CoAST India
The platform is a map reflecting the movement of migrants in real-time on their long journeys, often on foot, along with facilities and relief organisations on their routes.
It is a collaboration with Anand-based Forest Ecological Security (FES) as its main nodal point.
It draws information from 55 organisations on the ground, mostly in villages, and aims to make such data available so that it would enable governments and small local civil society groups to be of assistance.
The map matches time and spatial data, on administrative facilities in the area, transportation and healthcare facilities of an area and summaries, on the fly, in real-time of people passing by.
Features of the portal
Four elements are sought to be brought together in this portal:
Location of migrants and vulnerable people, their specific needs,
Location of key infrastructure on the way which can double up as a rest-centre, or
Quarantine space and location of relief and
Rehabilitation providing NGOs and civil society organisations
About India Observatory
The Foundation for Ecological Security (FES), an NGO working on conserving natural resources at the grassroots, has brought together a unique ecosystem of tools – open data platform India Observatory – to help understand the status of local-level resources and facilitate the action plans for conserving them.
The data made available on India Observatory platform has been pooled from various sources and dates as far back as the 1960s.
India Observatory was set up in December 2019, with FES focused on ecological issues about forests, water bodies, conservation, etc. that needed “a bird’s eye view or a satellite’s vision”.
It is a research unit at the London School of Economics and Political Science (LSE).
From UPSC perspective, the following things are important :
Prelims level: Purandara Dasa
Mains level: Bhakti Saints of South India
The Department of Archaeology, Karnataka has commenced field research work regarding the birthplace of Purandara Dasa who is held as the father figure of Carnatic music.
Recently there was a news on Lord Basaveshwara. Now comes the other popular saint.
Vaishnavism and Shaivism are the two most profound strands of Bhakti Movement in Indian history. Enlist all the Bhakti Saints and their theistic philosophy and teachings. Try to spot the minute differences between them.
Purandara Dasa
Purandara Dasa (1484 –1565) was a Haridasa, a renowned composer of Carnatic music, a great devotee of the Supreme Lord Krishna, a Vaishnava poet, a saint and a social reformer.
He was a disciple of the Dvaita philosopher-saint Vyasatirtha, and a contemporary of yet another Haridasa, Kanakadasa.
He was a composer, singer and one of the chief founding-proponents of South Indian classical music (Carnatic music).
In honour of his significant contributions to Carnatic music, he is widely referred to as the Pitamaha (lit. “father” or “grandfather”) of Carnatic music.
He is respected as an Avatara (incarnation) of the great sage Narada (a celestial being who is also a singer).
Confusions over his birthplace
As ‘Purandara Vithala’ was the pen name of his compositions, it was widely believed that the mystic poet was born in Purandar (near Pune), Maharashtra.
However, many in Malnad claimed that he hailed from this region.
According to historians, Araga in Malnad was a buzzing commercial centre during the Vijayanagar rule, the period to which the poet belonged to.
Prior to his initiation to Haridasa tradition, Purandara Dasa was a rich merchant and was called as Srinivasa Nayaka.
Back2Basics: Bhakti Movement
The Bhakti movement refers to the theistic devotional trend that emerged in medieval Hinduism.
It originated in eighth-century south India and spread northwards.
It swept over east and north India from the 15th century onwards, reaching its zenith between the 15th and 17th century CE.
It has traditionally been considered as an influential social reformation in Hinduism and provided an individual-focused alternative path to spirituality regardless of one’s birth or gender
The salvation which was previously considered attainable only by men of Brahmin, Kshatriya and Vaishya castes, became available to everyone.
From UPSC perspective, the following things are important :
Prelims level: Rail adukku pathiram
Mains level: NA
The rail adukku pathiram a traditional set of kitchen utensils in Tamil Nadu has become the gathered attention of all over the past few days.
The traditional ‘rail adukku pathiram’ set of utensils are very unique in itself. However, one must note that it does NOT carry any GI tag and is completely out of use. Still, there is a possibility of it being asked in match the pair type questions asking – Q) Which among the following artefacts from Tamil Nadu carries a GI Tag?
Rail adukku pathiram
The rail adukku pathiram consists of 14 vessels of different sizes, neatly placed in a compact manner inside the largest container.
The vessels were earlier used by families to carry groceries and cook food during train journeys.
These vessels were used to cook food for a mini-wedding. The interesting aspect is the compact size and easy to carry.
It has two vessels to cook vegetables, a sippal plate to boil rice, a frying pan, a sombu, a bronze pot to carry water and vessels of varying sizes to cook food.
Many in Tamil Nadu had forgotten about the existence of these multi-layered vessels until a video surfaced online recently.
From UPSC perspective, the following things are important :
Prelims level: Puntius Sanctus
Mains level: NA
Velankanni in Tamil Nadu has thrown up a new species of small freshwater fish.
Last year one species from our newscard: Species in news: Hump-backed Mahseer made it into the CSP 2019. The ‘Puntius Sanctus’ fish in the newscard creates such a vibe yet again.
A stand-alone species being mentioned in the news for the first time (and that too from Southern India) find their way into the prelims. Make special note here.
Q. Consider the following pairs
Wildlife
Naturally found in
1.
Blue-finned Mahseer
Cauvery River
2.
Irrawaddy Dolphin
Chambal River
3.
Rusty-spotted Cat
Eastern Ghats
Which of the pairs given correctly matched? (CSP 2019)
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Puntius Sanctus
The silver-hued fish has been named Puntius Sanctus — ‘Sanctus’ is Latin for holy — after the popular pilgrim town.
Encountered in a small waterbody in Venlankanni, Puntius Sanctus is small, it grows to a length of 7 cm.
It found to use both as food and as an aquarium draw.
“The Puntius species are known locally as ‘Paral’ in Kerala and ‘Kende’ in Tamil Nadu.
From UPSC perspective, the following things are important :
Prelims level: Ramkinkar Baij and his artworks
Mains level: Modern artforms in India
Ministry of Culture’s has organised virtual tour titled “Ramkinkar Baij | Journey through silent transformation and expressions” to commemorate his 115th Birth Anniversary.
We can expect a description based question in prelims like-
Q. “In 1925, he made his way to Kala Bhavana, the art school at Santiniketan and was under the guidance of Nandalal Bose. Encouraged by the liberating, intellectual environment of (Tagore’s) Santiniketan, his artistic skills and intellectual horizons blossomed, thus acquiring greater depth and complexity. One of the earliest modernists in Indian art, he assimilated the idioms of the European modern visual language and yet was rooted in his own Indian ethos.”
Who is the imminent personality discussed?
Who was Ramkinkar Baij?
Ramkinkar Baij (1906-1980), one of the most seminal artists of modern India, was an iconic sculptor, painter and graphic artist.
He was born in Bankura, West Bengal, into a family of little economic and social standing and grew by his sheer determination into one of the most distinguished early modernists of Indian art.
In 1925, he made his way to Kala Bhavana, the art school at Santiniketan and was under the guidance of Nandalal Bose.
Encouraged by the liberating, intellectual environment of (Tagore’s) Santiniketan, his artistic skills and intellectual horizons blossomed, thus acquiring greater depth and complexity.
His works
One of the earliest modernists in Indian art, he assimilated the idioms of the European modern visual language and yet was rooted in his own Indian ethos.
His themes were steeped in a deep sense of humanism and an instinctive understanding of the symbiotic relationship between man and nature.
Both in his paintings and sculptures, he pushed the limits of experimentation and ventured into the use of new materials.
For instance, his use of unconventional material, for the time, such as cement concrete for his monumental public sculptures set a new precedent for art practices.
The use of cement, laterite and mortar to model the figures, and the use of a personal style in which modern western and Indian pre-classical sculptural values were brought together was equally radical.
Popular recognition
Although his work was passed over for quite a while, gradually it began to get both national and international attention.
He was invited to participate in the Salon des Réalités Nouvelles in 1950 and in the Salon de Mai in 1951.
In the national honours began to come his way one after the other.
In 1970, the Government of India honoured him with the Padma Bhushan for his irrefutable contribution to Indian art.
In 1976 he was made a Fellow of the Lalit Kala Akademi.
In 1976, he was conferred the honorary Doctoral Degree of ‘Desikottama’ by Visva Bharati, and in 1979 an honorary D. Litt by Rabindra Bharati University.
