Note4Students
From UPSC perspective, the following things are important :
Prelims level: The Quad
Mains level: Paper 2- Fourth factors the Quad must consider about Asia
The article highlights the 4 issues related to the history and geopolitics of Asian that the Quad members should pay attention to while formulating the future course of action.
The 4 factors
If the Quad is to prosper as a geopolitical construct, it would do well to heed four lessons drawn from the long arc of Asia’s history and geopolitics.
1) Lack of existence of Indo-Pacific system
- There has never been Indo-Pacific system ever since the rise of the port-based kingdoms of Indochina in the first half of the second millennium.
- There were two Asian systems — an Indian Ocean system and an East Asian system — with intricate sub-regional balances.
- The effort by a U.S. to artificially manufacture to combine the Indo and the Pacific into a unitary system is unlikely to succeed.
2) Lack of peaceful existence dominated by any power
- The Indo-Pacific region possesses no prior experience of long period of peace, prosperity and stability engineered from its maritime fringes.
- Rather, dynamic long cycles of Chinese influence radiating outwards have alternated with sharp periods of turmoil.
- The of ASEAN-centred multilateralism is more in tune with regional tradition and historical circumstance.
- For their part, the Indo-Pacific’s ‘flanking powers’, India and Japan, have never balanced Chinese power throughout their illustrious histories.
3) India must use its leverage judiciously
- The sea lines of communication constitute the important links connecting Indian Ocean to the Western Pacific.
- It is also a valuable arena of leverage vis-à-vis Chinese shipping and resource flows.
- This leverage must be wielded judiciously on India’s terms, not on the Quad’s terms.
- The Quad, after all, has little to offer materially with regard to New Delhi’s continental two-front dilemma.
- However, ceding this chokepoint leverage will invite overwhelming Chinese pressure against the full range of India’s South Asian interests — to which the other Quad members possess neither will nor desire to answer.
4) Check on China’s India Ocean Ambitions
- The Quad has a valuable role to play as a check on China’s Indian Ocean ambitions.
- India must develop ingrained habits of interoperable cooperation with its Quad partners.
- This interoperable cooperation could pre-emptively dissuade China from mounting a naval challenge in its backyard.
Conclusion
The Quad must consider these factors while formulating the future course of action.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Bond markets, SLR
Mains level: Paper 3- Issues with the financial markets in India
The article discusses the themes of the recently published books by Viral Acharya and Urjit Patel. Both the books deal with the issues with the financial markets in India
Context
- Two recently published books by Viral Acharya and Urjit Patel throws light on the issues with India’s finance market and role of RBI and the government.
Importance of financial markets
- Banks along with bond and equity markets oversee the matching of savers with borrowers.
- Without financial markets, businesses would be restricted to investing out of retained earnings alone.
- The financial markets have to satisfy the return appetites of savers while minimising their risk exposure.
Undue preference to fiscal interest of the government
- A major theme of Acharya’s book is the rampant subjugation of the financial and monetary infrastructure to the fiscal interests of the government.
- Consider, for example, the conduct of monetary policy.
- Since bank assets are marked to market, cuts in interest rates induce treasury gains for banks that effectively recapitalises them.
- Consequently, rate cuts are preferred by governments needing to inject capital into public sector banks (PSBs).
- For the same reasons, liquidity injections, which raise bond prices, are preferred to liquidity absorptions.
- Fiscal compulsions of government can induce liquidity policies that have the opposite effect on the rate-setting by the MPC.
- This contradiction is further complicated by the fact that the RBI is also the debt management agency for the government.
- As a debt management agency, RBI’s key tasks is to sell government bonds at the highest possible price.
- Pressures for regulatory forbearance in recognising NPAs often arise from the government wanting to avoid having to recapitalise PSBs.
- The sameexplains the fact that stock exchanges in India having a 30-day disclosure norm for registered borrowers who default on their bank loans.
- The standard in developed capital markets is immediate disclosure.
- But that would induce an overnight rating downgrade of the concerned borrower thereby triggering additional capital provisioning needs for the lending bank.
Conflict in government owning the PSBs
- Patel’s book deals with conflicts inherent in the state owning the banks that control about three-fourth of total banking assets in India.
- The primary problem with PSBs is that governments have used them as tools for macroeconomic management.
- PSBs are regularly used for resource mobilisation to finance fiscal deficits.
- The government often announces credit policies rather than having the banks allocate credit based on risk-return management criteria.
- PSBs are the favoured instrument for meeting employment targets, supporting farmers through loan write-offs, etc.
What are the implications of government owning PSBs
- This kind of state interface naturally induces extreme levels of moral hazard in the behaviour of both debtors and creditors.
- PSBs are not incentivised to exercise due diligence since they expect regulatory forbearance and recapitalisation in the event of rising NPAs.
- The dilution of efficiency-based principles for banking has implications for all borrowers.
- Creditworthy borrowers pay the risk premia to cover the riskiness due to unhealthy borrowers.
- The worsening risk pool of borrowers is partly to blame for the fact that long term borrowing rates have remained stubbornly high despite repeated rate cuts by the MPC over the past 18 months.
3 Problems and 3 Reforms
Problems
- There are three obvious problems with the existing architecture.
- The first is the state ownership of banks.
- The second is the chronically high fiscal deficit run by the consolidated public sector.
- The third is the widespread perception that market regulators work under close government direction.
Reforms
- Dealing with this will require, at a minimum, three reforms.
- First, there has to be a wholehearted attempt at privatisation of PSBs.
- Second, the RBI needs to be relieved of its public debt management role.
- Third, the RBI has to be empowered to act independently of the government.
Conclusion
The growth of firms, which is a key driver of productivity and growth, requires well-functioning financial markets. India has a lot of work to do.
Back2Basics: How cuts in interest rates induce treasury gains for banks?
- Falling rates across the debt markets increase the demand for instruments that pay higher interest.
- At this stage, prices of bonds which banks had bought when interest rates were high rise.
- Hence, the value of government securities that banks have bought for the SLR requirement rises.
- This increases profits as banks record the market value of these securities in their books.
- Under this process, called marking to market, organisations record profits/losses in their books on a daily basis without actually booking any profit or loss.
- So, more SLR bonds the bank holds, the higher its mark-to-market profit.
- The other reasons bank profits rise when interest rates fall are pick-up in growth as companies borrow at lower rates as well as improvement in liquidity.
Source:-
https://www.businesstoday.in/moneytoday/banking/banks-to-make-huge-treasury-gains-on-bonds-on-rbi-rate-cut/story/193552.html
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Auction Theory, Nobel Prizes
Mains level: Auction theory and its utility
This year, the Nobel Prize for Economics was awarded to Paul R Milgrom and Robert B Wilson for “improvements to auction theory and inventions of new auction formats”.
Do you remember the 2G spectrum scam, Coalgate scam etc. that rocked the nation? Can you relate this auction theory for bidding public assets to private entities?
What is Auction?
- Essentially, it is about how auctions lead to the discovery of the price of a commodity.
- Auction theory studies how auctions are designed, what rules govern them, how bidders behave and what outcomes are achieved.
- When one thinks of auctions, one typically imagines the auction of a bankrupt person’s property to pay off his creditors.
- Indeed, this is the oldest form of auction. This simple design of such an auction — the highest open bidder getting the property (or the commodity in question) — is intuitively appealing as well.
Evolving definitions of auction
- Over time, and especially over the last three decades, more and more goods and services have been brought under auction.
- The nature of these commodities differs sharply. For instance, a bankrupt person’s property is starkly different from the spectrum for radio or telecom use.
- Similarly, carbon dioxide emission credits are quite different from the spot market for buying electricity, which, in turn, is quite different from choosing which company should get the right to collect the local garbage.
- In other words, no one auction design fits all types of commodities or seller.
The Auction Theory
Three key variables need to be understood before we move to actual propositions.
(1) Rules of the auction
- Imagine participating in an auction. Your bidding behaviour is likely to differ if the rules stipulate open bids as against closed/sealed bids.
- The same applies to single bids versus multiple bids, or whether bids are made one after another or everyone bids at the same time.
(2) Commodity or service
- The second variable is the commodity or service being put up for auction. In essence, the question is how each bidder values an item.
- This is not always easy to ascertain. In terms of telecom spectrum, it might be easier to peg the right value for each bidder because most bidders are likely to put the spectrum to the same use.
- This is called the “common” value of an object.
(3) Uncertainty
- The third variable is uncertainty.
- For instance, which bidder has what information about the object, or even the value another bidder associates with the object.
The theory
- Wilson developed the theory for auctions of objects with a common value — a value which is uncertain beforehand but, in the end, is the same for everyone”.
- Wilson showed what the “winner’s curse” is in an auction and how it affects bidding.
- As shown in the illustration, it is possible to overbid — $50 when the real value is closer to $25. In doing so, one wins the auction but loses out in reality.
- Milgrom “formulated a more general theory of auctions that not only allows common values but also private values that vary from bidder to bidder”.
- He analysed the bidding strategies in a number of well-known auction formats, demonstrating that a format will give the seller higher expected revenue when bidders learn more about each other’s estimated values.
Significance of Auction theory
- Throughout history, countries have tried to allocate resources in various ways.
- Some have tried to do it through political markets, but this has often led to biased outcomes. For Ex: The rationing of essential goods worked in State-controlled economies. People who were close to the bureaucracy and the political class came out ahead of others.
- Lotteries are another way to allocate resources, but they do not ensure that scarce resources are allocated to people who value it the most.
- Auctions, for a good reason, have been the most common tool for thousands of years used by societies to allocate scarce resources.
- When potential buyers compete to purchase goods in an auction, it helps sellers discover those buyers who value the goods the most.
- Further, selling goods to the highest bidder also helps the seller maximise his or her revenues. So, both buyers and sellers benefit from auctions.
- Whether it is the auction of spectrum waves or the sale of fruits and vegetables, auctions are at the core of allocation of scarce resources in a market economy.
What are the criticisms levelled against auctions and what are the economists contribution?
1.Issue of Winner’s Curse
- The most common one is that auctions can lead buyers to overpay for resources whose value is uncertain to them.
- This criticism, popularly known as the ‘winner’s curse’, is based on a study that showed how buyers who overpaid for U.S. oil leases in the 1970s earned low returns. Dr. Wilson was the first to study this matter.
- The rational bidders may decide to underpay for resources in order to avoid the ‘winner’s curse’, and Dr. Wilson argued that sellers can get better bids for their goods if they share more information about it with potential buyers
2.Auction formats
- Economists traditionally working on auction theory believed that all auctions are the same when it comes to the revenues that they managed to bring in for sellers. The auction format, in other words, did not matter.
- This is known as the ‘revenue equivalence theorem’.
- But Dr. Milgrom showed that the auction format can actually have a huge impact on the revenues earned by sellers.
- The most famous case of an auction gone wrong for the seller was the spectrum auction in New Zealand in 1990.
- In what is called a ‘Vickrey auction’, where the winner of the auction is mandated to pay only the second-best bid, a company that bid NZ$1,00,000 eventually paid just NZ$6 and another that bid NZ$70,00,000 only paid NZ$5,000.
- In particular, Dr. Milgrom showed how Dutch auctions, in which the auctioneer lowers the price of the product until a buyer bids for it, can help sellers earn more revenues than English auctions.
- In the case of English auctions, the price rises based on higher bids submitted by competing buyers. But as soon as some of the bidders drop out of the auction as the price rises, the remaining bidders become more cautious about bidding higher prices.
Conclusion
- The contributions of Dr. Milgrom and Dr. Wilson have helped governments and private companies design their auctions better.
- This has, in turn, helped in the better allocation of scarce resources and offered more incentives for sellers to produce complex goods.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: FATF
Mains level: Money laundering and terror financing
Pakistan is unlikely to exit the Financial Action Task Force (FATF’s) greylist with this plenary session as well.
Practice question for mains:
Q.What is FATF? Discuss its role in combating global financial crimes and terror financing.
What is the FATF?
- FATF is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.
- The FATF Secretariat is housed at the OECD headquarters in Paris.
- It holds three Plenary meetings in the course of each of its 12-month rotating presidencies.
Why is Pakistan under its scanner?
- Pakistan has been under the FATF’s scanner since June 2018, when it was put on the Grey List for terror financing and money laundering risks.
- FATF and its partners such as the Asia Pacific Group (APG) are reviewing Pakistan’s processes, systems, and weaknesses on the basis of a standard matrix for anti-money laundering (AML) and combating the financing of terrorism (CFT) regime.
- In June 2018, Pakistan gave a high-level political commitment to work with the FATF and APG to strengthen its AML/CFT regime, and to address its strategic counter-terrorism financing-related deficiencies.
- Pakistan and the FATF then agreed on the monitoring of 27 indicators under a 10-point action plan, with specific deadlines.
- The understanding was that the successful implementation of the action plan, and its physical verification by the APG, would lead the FATF to move Pakistan out of the Grey List.
- However, Islamabad managed to satisfy the global watchdog over just five of them.
B2BASICS
What are the Black List and Grey List of the FATF?
FATF has 2 types of lists;
1. Black List
2. Grey List
1. Meaning of Black List: Only those countries are included in this list that FATF considers as uncooperative tax havens for terror funding. These countries are known as Non-Cooperative Countries or Territories (NCCTs). In other words; countries that are supporting terror funding and money laundering activities are placed in the Blacklist.
The FATF blacklist or OECD blacklist has been issued by the Financial Action Task Force since 2000 and lists countries which it judges to be non-cooperative in the global fight against money laundering and terror funding.
The FATF updates the blacklist regularly, adding or deleting entries.
(This map shows the countries included in the Greylist)
2. Meaning of Grey List: Those countries which are not considered as the safe heaven for supporting terror funding and money laundering; included in this list. The inclusion in this list is not as severe as blacklisted.
Now Grey list is a warning given to the country that it might come in Black list (Just like a yellow card in a football match). If a country is unable to curb mushrooming of terror funding and money laundering; it is shifted from grey list to black list by the FATF.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: FCRA
Mains level: FCRA
The Ministry of Home Affairs (MHA) has asked all NGOs seeking foreign donations to open a designated FCRA account at the State Bank of India’s New Delhi branch.
What is the FCRA?
- The FCRA regulates foreign donations and ensures that such contributions do not adversely affect internal security.
- First enacted in 1976, it was amended in 2010 when a slew of new measures was adopted to regulate foreign donations.
- The FCRA is applicable to all associations, groups and NGOs which intend to receive foreign donations. It is mandatory for all such NGOs to register themselves under the FCRA.
- The registration is initially valid for five years and it can be renewed subsequently if they comply with all norms.
What happens once registered?
- Registered associations can receive a foreign contribution for social, educational, religious, economic and cultural purposes.
- Filing of annual returns, on the lines of Income Tax, is compulsory.
- In 2015, the MHA notified new rules, which required NGOs to give an undertaking that the acceptance of foreign funds.
- It ruled that it is not likely to prejudicially affect the sovereignty and integrity of India or impact friendly relations with any foreign state and does not disrupt communal harmony.
- It also said all such NGOs would have to operate accounts in either nationalized or private banks which have core banking facilities to allow security agencies access on a real-time basis.
Who cannot receive foreign donations?
- Members of the legislature and political parties, government officials, judges and media persons are prohibited from receiving any foreign contribution.
- However, in 2017 the MHA amended the 1976-repealed FCRA law paving the way for political parties to receive funds from the Indian subsidiary of a foreign company or a foreign company in which an Indian holds 50% or more shares.
How else can receive foreign funding?
- The other way to receive foreign contributions is by applying for prior permission.
- It is granted for receipt of a specific amount from a specific donor for carrying out specific activities or projects.
- But the association should be registered under statutes such as the Societies Registration Act, 1860, the Indian Trusts Act, 1882, or Section 25 of the Companies Act, 1956.
- A letter of commitment from the foreign donor specifying the amount and purpose is also required.
When is a registration suspended or cancelled?
- The MHA on inspection of accounts and on receiving any adverse input against the functioning of an association can suspend the FCRA registration initially for 180 days.
- Until a decision is taken, the association cannot receive any fresh donation and cannot utilise more than 25% of the amount available in the designated bank account without the permission of the MHA.
- The MHA can cancel the registration of an organisation which will not be eligible for registration or grant of ‘prior permission’ for three years from the date of cancellation.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: EVIN network
Mains level: Vaccination challenges for coronavirus
The eVIN network, which can track the latest vaccine stock position; the temperature at storage facility; geo-tag health centres; and maintain facility-level dashboard, is being repurposed for the delivery of the COVID-19 vaccine.
Try this question from CSP 2016:
Q.‘Mission Indradhanush’ launched by the Government of India pertains to:
(a) Immunization of children and pregnant women
(b) Construction of smart cities across the country
(c) India’s own search for the Earth-like planets in outer space
(d) New Educational Policy
What is eVIN network?
- The eVIN is an innovative technological solution aimed at strengthening immunization supply chain systems across the country.
- This is being implemented under the National Health Mission (NHM) by the Ministry of Health and Family Welfare.
- It aims to provide real-time information on vaccine stocks and flows, and storage temperatures across all cold chain points in the country.
- This system has been used during the COVID pandemic for ensuring the continuation of the essential immunization services and protecting our children and pregnant mothers against vaccine-preventable diseases.
Components of eVIN
- eVIN combines state-of-the-art technology, a strong IT infrastructure and trained human resource to enable real-time monitoring of stock and storage temperature of the vaccines kept in multiple locations across the country.
- At present, 23,507 cold chain points across 585 districts of 22 States and 2 UTs routinely use the eVIN technology for efficient vaccine logistics management.
Benefits of eVIN
- It has helped create a big data architecture that generates actionable analytics encouraging data-driven decision-making and consumption-based planning.
- It helps in maintaining optimum stocks of vaccines leading to cost savings. Vaccine availability at all times has increased to 99% in most health centres in India.
- While instances of stock-outs have reduced by 80%, the time taken to replenish stocks has also decreased by more than half, on an average.
- This has ensured that every child who reaches the immunization session site is immunized, and not turned back due to unavailability of vaccines.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Opposition event
Mains level: Not Much
Due to an event referred to as “opposition”, which takes place every two years and two months, Mars will shine the brightest.
Try this question from CSP 2017:
Q.Which region of Mars has a densely packed river deposit indicating this planet had water 3.5 billion years ago?
(a) Aeolis Dorsa (b) Tharsis (c) Olympus Mons (d) Hellas
What is the Opposition Event?
- ‘Opposition’ is the event when the sun, Earth and an outer planet (Mars in this case) are lined up, with the Earth in the middle.
- The time of opposition is the point when the outer planet is typically also at its closest distance to the Earth for a given year, and because it is close, the planet appears brighter in the sky.
- An opposition can occur anywhere along Mars’ orbit, but when it happens when the planet is also closest to the sun, it is also particularly close to the Earth.
- It will outshine Jupiter, becoming the third brightest object (moon and Venus are first and second, respectively) in the night sky during the month of October.
When does opposition happen?
- Earth and Mars orbit the sun at different distances (Mars is farther apart from the sun than Earth and therefore takes longer to complete one lap around the sun).
- In fact, the opposition can happen only for planets that are farther away from the sun than the Earth.
- In the case of Mars, roughly every two years, the Earth passes between sun and Mars, this is when the three are arranged in a straight line.
- Further, as the Earth and Mars orbit the sun, there comes a point when they are on the opposite sides of it, and hence very far apart. At its farthest, Mars is about 400 million km from the Earth.
- In case of opposition, however, Mars and Sun are on directly opposite sides of the Earth. In other words, the Earth, sun and Mars all lie in a straight line, with the Earth in the middle.
Logic behind the name
- As per NASA, from an individual’s perspective on the Earth, Mars rises in the east and after staying up all night, it sets in the west just as the sun rises in the east and sets in the west.
- Because from the perspective on Earth, the sun and Mars appear to be on the opposite sides of the sky, Mars is said to be in “opposition”.
- Essentially, the opposition is a reference to “opposing the sun” in the sky.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: NSM, Supercomputing
Mains level: National Supercomputing Mission
The Centre for Development of Advanced Computing (C-DAC) has launched the second phase of the ambitious National Supercomputing Mission (NSM).
Tap to read more about National Supercomputing Mission (NSM):
[pib] National Supercomputing Mission (NSM)
National Supercomputing Mission (NSM)
- NSM is a proposed plan by GoI to create a cluster of seventy supercomputers connecting various academic and research institutions across India.
- In April 2015 the government approved the NSM with a total outlay of Rs.4500 crore for a period of 7 years.
- The mission was set up to provide the country with supercomputing infrastructure to meet the increased computational demands of academia, researchers, MSMEs, and startups by creating the capability design, manufacturing, of supercomputers indigenously in India.
- Currently, there are four supercomputers from India in the Top 500 list of supercomputers in the world.
Aims and objectives
- The target of the mission was set to establish a network of supercomputers ranging from a few Tera Flops (TF) to Hundreds of Tera Flops (TF) and three systems with greater than or equal to 3 Peta Flops (PF) in academic and research institutions of National importance across the country by 2022.
- This network of Supercomputers envisaging a total of 15-20 PF was approved in 2015 and was later revised to a total of 45 PF (45000 TFs), a jump of 6 times more compute power within the same cost and capable of solving large and complex computational problems.
What is a Supercomputer?
- A supercomputer is a computer with a high level of performance as compared to a general-purpose computer.
- The performance of a supercomputer is commonly measured in floating-point operations per second (FLOPS) instead of million instructions per second (MIPS).
- Since 2017, there are supercomputers which can perform over a hundred quadrillion FLOPS (petaFLOPS).
- Since November 2017, all of the world’s fastest 500 supercomputers run Linux-based operating systems.
Why do we need supercomputers?
- Tackle problems: Developed and almost-developed countries have begun ensuring high investments in supercomputers to boost their economies and tackle new social problems.
- These high-performance computers can simulate the real world, by processing massive amounts of data, making cars and planes safer, and more fuel-efficient and environment-friendly.
- They also aid in the extraction of new sources of oil and gas, development of alternative energy sources, and advancement in medical sciences.
- Disaster Management: Supercomputers have also helped weather forecasters to accurately predict severe storms, enable better mitigation planning and warning systems.
- They are also used by financial services, manufacturing and internet companies and infrastructure systems like water-supply networks, energy grids, and transportation.
- Future applications of artificial intelligence (AI) also depend on supercomputing.
- Due to the potential of this technology, countries like the US, China, France, Germany, Japan, and Russia have created national-level supercomputing strategies and are investing substantially in these programmes.
When did India initiate its efforts to build supercomputers?
- India’s supercomputer programme initiated in the late 1980s, when the United States ceased the export of a Cray Supercomputer due to technology embargos.
- This resulted in India setting up C-DAC in 1988, which in 1991, unveiled the prototype of PARAM 800, benchmarked at 5 Gflops. This supercomputer was the second-fastest in the world at that time.
- Since June 2018, the USA’s Summit is the fastest supercomputer in the world, taking away this position from China.
- As of January 2018, Pratyush and Mihir are the fastest supercomputers in India with a maximum speed of Peta Flops.
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