Note4Students
From UPSC perspective, the following things are important :
Prelims level: Bretton Wood Twins
Mains level: Transparency issues is International Organizations
This article discusses some inherent issues with the international organizations (IOs) i.e., the World Bank (Bank) and International Monetary Fund (IMF) (aka Bretton Woods Twins). This comes in the backyard of the WB decision to scrap its flagship publication, the ‘Doing Business’ report.
Issue over chair: A monopoly of the West
- Common individuals to head: The individuals which are common to them: Paul Wolfowitz, Jim-Kim, David Malpass, Rodrigo Rato, Dominique-Strauss Kahn, Christine Lagarde, and Kristalina Georgieva.
- Monopoly of US/EU: They have all become heads via a dual monopoly selection procedure: Only an American can head the Bank and only a European can head the IMF.
- Personal integrity: This has been called into question, the most recent being the revelations of malfeasance at the World Bank where data was apparently massaged to make at least two major countries — China and Saudi Arabia— look better than they would otherwise have been.
Issues with these heads: Hypocrisy
- Political accountability: Within countries, we expect reasonable standards of integrity from heads of important institutions, and democratic political accountability mechanisms exist to ensure that.
- Probity: The effectiveness and legitimacy of these individuals and indeed of the international institutions they head require personal qualities of probity.
- Non-virtuous preachers: These heads often go around the developing world, preaching the virtues of good governance, from arguing against the scourge of corruption to improving data integrity.
- Undue parameters: There are even World Bank indices to rank countries on those metrics.
How has this impacted these institutions?
Ans. The credibility of the institutions is lost.
- It is not just the charge of hypocrisy, but also the effect on the morale and motivation of the staff of these institutions.
- Many of them chose to work here because of a commitment to public service.
- The recent letter by more than 300 former World Bank staff, expressing their anguish at the recent revelations on the Doing Business index, captures this sentiment.
Why such issues grapple these institutions?
- Goal definition: International institutions operate in a grey zone of neither clearly being in or outside the realm of formal politics and hence have weaker mechanisms of accountability.
- Selection of heads: The selection procedure for choosing heads of the Bank and the Fund has been a dismal failure. Compromised heads are potentially more biased.
- Indoctrination: Contrast this with the growing alarm and anxiety that characterizes the rise of China and its attempts to place its own nationals in existing IOs as well as creating new ones.
Chinese has intruded even into these
- Countries place their nationals to head these institutions, both for prestige and to pursue their national interests.
- China has its own nationals now head four of the 15 UN specialized agencies (it suffered a rare setback to head the World Intellectual Property Organisation last year).
Conclusion
- The contest between the West (and especially the US) and China to shape the global order is becoming manifest.
- China’s efforts, its success, and more broadly its influence in IOs should certainly raise deep concerns, most notably the suppression of the inquiry into the origins of the coronavirus.
- Looking ahead, if the US and Europe do not hold themselves to the standards they exhort to the rest of the world, their credibility and legitimacy will continue to degrade.
- This will cede ground and soft power to geopolitical rivals.
Way forward
- So, global political leaders convening next week for the annual meetings of the Bank and Fund must act with urgency and conviction to stem the rot.
- They must open the selection of the heads of these institutions to the best candidate, regardless of nationality.
- And to pave the way, they should clear up the current mess over the Doing Business saga.
Back2Basics:
International Org. | Part 7 | Bretton Woods Institutions – World Bank Group
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Air India
Mains level: Air India disinvestment
After 68 years, Air India is all set to return to the Tata fold.
What is the deal?
- The Tatas will own 100% stake in Air India, as also 100% in its international low-cost arm Air India Express and 50% in the ground handling joint venture, Air India SATS.
- Apart from 141 planes and access to a network of 173 destinations including 55 international ones, Tatas will also have the ownership of iconic brands like Air India, Indian Airlines and the Maharajah.
History of Air India
- Prominent industrialist JRD Tata founded the airline in 1932 and named it Tata Airlines.
- As India gained Independence, the government bought 49% stake in AI.
- In 1946, the aviation division of Tata Sons was listed as Air India, and in 1948, the Air India International was launched with flights to Europe.
- In 1953, Air India was nationalised and for the next over four decades it remained the prized possession for India controlling the majority of the domestic airspace.
Why was Air India sold?
- End of Monopoly: With economic liberalisation and the growing presence of private players, this dominance came under serious threat.
- Govt running an airline: Ideologically too, the government running an airline did not quite gel with the mantra of liberalisation.
- Continuous losses: By 2007, AI (which flew international flights) was merged with the domestic carrier, Indian Airlines, to reduce losses.
- Wastage of taxpayers money: But it is the mark of how poorly the airline was run that it has never made a profit since 2007.
Why wasn’t it sold earlier?
Ans. Fear over Operational Freedom
- The first attempt to reduce the government’s stake — disinvestment — was made in 2001 under the then NDA government.
- But that attempt — to sell 40% stake — failed.
- In 2018, the government made another attempt to sell the government stake — this time, 76%. But it did not elicit even a single response.
- In the latest attempt started in January 2020, the government has been able to finally conclude the sale.
So how was it managed this time?
- Govt gives up stakes: The mere fact that the government retained a partial stake. In other words, as long as the government kept a certain shareholding of AI, private players did not seem interested.
- Operational freedom: That’s because the mere idea of government ownership, even if it was as little as 24%, made private firms wonder if they would have the operational freedom needed.
- Debt sharing: In the past, the government expected the bidders to pick up a certain amount of the debt. This time, the government let the bidders decide the amount of debt they wanted to pick up.
Significance of the deal
[A] From the government’s perspective: A success
- Disinvestment: It underscores govt commitment to reducing the its role in the economy.
- Easing burden on taxpayers: This claims to have saved taxpayers from paying for daily losses of AI.
- Economic reforms: Given the historical difficulties in AI’s disinvestment, or any disinvestment at all this is a significant achievement.
[B] Business perspective: Still a failure
- Missing the target: Purely in terms of money, the deal does not result in as big a step towards achieving the government’s disinvestment target of the current year.
- Unresolved bankruptcy: The assets left with the government, such as buildings, etc., will likely generate Rs 14,718 crore. But that will still leave the government with a debt of Rs 28,844 crore to pay back.
[C] Value perspective: Success for Tatas
- Business success: From the Tatas’ perspective, apart from the emotional aspect of regaining control of an airline that they started, AI’s acquisition is a long-term bet.
- Investment boost: The Tatas are expected to invest far more than what they have paid the government if this bet is to work for them.
Conclusion
- Complete liberalization: The privatisation of Air India is a message from the Government to the markets and global investors that it has the political will to bite the reform bullet.
- Roadmap for economic reforms: The govt had to shed the “over-conservatism” that is typical of bureaucracy.
- Future disinvestments: A transaction as “tough and complex” as Air India’s in an open, transparent and competitive bidding process, will boost future privatisation.
Way forward
- Other loss-making PSUs continue to drain taxpayers’ hard-earned money and get abused and fleeced in the name of social welfare.
- The govt should imbibe this experience gained in future disinvestment biddings.
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From UPSC perspective, the following things are important :
Prelims level: Free Trade Agreement
Mains level: India-ASEAN Relations
The Commerce and Industry Minister has called for a renegotiation of the India-ASEAN free trade agreement (FTA).
Why such move?
- The MCI aims to prevent its misuse by ‘third parties’ and remove trade restrictions as well as non-tariff barriers that he said had hurt Indian exports disproportionately since the pact was operationalized in 2010.
- The focus needed to be on new rules to eliminate misuse ‘by third parties outside ASEAN’, the minister said, hinting at China.
- India had to deal with several restrictive barriers on exports in the ASEAN region, particularly in the agriculture and auto sectors.
About ASEAN
- Members:
- Officially the Association of Southeast Asian Nations, ASEAN is an economic union comprising 10 member states in Southeast Asia.
- It promotes intergovernmental cooperation and facilitates economic, political, security, military, educational, and sociocultural integration between its members and other countries in Asia.
India-ASEAN Free Trade Agreement
- The initial framework agreement for ASEAN–India Free Trade Area (AIFTA) was signed on 8 October 2003 in Bali, Indonesia.
- The FTA came into effect on 1 January 2010.
- The FTA had emerged from a mutual interest of both parties to expand their economic ties in the Asia-Pacific region.
Background of the AIFTA
- India’s Look East policy was reciprocated by similar interests of many ASEAN countries to expand their interactions westward.
- After India became a sectoral dialogue partner of ASEAN in 1992, India saw its trade with ASEAN increase relative to its trade with the rest of the world.
- Between 1993 and 2003, ASEAN-India bilateral trade grew at an annual rate of 11.2%, from US$2.9 billion in 1993 to US$12.1 billion in 2003.
- Total Indian FDI into ASEAN from 2000 to 2008 was US$1.3 billion.
Acknowledging this trend and recognising the economic potential of closer linkages, both sides recognised the opportunities to pave the way for the establishment of an ASEAN–India Free Trade Area (FTA).
Structure of the AIFTA
- The signing of the ASEAN-India Trade in Goods Agreement paves the way for the creation of one of the world’s largest FTAs – a market of almost 1.8 billion people with a combined GDP of US$2.8 trillion.
- It sees tariff liberalisation of over 90 percent of products traded between the two dynamic regions, including the so-called “special products”.
- The products include palm oil (crude and refined), coffee, black tea and pepper.
Criticism
While there are many benefits to the ASEAN-India FTA, there is concern in India that the agreement will have several negative impacts on the economy.
- Opening-up its market: This FTA will allow them to increase the market access of their products.
- No specific gains: It is criticised, however, that India will not experience as great an increase in market access to ASEAN countries as ASEAN will in India.
- Export driven ASEAN: The economies of the ASEAN countries are largely export-driven. Considering India’s expansive domestic market, the ASEAN countries will look eagerly towards India as a home for its exports.
- Huge trade deficit: Since the early 2000s, India has had an increasing trade deficit with ASEAN. It is feared that a gradual liberalisation of tariffs and a rise in imported goods into India will threaten several sectors of the economy.
- Inaccessible Markets: As a dominant exporter of light manufacturing products, ASEAN has competitive tariff rates that make it difficult for India to gain access to the industry market in ASEAN countries.
- Cheaper imports: The state of Kerala is an important exporter in the national export of plantation products. It fears that cheap imports of oil palm, rubber, coffee, and fish would lower domestic production, adversely affecting farmers and ultimately its economy.
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From UPSC perspective, the following things are important :
Prelims level: Open Market Operations (OMO)
Mains level: NA
The Reserve Bank of India (RBI) has decided to halt its bond-buying under the G-Sec Acquisition Programme (GSAP).
Why such move?
- The GSAP had succeeded in ensuring adequate liquidity and stabilising financial markets.
- Coupled with other liquidity measures, it facilitated congenial and orderly financing conditions and a conducive environment for the recovery.
What is GSAP?
- The G-Sec Acquisition Programme (G-SAP) is basically an unconditional and a structured Open Market Operation (OMO), of a much larger scale and size.
- G-SAP is an OMO with a ‘distinct character’.
- The word ‘unconditional’ here connotes that RBI has committed upfront that it will buy G-Secs irrespective of the market sentiment.
What are Government Securities?
- These are debt instruments issued by the government to borrow money.
- The two key categories are:
- Treasury bills (T-Bills) – short-term instruments which mature in 91 days, 182 days, or 364 days, and
- Dated securities – long-term instruments, which mature anywhere between 5 years and 40 years
Note: T-Bills are issued only by the central government, and the interest on them is determined by market forces.
Why G-Secs?
- Like bank fixed deposits, g-secs are not tax-free.
- They are generally considered the safest form of investment because they are backed by the government. So, the risk of default is almost nil.
- However, they are not completely risk-free, since they are subject to fluctuations in interest rates.
- Bank fixed deposits, on the other hand, are guaranteed only to the extent of Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Other decisions
- The RBI, however, remained ready to undertake G-SAP as and when warranted by liquidity conditions.
- It would also continue to flexibly conduct other liquidity management operations including Operation Twist (OT) and regular open market operations (OMOs).
Answer this PYQ in the comment box:
Q.Consider the following statements:
- The Reserve Bank of India manages and services the Government of India Securities but not any State Government Securities.
- Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
- Treasury bills offer are issued at a discount from the par value.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 3 Only
(c) 2 and 3 only
(d) 1, 2 and 3
Post your answers here:
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Back2Basics: Open Market Operations (OMO)
- OMOs is one of the quantitative monetary policy tools which is employed by the central bank of a country to control the money supply in the economy.
- It is a part of the Market Stabilization Scheme (MSS) by the RBI.
- OMOs are conducted by the RBI by way of sale or purchase of government securities (g-secs) to adjust money supply conditions.
- The central bank sells g-secs to remove liquidity from the system and buys back g-secs to infuse liquidity into the system.
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From UPSC perspective, the following things are important :
Prelims level: Palk Bay Scheme
Mains level: Fisheries development
The Union Government is considering increasing the unit cost of deep-sea fishing vessels under the Palk Bay scheme to make it more attractive to fisherfolk.
Palk Bay Scheme
- The Palk Bay Scheme is the official scheme for diversification of trawl fishing boats from Palk Strait into deep sea fishing boats.
- It is aimed at encouraging fishermen to take up deep-sea fishing and put an end to disputes arising between the India and Sri Lanka.
- The project helps fishermen in the Palk Straits, who are not exposed to deep-sea fishing, to venture deep into the Indian Ocean, Arabian sea and other deep-sea areas to look for fish like tuna that are in high demand.
Why need such a scheme?
- Bottom trawling, an ecologically destructive practice, involves trawlers dragging weighted nets along the sea-floor, causing great depletion of aquatic resources.
Key components of the scheme
- The project aims to replace all trawler boats and introduce over 2,000 deep sea fishing boats in a course of five years.
- The scheme, under the aegis of Blue Revolution scheme – is funded by the Centre – 50 per cent and state government – 20 per cent for a boat costing Rs 80 lakh.
- Of the balance 30 per cent, 10 per cent is contributed by the beneficiary (fisherman), and the remaining 20 per cent is funded by banks.
Must read:
[Burning Issue] India- Sri Lanka Fishermen Issues
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