Note4Students
From UPSC perspective, the following things are important :
Prelims level: Credit growth in India
Mains level: Paper 3- India's banking sector
Context
The RBI’s latest Financial Stability Report (FSR) has given the banking system a reasonably clean bill of health. It’s a significant achievement, considering the stress of the previous decade, the shock of the pandemic and the associated slowdown of the economy.
Two indicators of banking system’s progress
- 1] Reduced NPAs: Successive waves of recapitalisation have given banks enough resources to write off most of their bad loans.
- As a result, they have been able to bring down their gross NPAs (non-performing loans) from 11 per cent of total advances in 2017-18 to 5.9 per cent in 2021-22.
- Even after these large write-offs, most banks retain comfortable levels of capital.
- 2] Credit growth doubled: During the decade when banks were under stress, non-food bank credit growth had been declining, reaching just 6 per cent in 2020, its lowest point in six decades.
- Since then, credit growth has nearly doubled.
Concerns
- Role of credit in supporting GDP growth: The problem is that very little of this credit is going to large-scale industry or for financing investment.
- Reluctance of banks to provide credit to industry: Over the last decade, banks have increasingly shifted away from providing credit to industry, favouring instead lending to consumers.
- This trend is continuing — in the year ending March 2022, consumer loans grew at 13 per cent, whereas loans to industry grew at just 8 per cent.
- Banks favoring MSMEs in industry loans: Bulk of the industry loans has been extended to the smaller firms (MSMEs), which benefitted from the credit guarantee scheme offered by the government in the wake of the pandemic.
- Reduced lending to private sector investment: A related problem is that there has been little lending for private sector investment.
- Over the last one year, bank lending to infrastructure has grown by 9 per cent, up from 3 per cent in 2020, but this was fuelled mainly by public sector capital expenditure.
Why is there so little lending for investment by large firms?
- Demand side reason: On the demand side, private sector investment has been sluggish for nearly a decade.
- The boom-and-bust of the mid-2000s had saddled firms with excess capacity, giving them little reason to expand their production facilities.
- In addition, the global financial crisis had shown the dangers of ambitious expansion supported by excessive borrowing, leading firms to conclude that it would be prudent to scale back their plans and instead focus on reducing their debts.
- Supply side reason: On the supply side, banks have learned similar lessons.
- During the period 2004-2009, rapid GDP growth in the Indian economy was fuelled by an unprecedented lending boom.
- Subsequently, many of those loans turned bad, leading to high levels of NPAs on bank balance sheets.
- As a result of these financial problems, banks for a decade were unable to extend much in the way of credit.
Challenges
- On the positive side, firms seem to have finally used up much of their spare capacity.
- Fundamental problems not resolved: But on the negative side, the fundamental problems that led to the difficulties of the past decade still have not been resolved.
- No framework for risk reduction: There is still no framework that will reduce the risk of private sector investment in infrastructure, certainly not in the critical and highly troubled power sector.
- Nor is there any reassurance for the banks that if problems do develop, they can be resolved expeditiously, since the Insolvency and Bankruptcy Code has been plagued by delays and other problems.
Way forward
- We need deep structural reforms — to the infrastructure framework, the resolution process, and indeed, in the risk management processes at the banks themselves.
- In the event that these reforms do not materialise, there may continue to be shortfalls in credit, investment, and ultimately in economic recovery and growth.
Conclusion
A healthy balance sheet of the banking sector is a necessary but not a sufficient condition for economic growth. The important question is whether banks and firms will once again be willing to take on the risk of investment in industry and infrastructure.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: MEITY
Mains level: Paper 2- Need for data protection law
Context
The Minister for the Ministry of Electronics and IT withdrew the Personal Data Protection Bill, 2019. The reasons for the withdrawal were circulated in a note to MPs, which stated that,“considering the report of the JPC (Joint Parliamentary Committee), a comprehensive legal framework is being worked upon…”.
Background of Personal Data Protection Bill
- An expert committee headed by Justice (retd) A P Shah recommended in October, 2012,“a detailed framework that serves as the conceptual foundation for the Privacy Act”.
- This did not come to fruition, with proposals buried by 2014 due to objections from the intelligence establishment on surveillance reforms.
- While petitions on the constitutionality of Aadhaar and the right to privacy were pending before the Supreme Court, the Union government constituted an expert group headed by Justice (retd) B N Srikrishna in July, 2017.
- In August, a nine-judge bench unanimously pronounced the Puttaswamy judgment that reaffirmed the fundamental right to privacy for the autonomy, dignity and liberty for every Indian.
- Justice D Y Chandrachud, who authored the majority opinion, noted the formation of the Srikrishna Committee as a positive obligation on the government to enact a law for informational privacy.
- In December 2019, government introduced the Personal Data Protection Bill, 2019 in Parliament.
- The draft law was referred to a JPC of 30 MPs that submitted a report after two years.
- With the withdrawal in Parliament on August 3, it almost seems institutional processes, in which all three branches of government worked for years, are being jettisoned in favour of “a comprehensive legal framework”.
Issues with reasons given for withdrawal of the Bill
- The JPC has nowhere suggested a withdrawal in favour of a “comprehensive legal framework”.
- The proper course was to consider the JPC’s recommendations including the dissent notes and expert analysis, redraft and introduce a new Data Protection Bill.
- Compliance burden concern of government: With the government setting the goal of a one trillion dollar digital economy, fears of a compliance burden can impede innovation and growth.
- Date protection is needed for innovation: Here, detailed reasoning is available in the Srikrishna Committee’s report as well as a growing international consensus suggesting that next-generation innovation in technology needs data protection.
- Regulatory intervention will improve business practices requiring engineering decisions that focus on user trust.
- Imperfections in law argument: With the imperfections within the Personal Data Protection Bill, 2019 and even the JPC report, there exists a reasonable argument that if passed into law, it may institutionalise bad privacy practices.
- Such a line of reasoning fails to recognise that institutional memory develops through reasonable due diligence and experience.
- Legislative foresight is limited and no law is perfect, which is why there exist parliamentary amendments and judicial review.
Conclusion
Today, there is a relentless pace of digitisation that relies on gathering personal data in all spheres of our lives. All of this is done in a legal vacuum without any oversight or remedy. This underscores the urgent need for data protection law.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: JCPOA
Mains level: US sanctions on Iran, Nuclear deal
Negotiators kicked off a fresh round of talks over Iran’s nuclear program in Vienna, seeking to salvage the agreement on Tehran’s atomic ambitions.
Do you know how the enmity between Iran and the US came into reality? We hope you have watched the Argo (2012) movie for sure!
Context
- After a gap of five months, Iran, Russia, China and the European countries resumed negotiations in Vienna to revive the 2015 nuclear agreement, known as the Joint Comprehensive Plan of Action (JCPOA).
- The 2015 JCPOA agreement sought to cut Iran off a possible path to a nuclear bomb in return for lifting of economic sanctions.
What is JCPOA?
- The Iran nuclear agreement, formally known as the JCPOA is a landmark accord reached between Iran and several world powers, including the United States, in July 2015.
- Under its terms, Iran agreed to dismantle much of its nuclear program and open its facilities to more extensive international inspections in exchange for billions of dollars’ worth of sanctions relief.
Expected outcomes of the deal
- Curb on the nuclear program: Proponents of the deal said that it would help prevent a revival of Iran’s nuclear weapons program.
- Increasing regional engagement: It would thereby reduce the prospects for conflict between Iran and its regional rivals, including Israel and Saudi Arabia.
Background of the JCPOA
- Iran had previously agreed to forgo the development of nuclear weapons as a signatory to the Nuclear Non-proliferation Treaty, which has been in force since 1970.
- However, after the overthrow of the Pahlavi dynasty in 1979, Iranian leaders secretly pursued this technology.
- In 2007, U.S. intelligence analysts concluded that Iran halted its work on nuclear weapons in 2003 but continued to acquire nuclear technology and expertise.
- Prior to the JCPOA, the P5+1 had been negotiating with Iran for years, offering its government various incentives to halt uranium enrichment.
Issues with the deal
(1) US withdrawal
- The deal has been in jeopardy since President Donald Trump withdrew the US from it in 2018.
- In retaliation for the US, Iran resumed some of its nuclear activities.
(2) Iran’s insistence over sanctions removal
- In 2021, President Joe Biden said the US will return to the deal if Iran comes back into compliance, though Iran’s leaders have insisted that Washington lift sanctions first.
- Iran now has indicated that he will take a harder line than his predecessor in nuclear negotiations.
Who are the participants?
- The JCPOA, which went into effect in January 2016, imposes restrictions on Iran’s civilian nuclear enrichment program.
- At the heart of negotiations with Iran were the five permanent members of the UN Security Council (China, France, Russia, the United Kingdom, and the United States) and Germany—collectively known as the P5+1.
- The European Union also took part. Israel explicitly opposed the agreement, calling it too lenient.
- Some Middle Eastern powers, such as Saudi Arabia, said they should have been consulted or included in the talks because they would be most affected by a nuclear-armed Iran.
What did Iran agree to?
- Nuclear restrictions: Iran agreed not to produce either the highly enriched uranium or the plutonium that could be used in a nuclear weapon.
- Monitoring and verification: Iran agreed to eventually implement a protocol that would allow inspectors from the International Atomic Energy Agency (IAEA), the United Nations’ nuclear watchdog.
What did the other signatories agree to?
- Sanctions relief: The EU, United Nations, and United States all committed to lifting their nuclear-related sanctions on Iran. However, many other U.S. sanctions on Iran, some dating back to the 1979 hostage crisis, remained in effect.
- Weapons embargo: The parties agreed to lift an existing UN ban on Iran’s transfer of conventional weapons and ballistic missiles after five years if the IAEA certifies that Iran is only engaged in civilian nuclear activity.
How has the deal affected Iran’s economy?
- Prior to the JCPOA, Iran’s economy suffered years of recession, currency depreciation, and inflation, largely because of sanctions on its energy sector.
- With the sanctions lifted, inflation slowed, exchange rates stabilized, and exports—especially of oil, agricultural goods, and luxury items—skyrocketed as Iran regained trading partners, particularly in the EU.
- After the JCPOA took effect, Iran began exporting more than 2.1 million barrels per day (approaching pre-2012 levels, when the oil sanctions were originally put in place).
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Election symbols
Mains level: Political split vs Defection
The Supreme Court has said it would decide the question of referring the battle between a political party leader and Maharashtra Chief Minister over the “real” heir of a political party to a Constitution Bench.
What is the news?
Why the split leader (the CM) is making such claims?
- One of the cardinal issues, as pointed out by the CJI, would be whether the dissent of split faction, without subsequently forming a new party or merging with another, amounted to a “split” from the original political party.
- The anti-defection law cannot be an “anti-dissent” law.
Issues raised by the apex Court
- The Bench warned that if the split is completely ignoring the political party after being elected then it is a danger to democracy.
Note: For aspirants, one thing is very clear. The Supreme Court will definitely give another landmark judgment in this regard. Arriving at a conclusion is a tight rope walk for the judiciary too. But our judiciary never disappoints!
EC’s powers in Election Symbol Dispute
- The question of a split in a political party outside the legislature is dealt by Para 15 of the Symbols Order, 1968.
- It states that the Election Commission of India’s (ECI) may take into account all the available facts and circumstances and undertake a test of majority.
- The decision of the ECI shall be binding on all such rival sections or groups emerged after the split.
- This applies to disputes in recognized national and state parties.
- For splits in registered but unrecognized parties, the EC usually advises the warring factions to resolve their differences internally or to approach the court.
How did the EC deal with such matters before the Symbols Order came into effect?
- Before 1968, the EC issued notifications and executive orders under the Conduct of Election Rules, 1961.
- The most high-profile split of a party before 1968 was that of the CPI in 1964.
- A breakaway group approached the ECI in December 1964 urging it to recognize them as CPI(Marxist). They provided a list of MPs and MLAs of Andhra Pradesh, Kerala and West Bengal who supported them.
- The ECI recognized the faction as CPI(M) after it found that the votes secured by the MPs and MLAs supporting the breakaway group added up to more than 4% in the 3 states.
Options for ECI
- The ECI in all likelihood can freeze the symbol so that neither of the two sides is able to use it until a final decision is made.
- EC hearings are long and detailed and may take at least six months.
What was the first case decided under Para 15 of the 1968 Order?
- It was the first split in the Indian National Congress in 1969.
- Indira Gandhi’s tensions with a rival group within the party came to a head with the death of President Dr Zakir Hussain on May 3, 1969.
Is there a way other than the test of the majority to resolve a dispute over election symbols?
- In almost all disputes decided by the EC so far, a clear majority of party delegates/office bearers, MPs and MLAs have supported one of the factions.
- Whenever the EC could not test the strength of rival groups based on support within the party organization (because of disputes regarding the list of office bearers), it fell back on testing the majority only among elected MPs and MLAs.
What happens to the group that doesn’t get the parent party’s symbol?
- The EC in 1997 did not recognize the new parties as either state or national parties.
- It felt that merely having MPs and MLAs is not enough, as the elected representatives had fought and won polls on tickets of their parent (undivided) parties.
- The EC introduced a new rule under which the splinter group of the party — other than the group that got the party symbol — had to register itself as a separate party.
- It could lay claim to national or state party status only on the basis of its performance in the state or central elections after registration.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Carbon Credits
Mains level: Carbon trading
The Bill to amend the Energy Conservation Act, 2001 seeks to establish a domestic carbon market and facilitate trade in carbon credits.
What are Carbon Credits?
- Carbon credits are measurable, verifiable emission reductions from certified climate action projects.
- These projects reduce, remove or avoid greenhouse gas (GHG) emissions.
- But they also bring a whole host of other positive benefits, for example, they empower communities, protect ecosystems, restore forests or reduce reliance on fossil fuels.
- Projects must adhere to a rigorous set of criteria to pass verification by third-party agencies and a review by a panel of experts at a leading carbon offset standard.
- After an organization or an individual buys a carbon credit, the credit is permanently retired so it can’t be reused.
What are Carbon Markets?
- Carbon markets are regulatory structures that allow, in particular, oil and gas-intensive companies or heavy industry (or, in the case of COP25, countries) to reduce their economic footprint through a series of incentives.
- The idea behind this system is that the most polluting countries can purchase the right to pollute more from countries that have not reached their emissions limits.
- The 1997 Kyoto Protocol turned polluting emissions into a commodity.
- For example, the European Union Emissions Trading System (EU ETS) is the largest in the world and has been in operation since 2015.
How is the concept evolved?
- When the world evolved the ‘clean development mechanism’ (CDM) after the Kyoto Protocol agreement of 1997 as companies in the developing world could put up projects.
- These include renewable energy or afforestation — that helped reduce carbon dioxide emissions, and earn ‘credits’ that could be sold in the market.
- It was expected that these credits would be bought by the developed countries that had committed to emissions cuts under the Protocol.
- Thus emerged the CDM market, aka ‘compliance market’. Alongside, environmentally conscious entities also started buying these carbon credits (or offsets) — the ‘voluntary market’.
What is the status now?
- This system functioned well for a few years.
- But the market collapsed because of the lack of demand for carbon credits.
- As the world negotiated a new climate treaty in place of the Kyoto Protocol, the developed countries no longer felt the need to adhere to their targets under the Kyoto Protocol.
- A carbon market was envisaged to work under the successor Paris Agreement, but its details are still being worked out.
Global successes
- Domestic or regional carbon markets are already functioning in several places, most notably in Europe, where an emission trading scheme (ETS) works on similar principles.
- Industrial units in Europe have prescribed emission standards to adhere to, and they buy and sell credits based on their performance.
- China, too, has a domestic carbon market.
Mechanism in India
- A similar scheme for incentivizing energy efficiency has been running in India for over a decade now.
- This BEE scheme, called- Perform, Achieve and Trade (PAT) Scheme allows units to earn efficiency certificates if they outperform the prescribed efficiency standards.
- The laggards can buy these certificates to continue operating.
What does new Amendment seeks to bring?
- The new carbon market that is proposed to be created through this amendment to the Energy Conservation Act, would be much wider in scope.
- Although the details of this carbon market are not yet known, it is likely to be on the lines of the European ETS, facilitating the buying and selling of carbon credits.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Earth's spin
Mains level: Read the attached story
On June 29, the Earth completed one full spin — a day — in 1.59 milliseconds less than its routine 24 hours. It was the shortest day recorded since the 1960s.
Note: A millisecond is one-thousandth of a second.
Earth spinning faster
- While the Earth has been completing its rotations faster in recent years, when looked at over a much longer period of time, our planet is actually spinning slower.
- Every century, the Earth takes a few milliseconds longer to complete one rotation — and on average, days are actually getting longer.
- So, 1.4 billion years ago, a day would have ended in less than 19 hours,
How did scientists find that?
- Scientists got to know by using precise atomic clocks to measure the Earth’s rotational speed.
Why are days getting shorter these days?
- Scientists aren’t entirely sure.
- Something has changed and changed in a way we haven’t seen since the beginning of precise radio astronomy in the 1970s.
Factors attributing Earth’s Spin
(1) Tidal Braking
- The research attributed the larger trend of the Earth’s slower spin mostly to the gravitational pull of the Moon, which causes tidal friction and slows down the Earth’s rotations.
(2) Climate change-induced surface variations
- Melting ice sheets in Greenland and Antarctica
- Changes in ocean circulation
(3) Geomorphic factors
- Movements in the planet’s inner molten core
- Seismic activity
- Wind speed, and shifting atmospheric gases
(4) Chandler wobble phenomenon
- This refers to the small deviation in the movement of Earth’s geographical poles.
- The normal amplitude of the Chandler wobble is about three to four metres at Earth’s surface, but from 2017 to 2020 it disappeared.
(5) Other propositions
- Activities that push mass towards the centre of the Earth will hasten the planet’s rotation.
- Anything that pushes mass outwards will slow down the spin, a report noted.
What can happen if the Earth continues to spin faster on a sustained basis?
- To ensure that the time on clocks matches the speed of the Earth’s rotation, a system of leap seconds has been used since the 1970s.
- They involve one-second adjustments to Universal Coordinated Time (UTC), the time standard used to synchronize clocks around the world.
- Due to the long-term slowing in the planet’s spin, 27 leap seconds have been added to UTC.
- However, if the Earth continues to spin faster and days subsequently become shorter, scientists may have to introduce the first ever ‘negative leap second,’ which involves subtraction of a second from clocks.
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From UPSC perspective, the following things are important :
Prelims level: MSP
Mains level: India's import dependece for semiconductors
India is aspiring to join the 11-member US-led partnership for critical mineral supply chains called ‘Minerals Security Partnership (MSP)’.
Why in news?
- A group of western nations are cooperating to develop alternatives to China to ensure key industrial supplies.
- This is a part of a global ‘China-plus-one’ strategy adopted post pandemic that caused massive supply-chain disruptions.
- India is not part of this arrangement but New Delhi is working through diplomatic channels to fetch an entry.
What is the Minerals Security Partnership (MSP)?
- The US and 10 partners — Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea (South Korea), Sweden, the United Kingdom, and the European Commission — have come together to form the MSP.
- The new grouping is aimed at catalysing investment from governments and the private sector to develop strategic opportunities.
- Demand for critical minerals, which are essential for clean energy and other technologies, is projected to expand significantly in the coming decades.
- The MSP will help catalyse investment from governments and the private sector for strategic opportunities — across the full value chain — that adhere to the highest environmental, social, and governance standards.
Focus of MSP
- The new grouping could focus on the supply chains of minerals such as Cobalt, Nickel, Lithium, and also the 17 ‘rare earth’ minerals.
- The alliance is seen as primarily focused on evolving an alternative to China, which has created processing infrastructure in rare earth minerals and has acquired mines in Africa for elements such as Cobalt.
What are Rare Earth Elements?
- The 17 rare earth elements (REE) include the 15 Lanthanides (atomic numbers 57 — which is Lanthanum — to 71 in the periodic table) plus Scandium (atomic number 21) and Yttrium (39).
- REEs are classified as light RE elements (LREE) and heavy RE elements (HREE).
- Some REEs are available in India — such as Lanthanum, Cerium, Neodymium, Praseodymium and Samarium, etc.
- Others such as Dysprosium, Terbium, and Europium, which are classified as HREEs, are not available in Indian deposits in extractable quantities.
Why are these minerals important?
- Minerals like Cobalt, Nickel, and Lithium are required for batteries used in electric vehicles.
- REEs are an essential — although often tiny — component of more than 200 consumer products, including mobile phones, computer hard drives, electric and hybrid vehicles, semiconductors etc.
Where does India stand?
- There is a dependence on countries such as China for HREEs, which is one of the leading producers of REEs, with an estimated 70 per cent share of the global production.
- India is seen as a late mover in attempts to enter the lithium value chain, coming at a time when EVs are predicted to be a sector ripe for disruption.
- The year 2022 is likely to be an inflection point for battery technology — with several potential improvements to the Li-ion technology.
- India has an ambitious plan to convert a large percentage of its transport to electric, and would require these minerals.
- According to the plan, 80 per cent of the country’s two- and three-wheeler fleet, 40 per cent of buses, and 30 to 70 per cent of cars will be EVs by 2030.
What is India’s major concern at this moment?
- If India is not able to explore and produce these minerals, it will have to depend on a handful of countries, including China, to power its energy transition plans to electric vehicles.
- That will be similar to our dependence on a few countries for oil.
Why was India excluded?
- Industry watchers say that the reason India would not have found a place in the MSP grouping is that the country does not bring any expertise to the table.
- In the group, countries like Australia and Canada have reserves and also the technology to extract them, and countries like Japan have the technology to process REEs.
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From UPSC perspective, the following things are important :
Prelims level: OTEC technology
Mains level: Renewable Energy in India
The National Institute of Ocean Technology is establishing an Ocean Thermal Energy Conversion (OTEC) plant with a capacity of 65 kilowatts (kW) in Kavaratti, the capital of Lakshadweep.
What is OTEC Plant?
- Ocean thermal energy conversion (OTEC) is a process or technology for producing energy by harnessing the temperature differences (thermal gradients) between ocean surface waters and deep ocean waters.
- Energy from the sun heats the surface water of the ocean.
- In tropical regions, surface water can be much warmer than deep water.
- This temperature difference can be used to produce electricity and to desalinate ocean water.
How do they work?
- The OTEC technology uses the temperature difference between the cold water in the deep sea (5°C) and the warm surface seawater (25°C) to generate clean, renewable electricity.
- The technology requires a minimum of 20°C difference between the surface and deep ocean temperatures.
- Warm surface water is pumped through an evaporator containing a working fluid. The vaporized fluid drives a turbine/generator.
- The vaporized fluid is turned back to a liquid in a condenser cooled with cold ocean water pumped from deeper in the ocean.
- OTEC systems using seawater as the working fluid can use the condensed water to produce desalinated water.
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