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Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

What India’s informal sector needs right now

op-ed snap | Economics | Mains Paper 3: Indian Economy

Note4Students

From UPSC perspective, the following things are important :

Prelims level: MGNREGA

Mains level: Paper 3- Issues of informal sector

Context

Informal sector workers suffered far more from the national lockdown in 2020 than their formal sector counterparts.

Significance of informal sector

India’s large informal sector, which employs around 80 per cent of the labour force and produces about 50 per cent of GDP.
Of the 384 million employed in the informal sector, half work in agriculture, living mostly in rural India, and the other half are in non-agricultural sectors.
Of those, about half live in rural India and the remaining in urban areas.
Ignoring problems in the informal sector can be costly as it can lead to job and wage losses, higher inflation and even risk the livelihood of migrant workers.

Impact of pandemic on informal sector workers

Informal sector workers suffered far more from the national lockdown in 2020 than their formal sector counterparts.
Such disruptions can be inflationary too.
India was one of the few countries with high inflation throughout pandemic-stricken 2020.
The 40 per cent in the informal non-agricultural sector is the most affected by the pandemic.
These workers are most vulnerable as they have borne the brunt of the economic disruption that the pandemic has unleashed.

Impact on the informal sector

Nominal GDP growth has been a good indicator of the formal sector corporate sales.
But during the pandemic and also during events like demonetisation, formal corporate sales have exceeded nominal GDP growth.
This means that some demand, which was previously supplied by the informal sector, began to be supplied by the formal sector.
Several surveys over this time also show a rise in urban unemployment and self-employment, with the latter category seeing the highest earnings loss.

Way forward

Formalisation on the back of policy changes: While traditionally associated with efficiency gains, if it comes at the cost of putting small informal firms out of business.
Formalisation that comes only on the back of external pressure or leads to deep distress in the informal sector, may not be sustainable.
By contrast, formalisation that happens on the back of policy changes that help small and informal firms grow over time into medium or larger formal sector firms is more sustainable.
Social welfare scheme: We need protection for informal sector workers via social welfare schemes so that the disruption they are facing does not lead to a permanent fall in demand.
There is a case for remaining generous with programmes such as the rural MGNREGA scheme for longer.
India doesn’t have an MGNREGA equivalent urban social welfare scheme.
Reforms: Steps to promote reforms that are needed to help small businesses grow are critical.
For example, lowering the regulatory burden associated with growing firms.

Conclusion

Bringing the informal sector to the forefront of policy decisions can lead to a significant payoff for the entire economy for years to come.

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Minority Issues – SC, ST, Dalits, OBC, Reservations, etc.

Is a caste census desirable?

| Indian Society | Mains Paper 1: Salient features of Indian Society

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Caste Census

Mains level: Need for and issues with Caste Census

With the 2021 Census coming up, several political parties have demanded a nationwide caste census.

What is Caste Census?

Every Census in independent India from 1951 to 2011 has published data on Scheduled Castes and Scheduled Tribes, but not on other castes.
Before that, every Census until 1931 had data on caste.
However, in 1941, caste-based data was collected but not published.
In the absence of such a census, there is no proper estimate for the population of OBCs, various groups within the OBCs, and others.
The Mandal Commission estimated the OBC population at 52%, some other estimates have been based on National Sample Survey data.
Some political parties make their own estimates in states and Lok Sabha and Assembly seats during elections.

Arguments for caste census

A caste census is not merely geared to the reservation issue.

Enumerating the marginalized: A caste census would actually bring to the particular the number of people who are at the margins, or who are deprived, or the kind of occupations they pursue, or the kind of hold that institutions like caste have on them.
Data for Policymaking: This information is absolutely necessary for any democratic policymaking.
Judicial backing: The courts in India have often emphatically said that it is important to have adequate data with regard to the reservation.
Caste offers privilege: Caste is not only a source of disadvantage; it is also a very important source of privilege and advantage in our society.
Caste doesn’t marginalize: We need to do away with the idea of caste being applicable to only disadvantaged people, poor people, people who are somehow lacking.
Rids away caste rigidities: Counting of caste doesn’t necessarily perpetuate caste or the caste system. Myths of caste elitisms can be debunked through a caste census.

Arguments against caste census

50% breach: It is argued that a Socio-Economic Caste Census is the only way to make a case to breach the 50% cap on reservation and rationalize the reservation matrix in the country.
Rising assertiveness: More the State ignores out caste, the more is the tendency to preserve caste, protect it. This has been observed in many states.
Chaos: Data gathering itself is a big problem because it can become very, very invasive. But we need to actually balance it with enabling people and asserting citizen equality.
Social friction: Caste identification can lead to friction amongst various classes.

Breaching the 50% cap

Judicial Substantiation: The 50% cap, as introduced by the court, has not really been argued through.
Questioning the sacrosanctity: Some feel that nothing sacrosanct about the 50% limit − it can be exceeded, if necessary, but a clear argument should be given for why this is being done.

Inefficacy of reservations

Fractional benefits: The way reservation is practiced has invariably led to elites among castes and communities.
Domination: These elites within the castes have tended to exercise their dominance over their very communities and not let them exercise the kind of freedoms, or search for equality, which any democratic polity deserves.
Welfare isn’t reservation: The state has helped privileged communities far more, even though this help has not taken the explicit form of programs like reservation.

Why is a caste census always controversial?

Data manipulation: This is a manifestation of the principle that those in power control data and information.
Censoring of data: We have had instances where this data has been collected but has not been made public.
Relative deprivation: Since a caste census is a necessity, it is not a happy thing, it is not a great achievement, it is just something that the State has to do circumstantially.
Vote bank politics: Vested interests of particular state governments in hunt for vote banks are also visible these days.

SECC has the solution

We have got locked into a mindset where we think only those communities which want welfare benefits from the state must be enumerated.
Many have argued that a Socio-Economic Caste Census would be the best way to rationalize reservation based on data and make a strong case for breaching this gap.
Earlier governments argued that counting caste will perpetuate it.

Conclusion

Favoring one caste becomes a disfavor for others. This is an undeniable fact of Indian society.
It seems that the caste census will happen unless something extraordinary happens in our polity.
There are also important questions of demands coming up because of mismatches between the numbers that we come out with and the share in resources that different communities have.
This is a kind of nightmare that all governments fear. So, they would much rather leave things vague.
The Backward Classes are more than 50% of the population. And this dispensation knows that it cannot afford to lose the support of the Backward Classes.

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Foreign Policy Watch: India-Middle East

Abraham Accords as India’s West Asia bridge

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

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Abraham Accord

Mains level: India's West-Asia plan

The recent visit by the Indian Air Force chief to Israel offers a window to study how New Delhi is taking advantage of the Abraham Accords deal signed between Israel and a consortium of Arab States.

Try this question:

What are Abraham Accords? Discuss how the Israel-Gulf synergy could impact India’s relations with Israel.

What are Abraham Accords?

The Israel–UAE normalization agreement is officially called the Abraham Accords Peace Agreement.
It was initially agreed to in a joint statement by the United States, Israel and the United Arab Emirates (UAE) on August 13, 2020.
The UAE thus became the third Arab country, after Egypt in 1979 and Jordan in 1994, to agree to formally normalize its relationship with Israel as well as the first Persian Gulf country to do so.
Concurrently, Israel agreed to suspend plans for annexing parts of the West Bank. The agreement normalized what had long been informal but robust foreign relations between the two countries.

Do you know?

Abraham was the first of the Hebrew patriarchs and a figure revered by the three great monotheistic religions—Judaism, Christianity, and Islam.

New friendships

For common enemy: Externally, Israel, the UAE and Bahrain share the common threat perception of Iran.
Upholding modern values: They are relatively more modern societies that share the overarching and immediate priority of post-pandemic economic resuscitation.
Extended cooperation: They have lost no time to set up logistics such as Internet connectivity and direct flights to pave the way for more active economic engagement.

India and the Gulf

Now India has stronger, multifaceted and growing socioeconomic engagements with Israel and the Gulf countries.
With over eight million Indian diasporas in the Gulf remitting annually nearly $50 billion, annual merchandise trade of over $150 billion.
It sources nearly two-thirds of India’s hydrocarbon imports, major investments, etc. Hence it is natural to ask how the new regional dynamic would affect India.
India has acquired a large and rewarding regional footprint, particularly as the preferred source of manpower, food products, pharmaceuticals, gem and jewellery, light engineering items, etc.
Indians are also the biggest stakeholders in Dubai’s real estate, tourism, and Free Economic Zones.
In the evolving scenario, there may be scope for a profitable trilateral synergy, but India cannot take its preponderance as a given.

The Israel-GCC synergy

Culture: Even the Israeli Arabs may find career opportunities to bridge the cultural divide. Israel is known as the start-up nation and its stakeholders could easily fit in the various duty-free incubators in the UAE.
Tourism: Tourism, real estate and financial service sectors on both sides have suffered due to the pandemic and hope for a positive spin-off from the peer-to-peer interactions.
Defense: Israel has niche strengths in defence, security and surveillance equipment, arid farming, solar power, horticultural products, high-tech, gem and jewellery, and pharmaceuticals.
Technology: Further, Israel has the potential to supply skilled and semi-skilled manpower to the GCC states, particularly from the Sephardim and Mizrahim ethnicities, many of whom speak Arabic.

The Iran link

Iran, as part of India’s ‘West Asia’ construct, will also play a significant part in India’s outreach in the months to come as the crisis in Afghanistan deepens.
The fact that New Delhi used Iranian airspace and facilities when evacuating its diplomatic staff from Kandahar in July showcases a level of strategic commonality.
Keeping this in mind, connectivity projects such as Chabahar Port and Chabahar-Zahedan rail project (project discussions are still on) amongst others remain critical.

Conclusion

India’s strategic play in West Asia will be reflective of its economic growth, and by association, an increasingly important place in the global order.

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Sugar Industry – FRP, SAP, Rangarajan Committee, EBP, MIEQ, etc.

Sugarcane Pricing in India

| Economics | Mains Paper 3: Issues Related To Farm Subsidies & Msp

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Sugarcane pricing mechanism

Mains level: Not Much

Earlier this month, the Supreme Court issued notices to States and major sugar producers to develop a mechanism to ensure that farmers are paid on time.

Who determines Sugarcane prices?

Sugarcane prices are determined by the Centre as well as States.

The Centre announces Fair and Remunerative Prices which are determined on the recommendation of the Commission for Agricultural Costs and Prices (CACP) and are announced by the Cabinet Committee on Economic Affairs, which is chaired by Prime Minister.
The State Advised Prices (SAP) are announced by key sugarcane producing states which are generally higher than FRP.

Minimum Selling Price (MSP) for Sugar

The price of sugar is market-driven & depends on the demand & supply of sugar.
However, with a view to protecting the interests of farmers, the concept of MSP of sugar has been introduced since 2018.
MSP of sugar has been fixed taking into account the components of Fair & Remunerative Price (FRP) of sugarcane and minimum conversion cost of the most efficient mills.

Basis of price determination

With the amendment of the Sugarcane (Control) Order, 1966, the concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the Fair and Remunerative Price (FRP)’ of sugarcane in 2009-10.
The cane price announced by the Central Government is decided on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
This is done in consultation with the State Governments and after taking feedback from associations of the sugar industry.

Try this PYQ:

Q.The Fair and Remunerative Price (FRP) of sugarcane is approved by the:

(a) Cabinet Committee on Economic Affairs

(b) Commission for Agricultural Costs and Prices

(c) Directorate of Marketing and Inspection, Ministry of Agriculture

(d) Agricultural Produce Market Committee

Post your answers here.

What is FRP?

FRP is fixed under a sugarcane control order, 1966.
It is the minimum price that sugar mills are supposed to pay to the farmers.
However, states determine their own State Agreed Price (SAP) which is generally higher than the FRP.

Factors considered for FRP:

The amended provisions of the Sugarcane (Control) Order, 1966 provides for fixation of FRP of sugarcane having regard to the following factors:

a) cost of production of sugarcane;

b) return to the growers from alternative crops and the general trend of prices of agricultural commodities;

c) availability of sugar to consumers at a fair price;

d) price at which sugar produced from sugarcane is sold by sugar producers;

e) recovery of sugar from sugarcane;

f) the realization made from the sale of by-products viz. molasses, bagasse, and press mud or their imputed value;

g) reasonable margins for the growers of sugarcane on account of risk and profits.

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Places in news: Cattle Island on Hirakud Reservoir

Places in news | Economics | Mains Paper 3: Infrastructure: Energy, Ports, Roads, Airports, Railways Etc.

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Cattle Island

Mains level: Not Much

The Odisha Forest and Environment Department is all set to begin ‘Island Odyssey’ and ‘Hirakud Cruise’ ecotourism packages for tourists to islands inside the reservoir.

Cattle Island

‘Cattle island’, one of three islands in the Hirakud reservoir, has been selected as a sight-seeing destination.
When large numbers of people were displaced from their villages when the Hirakud dam was constructed on the Mahanadi river in 1950s, villagers could not take their cattle with them.
They left their cattle behind in deserted villages.
As the area started to submerge following the dam’s construction, the cattle moved up to Bhujapahad, an elevated place in the Telia Panchayat under Lakhanpur block of Jharsuguda district.
Subsequently named ‘Cattle island’, it’s surrounded by a vast sheet of water.

Other islands

Then there is an “island of bats”, also within the reservoir, just 1 km away from the Debrigarh ecotourism project.
It is the habitat of hundreds of bats.
Tourists also get a magnificent view of the sunset from the reservoir. ‘Sunset island’ is one of the three stops on the unique boat ride.

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Emergency award

| Economics | Mains Paper 3: Indian Economy

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Emergency award

Mains level: Paper 3- Improving the arbitration in India

Context

The judgment delivered by the Supreme Court in the legal tussle between Amazon and the Future Group has laid the foundation for recognition and enforcement of emergency awards under the Indian arbitration law.

What is an emergency award?

It is an award rendered by an emergency arbitrator, appointed prior to the formal constitution of an arbitral tribunal by an arbitral institution.
It is a recent mechanism introduced by arbitral institutions to encourage parties to seek urgent interim relief from an arbitral institution rather than from a court.
Many leading arbitral institutions such as SIAC, ICC, and LCIA have provisions for the appointment of an emergency arbitrator.
As far as India is concerned, the 246th Law Commission Report had recommended an amendment in the Arbitration and Conciliation Act, 1996 (‘Indian Arbitration Act’) to grant statutory recognition to an emergency award.
Some of the indigenous arbitral institutions though, such as the Delhi International Arbitration Centre, have made provisions for emergency arbitration.

What is the tussle between Amazon and Future Group about?

In August 2020, Biyani Group and the Reliance Industries Group decided to amalgamate Future Retail Ltd. (FRL) with Reliance Industries and complete disposal of its retail assets in favor of the Group.
However, prior to the said transaction, Amazon had invested an amount of Rs 1,431 crores in Future Coupons Pvt. Ltd. (FCPL) based on rights granted to FCPL with regard to FRL.
So, Amazon initiated arbitration against the Biyani Group, including FRL, under Singapore International Arbitration Centre (SIAC) Rules.
Amazon made an application seeking urgent interim reliefs under SIAC rules and the appointment of an emergency arbitrator.
The emergency arbitrator appointed, made an award in favor of Amazon in October 2020, restricting the Biyani Group from proceeding ahead with the disputed transaction.
However, the Biyani Group proceeded with the disputed transaction, construing the emergency award as a nullity.

Issue of enforcement of the emergency award in India

Amazon filed an application before the Delhi High Court for enforcement of the award.
The court had the task of answering two novel legal questions —
1) Whether the emergency award is an interim order under section 17(1) of the Indian Arbitration Act,
2) Whether it can be enforced under section 17(2).
The Delhi High Court gave judgment in March 2021 against the Biyani Group.
The case eventually reached the Supreme Court.
Party autonomy: The Supreme Court judgment emphasized party autonomy in arbitration, which includes the right of the parties to choose institutional rules as the governing rules of arbitration.
Once chosen, the parties are bound by such rules.
The Supreme Court also held that the Indian Arbitration Act does not prohibit the parties from agreeing to a provision providing for an emergency arbitrator.
The Supreme Court also held that the term “during the arbitral proceedings” is wide enough to encompass emergency arbitration proceedings.
The Court ultimately held the emergency award to be an interim order under section 17(1) of the Indian Arbitration Act and enforceable under section 17(2).

Significance of the judgment for arbitration in India

This judgment has contributed to the development of Indian arbitration law.
In the broader scheme of things, it is a victory for Indian arbitration and a sigh of relief for arbitral institutions.

Conclusion

The judgment is a reaffirmation of the fact that India is gradually stepping towards being an “arbitration-friendly” jurisdiction.

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Insolvency and Bankruptcy Code

Getting the perfect haircut from the IBC

op-ed snap | Economics | Mains Paper 3: Indian Economy

Note4Students

From UPSC perspective, the following things are important :

Prelims level: IBC 2016

Mains level: Paper 3- Right timing in the use of IBC matters

Understanding the role of IBC 2016

For reasons sometimes a company may experience stress, that is, is unable to repay the debt in time — implying that it has assets less than claims against it.
So, when a company has inadequate assets, the claim of an individual creditor may be consistent with its assets while claims of all creditors put together may not.
In such a situation, creditors may rush to recover their claims before others do, triggering a run on the company’s assets.
The IBC provides for reorganisation that prevents a value-reducing run on the company.
It aims to rescue the company if its business is viable or close it if its business is unviable, through a market process.
Restructuring: The claims of creditors are restructured, which may be paid to them immediately or over time.
In case of closure, the assets of the company are sold, and proceeds are distributed to creditors immediately as per the priority rule.
Reorganisation by financial creditor: The IBC entrusts the responsibility of reorganisation to financial creditors as they have the capability and the willingness to restructure their claims.

Why so much variation in haircut?

Where the company does not have adequate assets, realisation for financial creditors, through a rescue, may fall short of their claims known as haircut.
The IBC process yields a zero haircut (100% recovery of claimed amount) in one case and 100 per cent haircut (i.e. 0% recovery) in another.
Factors: It depends on several factors, including the nature of business, business cycles, market sentiments, and marketing effort.
It critically depends on at what stage of stress, the company enters the IBC process.
If the company has been sick for years, and its assets have depleted significantly, the IBC process may yield a huge haircut or even liquidation.
A haircut is typically the total claims minus the amount of realisation/amount of the claims.
But this formulation may not tell the complete story.
The realisation often does not include the amount that would be realised from equity holding post-resolution, and through the reversal of avoidance transactions and the insolvency resolution of guarantors — personal and corporate.
It also does not include realisations made in other accounts.
The amount of claim often includes NPA, which may be completely written off, and the interest on such NPA.
These understate the numerator and overstate the denominator, projecting a higher haircut.

Significance of IBC

A haircut should be seen in relation to the assets available and not in relation to the claims of creditors.
The market offers a value in relation to what a company brings on the table, not what it owes to creditors.
Value maximisation: So, the IBC maximises the value of existing assets, not of assets that probably existed earlier.
Market determined value: The IBC enables and facilitates market forces to resolve stress as a going concern.
Resolution applicants, who have many options for investment, including in stressed companies, compete to offer the best value.
If the best value offered by the market is not acceptable to creditors, the company is liquidated.
Maximum realisation: In addition to rescuing the company, the IBC realises, of the available options for creditors, the highest in percentage terms.

Conclusion

It is a tool in the hands of stakeholders to be used at the right time, in the right case, in the right manner.

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Back2Basics: Avoidable Transactions in IBC 2016

The UNCITRAL Legislative Guide on Law of Insolvency defines avoidance proceedings as “provisions of the insolvency law that permit transactions for the transfer of assets or the undertaking of obligations prior to insolvency proceedings to be cancelled or otherwise rendered ineffective and any assets transferred, or their value, to be recovered in the collective interest of creditors.”
It is very important for the Resolution Professional (RP) or the liquidator to identify such transaction and file applications to avoid it so that creditors can collect their claims.
The Insolvency and Bankruptcy Code, 2016 (IBC) contains four types of avoidable transactions- preferential, undervalued, defrauding creditors and extortionate transactions.
Usually, the avoidable transactions should be made within the prescribed relevant time or look back period.
Look back period is the relevant time up to which an RP or a liquidator can go back to scrutinize an expected avoidable transaction.

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Parliament – Sessions, Procedures, Motions, Committees etc

Role of Speaker

op-ed snap | Polity | Mains Paper 2: Parliament & State Legislatures

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Power of the Speaker

Mains level: Paper 2- Need to make Speakers independent and impartial

Context

The decline in the functioning of India’s Parliament — and state assemblies as well — is caused by one primary reason: The lack of independence and impartiality of the Speaker.

Important role of the Speaker

Our Constitution, after extensive debate, adopted the Westminster model of governance.
In the Lok Sabha, as in the United Kingdom, the Speaker is the supreme authority; he has vast powers and it is his primary duty to ensure the orderly conduct of the business of the House.
Constitutional law points out the two essential qualities of a Speaker: Independence and impartiality.
As the principal spokesperson of the Lok Sabha, the Speaker represents its collective voice.
Indeed, the supremacy of Parliament is emphasised by Article 75(3) of the Constitution: “The Council of Ministers shall be collectively responsible to the House of the People”.
Pandit Nehru referred to the Speaker as “the symbol of the nation’s freedom and liberty” and emphasised that Speakers should be men of “outstanding ability and impartiality”.

How role of Speaker matters in functioning Legislature

Power to allow debate or discussion: It is the Speaker’s duty to decide what issues will be taken up for discussion.
He has the sole discretion to permit an adjournment motion to be tabled or to admit a calling attention notice, if the issue is of urgent public importance.
The present practice of the Speaker continuing to be an active member of the ruling party has the inevitable result of his refusing to allow any debate or discussion that may be essential in national interest but may embarrass the ruling party.
This inevitably leads to constant disruption of Parliament by the Opposition.
The stalling of parliamentary proceedings has led to the passing of important bills in several sessions without any discussion.
Violation of separation of power between legislature and executive: The most dangerous consequence is the vastly increased powers that the executive — the bureaucracy — begins to command by default.
In 1951, a nine-judge bench of the Supreme Court (In Re Delhi Laws Act Case) held that essential legislative functions cannot be delegated to the bureaucracy; law-making must remain the domain of the legislature.
This constitutional mandate is now increasingly and consistently being violated by issuing rules and notifications that have far-reaching consequences.
The new rules on information technology and electronic commerce are clear instances of changes that should have come about by a parliamentary law.
And worse still is the power given to the executive to issue retrospective notifications — a step unknown to any civilised democracy.
Partisan conduct in anti-defection law issues: Several judgments on the anti-defection law have been rendered by the Supreme Court.
A common factor that shows up in these rulings is the blatant, partisan conduct of speakers in state assemblies.

Way forward

Speaker should resign from Party: It should be made mandatory that the Speaker ought to resign from his party and his sole allegiance must be to the Constitution and to maintaining the dignity of the House.
The separation of powers is part of the basic structure of our Constitution.
It is imperative that the Speaker of every legislature resigns from his party to honour his constitutional obligation of independence and impartiality.
This must be accepted as the primary responsibility of every ruling party, both at the Centre and in each state, and made into a constitutional convention.

Conlcusion

The option is a binary: Either allow Parliament and state legislatures to descend into terminal decline or make the Speaker truly independent and let every legislature perform its constitutional function.

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Judicial Appointments Conundrum Post-NJAC Verdict

Collegium recommends nine judges for Supreme Court

| Polity | Mains Paper 2: Executive & Judiciary

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Collegium system, NJAC

Mains level: Not Much

The Supreme Court Collegium, led by Chief Justice of India (CJI) N.V. Ramana has recommended to the government nine names for appointment as apex court judges.

Significant appointments

The Collegium has for the first time, in one single resolution, recommended three women judges.
It has thus sent a strong signal in favor of the representation of women in the highest judiciary.
The process scripted history by naming Karnataka High Court judge B.V. Nagarathna, who may become India’s first woman CJI.

What is Collegium System?

The Collegium of judges is the Indian Supreme Court’s invention.
It does not figure in the Constitution, which says judges of the Supreme Court and High Courts are appointed by the President and speaks of a process of consultation.
In effect, it is a system under which judges are appointed by an institution comprising judges.
After some judges were superseded in the appointment of the CJI in the 1970s, and attempts made subsequently to effect a mass transfer of High Court judges across the country.
Hence there was a perception that the independence of the judiciary was under threat. This resulted in a series of cases over the years.

Evolution: The Judges Cases

First Judges Case (1981) ruled that the “consultation” with the CJI in the matter of appointments must be full and effective.
However, it rejected the idea that the CJI’s opinion, albeit carrying great weight, should have primacy.
Second Judges Case (1993) introduced the Collegium system, holding that “consultation” really meant “concurrence”.
It added that it was not the CJI’s individual opinion, but an institutional opinion formed in consultation with the two senior-most judges in the Supreme Court.
Third Judges Case (1998): On a Presidential Reference for its opinion, the Supreme Court, in the Third Judges Case (1998) expanded the Collegium to a five-member body, comprising the CJI and four of his senior-most colleagues.

The procedure followed by the Collegium

Appointment of CJI

The President of India appoints the CJI and the other SC judges.
As far as the CJI is concerned, the outgoing CJI recommends his successor.
In practice, it has been strictly by seniority ever since the supersession controversy of the 1970s.
The Union Law Minister forwards the recommendation to the PM who, in turn, advises the President.

Other SC Judges

For other judges of the top court, the proposal is initiated by the CJI.
The CJI consults the rest of the Collegium members, as well as the senior-most judge of the court hailing from the High Court to which the recommended person belongs.
The consultees must record their opinions in writing and it should form part of the file.
The Collegium sends the recommendation to the Law Minister, who forwards it to the Prime Minister to advise the President.

For High Courts

The CJs of High Courts are appointed as per the policy of having Chief Justices from outside the respective States. The Collegium takes the call on the elevation.
High Court judges are recommended by a Collegium comprising the CJI and two senior-most judges.
The proposal, however, is initiated by the Chief Justice of the High Court concerned in consultation with two senior-most colleagues.
The recommendation is sent to the Chief Minister, who advises the Governor to send the proposal to the Union Law Minister.

Does the Collegium recommend transfers too?

Yes, the Collegium also recommends the transfer of Chief Justices and other judges.
Article 222 of the Constitution provides for the transfer of a judge from one High Court to another.
When a CJ is transferred, a replacement must also be simultaneously found for the High Court concerned. There can be an acting CJ in a High Court for not more than a month.
In matters of transfers, the opinion of the CJI “is determinative”, and the consent of the judge concerned is not required.
However, the CJI should take into account the views of the CJ of the High Court concerned and the views of one or more SC judges who are in a position to do so.
All transfers must be made in the public interest, that is, “for the betterment of the administration of justice”.

Loopholes in the Collegium system

Lack of Transparency: Opaqueness and a lack of transparency, and the scope for nepotism are cited often.
Judges appointing Judge: The attempt made to replace it by a ‘National Judicial Appointments Commission’ was struck down by the court in 2015 on the ground that it posed a threat to the independence of the judiciary.
Criteria: Some do not believe in full disclosure of reasons for transfers, as it may make lawyers in the destination court chary of the transferred judge.

Scope for transparency

In respect of appointments, there has been an acknowledgment that the “zone of consideration” must be expanded to avoid criticism that many appointees hail from families of retired judges.
The status of a proposed new memorandum of procedure, to infuse greater accountability, is also unclear.
Even the majority opinions admitted the need for transparency, now Collegium’s resolutions are now posted online, but reasons are not given.

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RBI Notifications

Government Securities Acquisition Programme (GSAP 2.0)

Prelims Only | Economics | Mains Paper 3: Mobilization Of Resources

Note4Students

From UPSC perspective, the following things are important :

Prelims level: G-Secs

Mains level: Not Much

The Reserve Bank of India (RBI) has announced that it will conduct an open market purchase of government securities of ₹25,000 crore under the G-sec Acquisition Programme (G-SAP 2.0).

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:

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).

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Nuclear Energy

Nuclear Fusion and the recent breakthrough

Prelims Only | Science Tech | Mains Paper 3: Awareness in various sc and tech fields

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Nuclear Fusion Reaction

Mains level: Cleaner energy resources

California based researchers have announced that their experiment has made a breakthrough in nuclear fusion research.

What exactly is Nuclear Fusion?

Nuclear fusion is defined as the combining of several small nuclei into one large nucleus with the subsequent release of huge amounts of energy.
The difference in mass between the reactants and products is manifested as either the release or the absorption of energy.
Nuclear fusion powers our sun and harnessing this fusion energy could provide an unlimited amount of renewable energy.
An example of nuclear fusion is the process of four hydrogens coming together to form helium.

What was the experiment?

In the experiment, lasers were used to heat a small target or fuel pellets.
These pellets containing deuterium and tritium fused and produced more energy.
The team noted that they were able to achieve a yield of more than 1.3 megajoules of heat energy.
This megajoule of energy released in the experiment is indeed impressive in fusion terms.

How was the new breakthrough achieved?

The team used new diagnostics, improved laser precision, and even made changes to the design.
They applied laser energy on fuel pellets to heat and pressurize them at conditions similar to that at the center of our Sun. This triggered the fusion reactions.
These reactions released positively charged particles called alpha particles, which in turn heated the surrounding plasma.
At high temperatures, electrons are ripped from an atom’s nuclei and become a plasma or an ionized state of matter. Plasma is also known as the fourth state of matter.
The heated plasma also released alpha particles and a self-sustaining reaction called ignition took place.

Future prospects: Benefits

It is expected that fusion could meet humanity’s energy needs for millions of years.
Fusion fuel is plentiful and easily accessible: deuterium can be extracted inexpensively from seawater, and tritium can be produced from naturally abundant lithium.
Future fusion reactors will not produce high activity, long-lived nuclear waste, and a meltdown at a fusion reactor is practically impossible.
Importantly, nuclear fusion does not emit carbon dioxide or other greenhouse gases into the atmosphere, and so along with nuclear fission could play a future climate change mitigating role as a low carbon energy source.

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Climate Change Negotiations – UNFCCC, COP, Other Conventions and Protocols

India ratifies Kigali Amendment to the Montreal Protocol

IOCR | Enviro & Biodiversity | Mains Paper 1: Arts & Culture

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Kigali Agreement

Mains level: Ozone depletion and its threat

The Union Cabinet has given its approval for ratification of the Kigali Amendment to the Montreal Protocol on Substances that Deplete the Ozone Layer for phase down of Hydrofluorocarbons (HFCs) by India.

What is Montreal Protocol?

The Montreal Protocol on Substances that Deplete the Ozone Layer is an international agreement made in 1987.
It was designed to stop the production and import of ozone-depleting substances and reduce their concentration in the atmosphere to help protect the earth’s ozone layer.
It sits under the Vienna Convention for the Protection of the Ozone Layer.

Objectives

The convention was adopted in 1985 and has highlighted the adverse effect of human activity on ozone levels in the stratosphere and the discovery of the ‘ozone hole’.
Its objectives are to promote cooperation on the adverse effects of human activities on the ozone layer.
It has since undergone nine revisions, in 1990 (London), 1991 (Nairobi), 1992 (Copenhagen), 1993 (Bangkok), 1995 (Vienna), 1997 (Montreal), 1998 (Australia), 1999 (Beijing) and 2016 (Kigali).

India and the Protocol

India became a Party to the Protocol on 19 June 1992 and since then has ratified the amendments.

What is the Kigali Amendment?

It is an international agreement to gradually reduce the consumption and production of hydrofluorocarbons (HFCs).
It is a legally binding agreement designed to create rights and obligations in international law.
While HFCs do not deplete the stratospheric ozone layer, they have high global warming potential ranging from 12 to 14,000, which has an adverse impact on climate.

What are the Ozone Depleting Substances?

Ozone-depleting substances are chemicals that destroy the earth’s protective ozone layer. They include:

chlorofluorocarbons (CFCs)
halons
carbon tetrachloride (CCl₄)
methyl chloroform (CH₃CCl₃)
hydro Bromo fluorocarbons (HBFCs)
hydrochlorofluorocarbons (HCFCs)
methyl bromide (CH₃Br)
bromochloromethane (CH₂BrCl)

Where are they used?

The main uses of ozone-depleting substances include:

CFCs and HCFCs in refrigerators and air conditioners,
HCFCs and halons in fire extinguishers,
CFCs and HCFCs in foam,
CFCs and HCFCs as aerosol propellants, and
Methyl bromide for fumigation of soil, structures and goods to be imported or exported.

Now answer this PYQ:

Q.Consider the following statements:

Chlorofluorocarbons, known as ozone-depleting substances are used:

In the production of plastic foams

In the production of tubeless tyres

In cleaning certain electronic components

As pressurizing agents in aerosol cans

Which of the statements given above is/are correct? (CSP 2012)

(a) 1, 2 and 3 only

(b) 4 only

(c) 1, 3 and 4 only

(d) 1, 2, 3 and 4

Post your answers here.

Why phase them out?

Implementation strategy and targets:

India will complete its phase-down of HFCs in 4 steps from 2032 onwards with a cumulative reduction of 10% in 2032, 20% in 2037, 30% in 2042, and 80% in 2047.

Major Impact

HFCs phasedown is expected to prevent the emission of up to 105 million tonnes of carbon dioxide equivalent of GHGs, helping to avoid up to 0.5 degrees Celsius of global temperature rise by 2100, while continuing to protect the ozone layer.
It will achieve energy efficiency gains^ and carbon dioxide emissions reduction – a “climate co-benefit,”
HFCs phrase-down implementation will involve synergies to maximize the economic arid social co-benefits, besides environmental gains.
There would be scope for domestic manufacturing of equipment as well as alternative non-HFC and low-global warming potential chemicals to enable the industry to transition to the low global warming potential alternatives as per the agreed HFC phase-down schedule.
In addition, there would be opportunities to promote domestic innovation for new generation alternative refrigerants and related technologies.

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Capital Markets: Challenges and Developments

[pib] International Bullion Exchange

PIB | Economics | Mains Paper 3: Indian Economy

Note4Students

From UPSC perspective, the following things are important :

Prelims level: International Bullion Exchange

Mains level: Not Much

The International Financial Services Centres Authority (IFSCA) has inaugurated the pilot run/soft launch of the International Bullion Exchange scheduled to go live on October 1, 2021.

What is Bullion?

Bullion is gold and silver that is officially recognized as being at least 99.5% and 99.9% pure and is in the form of bars or ingots.
Bullion is often kept as a reserve asset by governments and central banks.
To create bullion, gold first must be discovered by mining companies and removed from the earth in the form of gold ore, a combination of gold and mineralized rock.
The gold is then extracted from the ore with the use of chemicals or extreme heat.
The resulting pure bullion is also called “parted bullion.” Bullion that contains more than one type of metal, is called “unparted bullion.”

The Bullion Market

Bullion can sometimes be considered legal tender, most often held in reserves by central banks or used by institutional investors to hedge against inflationary effects on their portfolios.
Approximately 20% of mined gold is held by central banks worldwide.
This gold is held as bullions in reserves, which the bank uses to settle the international debt or stimulate the economy through gold lending.
The central bank lends gold from their bullion reserves to bullion banks at a rate of approximately 1% to help raise money.
Bullion banks are involved in one activity or another in the precious metals markets.
Some of these activities include clearing, risk management, hedging, trading, vaulting, and acting as intermediaries between lenders and borrowers.

What is International Bullion Exchange?

This shall be the “Gateway for Bullion Imports into India”, wherein all the bullion imports for domestic consumption shall be channelized through the exchange.
The exchange ecosystem is expected to bring all the market participants to a common transparent platform for bullion trading.
It would provide efficient price discovery, assurance in the quality of gold, enable greater integration with other segments of financial markets and help establish India’s position as a dominant trading hub in the World.

Answer this PYQ:

What is/are the purpose/purposes of the Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?

To bring the idle gold lying with India households into the economy

To promote FDI in the gold and jewellery sector

To reduce India’s dependence on gold imports

Select the correct answer using the code given below:

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Post your answers here.

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Celebrating Einstein’s century

| Science Tech | Mains Paper 3: Awareness in various sc and tech fields

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Special theory of relativty

Mains level: Paper 3- Theories of relativity

Context

In 1921, the Nobel Prize Committee concluded that Einstein would have to wait and the Committee decided not to award the Prize to anyone in 1921. Opinions changed in a year and when Einstein did receive the 1921 Prize in 1922.

Background

Noble Prize was not awarded for his theories of relativity but for “his services to Theoretical Physics, and especially for his discovery of the law of the photoelectric effect”.
The citation harked back to the revolutionary theories that Einstein had established in 1905. ‘Annus Mirabilis’, or the Year of Miracles, is how 1905 is remembered by physicists because Einstein, only 26 then, published four remarkable papers that year.
One of them explained that light was made of photons and when the light shone on metal, each photon’s energy correlated to the electron’s speed on the metal’s surface.
This theory redefined the composition of light and Einstein himself dubbed it revolutionary.
It was for this that he received the Nobel Prize.

Special theory of relativity

The special theory of relativity was published in 1905.
James Maxwell had established that light was an electromagnetic wave and the value of its speed was calculated. Building on this,
Speed of light remains constant for all observers: Einstein understood that while moving from one frame of reference to another, which is moving at a different speed, the speed of light remains a constant.
He gave a physical interpretation to the equations governing the transformation from one frame to another based on this fact.
Time slows down when measured from the rest: Einstein’s theory establishes that time moves slower within a moving body when measured from a point at rest (but moves normally within the moving body itself).
Length reduces: The length of the moving body contracts when measured from an outside point at rest.
When a moving body emits light, the length contraction and time slowdown of the moving body are just exactly what are needed to restore the speed of light to its constant value.
Einstein’s insight was that there was no absolute time because time was measured by the simultaneity of two events and this simultaneity would be observed differently.
As lagniappe to the scientific community, Einstein published his famous mass-energy equivalence E=mc2 in late 1905.
A mundane example of the application of the special theory of relativity is the use of GPS on our phones.

General theory of relativity

The theory is general enough to apply to all forms of motion, including those where gravity does not appear.
Einstein worked out equations using tensors, the mathematical implement to describe the transformation of different dimensions.
In November 1915, Einstein completed the general theory of relativity.
As per this theory, space and time form a continuum, like a fabric, and every object in the universe distorts this fabric, much like how dropping a large ball distorts a taut trampoline sheet.
This distortion is gravity. It produces two effects.
One, the fabric causes any other object in the vicinity to move towards the heavier object and this is why gravity causes an object to pull things towards it.
Two, it bends light in the process of attracting it.

Conclusion

In just two decades, Einstein led physics out of its traditional moorings, laid the entablature of modern physics on Newtonian and Maxwellian pillars of classical physics and opened it up to newer questions.

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Foreign Policy Watch: India-Afghanistan

Understanding the strategic flux and humanitarian crisis in Afghanistan

op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

Note4Students

From UPSC perspective, the following things are important :

Prelims level: UN Security Council

Mains level: Paper 2- Afghanistan issue

Context

The Afghan government and its defence forces have completely collapsed. The world over, television screens are full of images of the extraordinary takeover of Afghanistan by the Taliban.

Background of the US intervention in Afghanistan

The original trigger for the US military intervention in Afghanistan was the 9/11 attacks.
The objective then was to eliminate the al Qaeda sanctuaries hosted by the Taliban.
That goal was quickly attained, as was another one — the elimination of Osama Bin Laden in Abbottabad, Pakistan, in 2011.
The US was thereafter stuck into a vortex in which its mission oscillated between counter-terrorism and counter-insurgency.
The military presence in Afghanistan has been questioned by the US political firmament for a decade.

Factors driving the US exit

China factor: The US now regards China as its principal strategic competitor.
China’s muscle-flexing in the East and South China Seas calls for a renewed effort by the US to protect its stakes.
The rise of China is the main geo-strategic threat for the US.
In 2001, the US had taken its eye off the ball in diverting its attention to the global war on terror.
Beginning with Afghanistan, it meandered through Iraq, Libya and Syria, with mixed results.
Taiwan: China’s recent ratcheting up of pressure on Taiwan has also sounded the alarm.

Implications of Taliban’s return for region

The new regime in Kabul is likely to open the door to economic investments from China.
At the geopolitical level, the BRI may well receive a boost, given China’s interests in connectivity that could straddle the region, from Pakistan to Iran.
Pakistan has shown alacrity in welcoming the change of guard in Kabul.
The change in Afghanistan has security implications for India and the region at large.
A spill-over of any chaos and instability in Afghanistan beyond its borders could give terrorism a shot in the arm.
It could also singe Pakistan if it does not review its malevolent practices, which favour terror as an instrument of state policy.

Way forward for India

India should prioritise the welfare of the Afghan people, whenever the opportunity presents itself.
Currently, about 2,500 Afghan students are enrolled in educational and vocational institutions across India.
They will no doubt wish to extend their scholarships.
As a close neighbour, India has keen stakes in ensuring a stable, secure and developed Afghanistan.
As the rotational President of the UN Security Council for August, India has an opportunity to engage important stakeholders on the way forward.
Beyond that too, India’s presence in the UN Security Council till the end of 2022 will provide a platform to explore options with greater flexibility.

Conclusion

The global community needs to underscore the continued participation of women in governance in Afghanistan and keep an eye on violations of human rights and international humanitarian law.

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Animal Husbandry, Dairy & Fisheries Sector – Pashudhan Sanjivani, E- Pashudhan Haat, etc

Sub-Mission on Fodder and Feed

op-ed snap | Economics | Mains Paper 3: Agriculture and related issues,Economics Of Animal-Rearing

Note4Students

From UPSC perspective, the following things are important :

Prelims level: National Livestock Mission

Mains level: Paper 3- Addressing the lack of quality and affordable fodder and feed through Sub-Mission on Fodder and Feed

Context

The government recently announced a Sub-Mission on Fodder and Feed.

Why availability of good and affordable quality feed and fodder matters

A study by the Indian Grassland and Fodder Research Institute has observed that for every 100 kg of feed required, India is short of 23.4 kg of dry fodder, 11.24 kg of green fodder, and 28.9 kg of concentrate feed.
Low milk productivity: The lack of good quality feed and fodder impacts the productivity levels of cattle.
This is one of the chief reasons why Indian livestock’s milk productivity is 20%-60% lower than the global average.
High input cost: If we break down the input costs, we find that feed constitutes 60%-70% of milk production costs.
When the National Livestock Mission was launched in 2014, it focused on supporting farmers in producing fodder from non-forest wasteland/grassland, and cultivation of coarse grains.
However, this model could not sustain fodder availability due to a lack of backward and forward linkages in the value chain.

Why Sub-Mission on Fodder and Feed is significant

As about 200 million Indians are involved in dairy and livestock farming, the scheme is important from the perspective of poverty alleviation.
The Sub-Mission on Fodder and Feed intends to create a network of entrepreneurs who will make silage (the hub) and sell them directly to the farmers (the spoke).
Bringing down the input cost: The large-scale production of silage will bring down the input cost for farmers since silage is much cheaper than concentrate feed.
Objective: The revised scheme has been designed with the objectives of increasing productivity, reducing input costs, and doing away with middlemen (who usually take a huge cut).
Since India has a livestock population of 535.78 million, effective implementation of this scheme will play a major role in increasing the return on investment for our farmers.

About the Sub-Mission on Fodder and Feed

The scheme will provide 50% capital subsidy up to ₹50 lakh towards project cost to the beneficiary for infrastructure development and for procuring machinery for value addition in feed such as hay/silage/total mixed ration.
Private entrepreneurs, self-help groups, farmer producer organizations, dairy cooperative societies, and Section 8 companies (NGOs) can avail themselves of the benefits under this scheme.
The scheme can be used for covering the cost of infrastructure/machinery such as bailing units, harvester, chaff cutter, sheds, etc.

Challenges and solution

Seasonal availability: A major challenge in the feed sector emanates from the fact that good-quality green fodder is only available for about three months during the year.
Fermenting green fodder: Ideal solution would be to ferment green fodder and convert it into silage.
Hence, under the fodder entrepreneurship program, farmers will receive subsidies and incentives to create a consistent supply chain of feed throughout the year.

Conclusion

The mission will help marginal farmers reduce their input costs and help them in increasing the return on capital employed.

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Oil and Gas Sector – HELP, Open Acreage Policy, etc.

What are Oil Bonds?

| Economics | Mains Paper 3: Infrastructure: Energy, Ports, Roads, Airports, Railways Etc.

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Oil Bonds

Mains level: Oil prices volatility and its impact on India

The Centre has argued that it cannot reduce taxes on petrol and diesel as it has to bear the burden of payments in lieu of oil bonds issued by the previous UPA government to subsidize fuel prices.

What are Oil Bonds?

Oil bonds are special securities issued by the government to oil marketing companies in lieu of cash subsidy.
These bonds are typical of a long-term tenure like 15-20 years and oil companies are paid interest.
Before the complete deregulation of petrol and diesel prices, oil marketing companies were faced with a huge financial burden as the selling price of petrol and diesel in India was lower than the international market price.
This ‘under-recovery is typically compensated through fuel subsidies allocated in the Union budget.
However, between 2005 and 2010, the UPA government issued oil bonds to the companies amounting to Rs 1.4 lakh crore to compensate them for these losses.

Why do governments issue such bonds?

Compensation to companies through issuance of such bonds is typically used when the government is trying to delay the fiscal burden of such a payout to future years.
Governments resort to such instruments when they are in danger of breaching the fiscal deficit target due to unforeseen circumstances that lead to a collapse in revenues or a surge in expenditure.
These types of bonds are considered to be ‘below the line’ expenditure in the Union budget and do not have a bearing on that year’s fiscal deficit, but they do increase the government’s overall debt.
However, interest payments and repayment of these bonds become a part of the fiscal deficit calculations in future years.

Backgrounder: Deregulation of fuel prices

Fuel price decontrol has been a step-by-step exercise, with the government freeing up prices of aviation turbine fuel in 2002, petrol in 2010, and diesel in 2014.
Prior to that, the government would intervene in fixing the price at which retailers were to sell diesel or petrol.
This led to under-recoveries for oil marketing companies, which the government had to compensate for.
The prices were deregulated to make them market-linked, unburden the government from subsidizing prices, and allow consumers to benefit from lower rates when global crude oil prices tumble.
Price decontrol essentially offers fuel retailers such as Indian Oil, HPCL or BPCL the freedom to fix prices based on calculations of their own cost and profits.
However, the key beneficiary in this policy reform of price decontrol is the government.

Impact: Loss of consumers

While oil price deregulation was meant to be linked to global crude prices, Indian consumers have not benefited from a fall in global prices.
The central, as well as state governments, impose fresh taxes and levies to raise extra revenues.
This forces the consumer to either pay what she’s already paying, or even more.

Why are the Oil Bonds in news?

As prices of petrol and diesel climb steeply, the Centre has been under pressure to cut the high taxes on fuel.
Taxes account for 58 per cent of the retail selling price of petrol and 52 per cent of the retail selling price of diesel.
However, the government has so far been reluctant to cut taxes as excise duties on petrol and diesel are a major source of revenue, especially at a time the pandemic has adversely impacted other taxes such as corporate tax.
The government is estimated to have collected more than Rs 3 lakh crore from tax on petrol and diesel in the 2020-21 fiscal year.

The blame game

The present government has blamed the UPA regime for its inability to cut taxes.
It pointed out that the bonds issued by the Manmohan Singh government have weakened the financial position of the oil marketing companies and added to the government’s fiscal burden now.
It is an argument that has been often repeated since 2018.

What budget documents show

Budget documents show that such bonds will be up for redemption over the next few years — beginning with two to be redeemed in the current fiscal year — till 2026.
The government has to repay a principal amount of Rs 10,000 crore this year, according to these documents.
The government has paid around Rs 10,000 crore annually as interest over the last decade.
The government is likely to pay a similar amount of interest for the current fiscal as well.

Is the issuance of such special securities restricted to the UPA era?

Besides oil bonds, the UPA era also saw the issuance of fertilizer bonds from 2007 to compensate fertilizer companies for their losses due to the difference in the cost price and selling price.
However, the issuance of such special securities is not limited to the UPA regime.
Over the years, the Modi government has issued bank recapitalization bonds to specific public sector banks (PSBs) as it looked to meet the large capital requirements of these PSBs without allocating money from the budget.

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NPA Crisis

Why banks want inspection reports by RBI to be kept confidential?

| Economics | Mains Paper 3: Indian Economy

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Not much

Mains level: NPA Crisis

The contentious issue of whether banks should disclose inspection reports by the Reserve Bank of India (RBI) is back in the news once again after a division bench of the Supreme Court referred writ petitions filed by banks to another bench for reconsideration.

What is RBI’s inspection on banks?

The Banking Regulation Act, 1949 empowers the Reserve Bank of India to inspect and supervise commercial banks.
These powers are exercised through on-site inspection and off-site surveillance.
RBI carries out dedicated and integrated supervision overall of credit institutions, i.e., banks, development financial institutions, and non-banking financial companies.
The Board for Financial Supervision (BFS) carries out this function.
Banks currently disclose the list of wilful defaulters and names of defaulters against whom they have filed suits for loan recovery.

Note: CAMELS is an international rating system used by regulatory banking authorities to rate financial institutions, according to the six factors represented by its acronym. The CAMELS acronym stands for “Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity.”

Why in news now?

In 2015, the Supreme Court had come down on the RBI for trying to keep the inspection reports and defaulters list confidential.
This was aimed for the public disclosure of such reports of the RBI, much against the wishes of the banking sector.
The SC had said the RBI has no legal duty to maximize the benefit of any public sector or private sector bank, and thus there is no relationship of ‘trust’ between them.
It added that the RBI was duty-bound to uphold the public interest by revealing these details under RTI.

What is the issue?

The RBI was allowed to make such reports public following the Supreme Court order.
The SC had wanted full disclosure of the inspection report.
However, the court agreed that only some portions on bad loans and borrowers would be made public.
Banks have been refusing to disclose inspection reports and defaulters’ lists.

Issues with report publication

Bank defamation: As banks are involved in dealing in money, they fear any adverse remarks — especially from the regulator RBI — will affect their performance and keep customers away.
Trust of the account holder: Banks are driven by the “trust and faith” of their clients that should not be made public.
The invalidity of RTI: On the other hand, private banks insisted that the RTI Act does not apply to private banks.
Right to Privacy: Banks also argued that privacy is a fundamental right, and therefore should not be violated by making clients’ information public.

Why are banks against disclosing inspection reports?

Many feel that the RBI’s inspection reports on various banks, with details on alleged malpractices and mismanagement, can open up a can of worms.
As these reports have details about how the banks were manipulated by rogue borrowers and officials, banks want to keep them under wraps.
Obviously, banks don’t want inspection reports and defaulters’ lists to be made public as it affects their image.
Customers may also keep out of banks with poor track records.

Try this PYQ now:

Q.In the context of the Indian economy non-financial debt includes which of the following?

Housing loans owed by households

Amounts outstanding on credit cards

Treasury bills

Select the correct answer using the code given below:

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 1, 2 and 3

Post your answers here (You need to sign-in for that).

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Financial Inclusion in India and Its Challenges

RBI unveils Financial Inclusion Index

DOMR | Economics | Mains Paper 3: Inclusive Growth & Issues

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Financial Inclusion Index

Mains level: Financial inclusion of masses

The Reserve Bank of India (RBI) has announced the formation of a composite Financial Inclusion Index (FI-Index) to capture the extent of financial inclusion across the country.

Financial Inclusion Index

The FI-Index will be published in July every year.
The index captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.
It has been conceptualized as a comprehensive index incorporating details of banking, investments, insurance, postal as well as the pension sector in consultation with the government and respective sectoral regulators.
It has been constructed without any ‘base year’ and as such it reflects cumulative efforts of all stakeholders over the years towards financial inclusion.

Parameters of the index

The FI-Index comprises three broad parameters viz.,

Access (35%),
Usage (45%), and
Quality (20%)

These parameters are the identification of the customer, reaching the last mile, and providing relevant, affordable and safe products.
The index is responsive to ease of access, availability and usage of services, and quality of services for all 97 indicators.

This year’s highlight

The annual FI-Index for the period ended March 2021 stood at 53.9 compared with 43.4 for the period ended March 2017.

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Oil and Gas Sector – HELP, Open Acreage Policy, etc.

Second-generation bioethanol: It is time to launch it headlong

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

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Bioethanol, Ethanol blending

Mains level: Ethanol blended petrol (EBP) Program

India has been promoting 2G bioethanol to achieve its E20 target.

What is Bioethanol?

Biomass has always been a reliable source of energy.
Cultivated biomass has begun to be used to generate bioethanol.
They are categorised as first (1G), second (2G) and third-generation (3G), based on the source of raw material used for bioethanol production.

Its types

1G bioethanol: Raw materials required are corn seeds and sugarcane; both are food sources. There is not enough food for everyone; so the use of 1G is a major concern. However, some countries have enough raw materials to manufacture 1G.
2G bioethanol: It can be produced using inedible farm waste left over after harvest. Corn cobs, rice husks, wheat straw and sugarcane bagasse can all be transformed into cellulose and fermented into ethanol that can then be mixed with conventional fuels.
3G bioethanol: Algae grown in wastewater, sewage or saltwater can be used to produce bioethanol. Water used for human consumption is not required. The benefit of 3G is that it does not compete with food. Nevertheless, economic viability remains a critical issue.

Ethanol blending in India

India currently blends approximately 8.5 per cent ethanol with petrol.
It is estimated that ethanol production in India will triple to approximately 10 billion litres per year by 2025.
The 2G plant will play a major role in making bioethanol available for blending.
In addition to reducing agricultural waste incineration, it can also help meet the goal of converting waste into energy.

Moves for production

The first 2G ethanol biorefinery is being set up at Bathinda, Punjab.
Hindustan Petroleum Corporation Ltd (HPCL) plans to set up four 2G ethanol plants that will convert agricultural waste into biofuel, reducing toxic air pollution in northern India.
Additionally, HPCL has plans to build four plants to produce ethanol using grains, such as surplus maize, surplus rice and damaged grain.

Innovations in this field

An Indian company has filed a patent for loop reactor technology.
It is a long, serpentine tubular reactor, in which fermentable sugars are converted to ethanol with the help of brewer’s yeast.
This sparked an idea to come up with reactive pipeline technology, wherein the pipeline connects the sugar factories where the ethanol is produced to the blending depot at the closest oil manufacturing companies.
Reactive pipeline technology is poised to be a game-changer for sugar factories and grain-based distilleries since uninterrupted raw material supply is a major challenge.

Benefits offered by ethanol blending

(1) Energy security

The Union government has emphasized that increased use of ethanol can help reduce the oil import bill.
India’s net import cost stands at $551 billion in 2020-21. It is estimated that the E20 program can save the country $4 billion (Rs 30,000 crore) per annum.

(2) Emission reduction

Use of ethanol-blended petrol decreases emissions such as carbon monoxide (CO), hydrocarbons (HC) and nitrogen oxides (NOx), the expert committee noted.
Higher reductions in CO emissions were observed with E20 fuel — 50 per cent lower in two-wheelers and 30 per cent lower in four-wheelers.

Some issues to be addressed

(1) Fuel efficiency

There is an estimated loss of six-seven per cent fuel efficiency for four-wheelers and three-four per cent for two-wheelers when using E20, the committee report noted.
These vehicles are originally designed for E0 and calibrated for E10.

(2) Recalibrating engines

The use of E20 will require new engine specifications and changes to the fuel lines, as well as some plastic and rubber parts due to the fuel’s corrosive nature.
The engines, moreover, will need to be recalibrated to achieve the required power, efficiency and emission-level balance due to the lower energy density of the fuel.

Conclusion

The country’s target of 20 per cent ethanol blending in petrol (E20) by 2025 can play a key role in reducing crude oil imports and bolstering India’s energy independence.
But India may miss an earlier goal set by him in 2015 — of reducing crude oil import dependency 10 per cent by 2022.
The target is far from being met and the country’s import dependency is only increasing.
The country’s target of 20 per cent ethanol blending in petrol (E20) by 2025 can play a key role in reducing crude oil imports and bolstering India’s energy independence.

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Back2Basics: EBP Programme

Ethanol Blended Petrol (EBP) programme was launched in January 2003 for the supply of 5% ethanol blended petrol.
The programme sought to promote the use of alternative and environment-friendly fuels and to reduce import dependency for energy requirements.
OMCs are advised to continue according to priority of ethanol from 1) sugarcane juice/sugar/sugar syrup, 2) B-heavy molasses 3) C-heavy molasses and 4) damaged food grains/other sources.

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