Note4Students
From UPSC perspective, the following things are important :
Prelims level: General Relativity, Black Holes, Black Holes merger
For the first time since it started functioning, the gravitational wave observatories at LIGO scientific collaboration have detected a merger of two unequal-mass black holes.
This newscard contains few basic terms that one must know-
Gravitational waves
General Relativity
Black Holes
GW190412
- The event, dubbed GW190412, was detected nearly a year ago, and this is almost five years after the first-ever detection of gravitational-wave signals by these powerful detectors.
- Subsequent analysis of the signal coming from the violent merger showed that it involved two black holes of unequal masses coalescing.
- One of them was some 30 times the mass of the Sun and the other which had a mass nearly 8 times the solar mass.
- The actual merger took place at a distance of 2.5 billion light-years away.
Significant feature observed
- The detected signal’s waveform has special extra features in it when it corresponds to the merger of two unequal-sized black holes as compared with a merger of equal-sized black holes.
- These features make it possible to infer many more things about the characters such as- a more accurate determination of the distance from the event, the spin or angular momentum of the more massive black hole and the orientation of the whole event with respect to viewers on Earth.
- While the mass of the black hole bends the space-time close to it, the spin or angular momentum of this inscrutable object drags the nearby space-time, causing it to swirl around, along with it.
- Hence both these properties are important to estimate.
Confirmed General Relativity
- An Indian team consisting of researchers verified the consistency of the signal with the prediction of General Relativity.
- The existence of higher harmonics was itself a prediction of General Relativity.
Must refer for an easy and illustrated understanding of General Relativity-
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Radioactivity
Mains level: NA
This newscard is inspired by an article published in the DTE which talks about a family which has received a total of four Nobel prizes, the highest won by a single-family.
Last year in 2019 CSP, there was a question on pure Biology about Hepatitis and its variants. With such news trending, we can expect a core chemistry or physics based question coupled with a slight Current Affairs blend.
The ‘Nobel’ family
- On April 20, 1902, Marie and Pierre Curie successfully isolated radioactive radium salts from pitchblende, a mineral, in a laboratory in Paris, France.
- They were inspired by French physicist Henri Becquerel’s 1896 experiment on phosphorescence or the phenomenon that allows certain objects to glow in the dark.
- They were able to find traces of two radioactive elements—polonium (Element 84) and radium (Element 88).
- Curie shared the 1903 Nobel with her fellow researcher Pierre Currie and Becquerel for their combined work on radioactivity.
Important facts
- In 1903, Marie Curie received the Nobel Prize in Physics making her the world’s first woman to win the prize.
- In 1911, she created history again by becoming the first woman to have won two Nobel awards.
- The 1911 Nobel Prize in Chemistry was awarded to Marie after she managed to produce radium as a pure metal. This proved the new element’s existence beyond doubt.
- However, this was not the last Nobel for the Curie family.
- The 1935 Nobel in Chemistry went to Irène Curie and her husband and co-researcher Frédéric Joliot for their joint work on the artificial creation of new radioactive elements.
- The Curies have received a total of four of Nobel prizes, the highest won by a single-family. They also have the unique distinction of having three Nobel-prize winning members in the family.
Birth of Radioactivity
- While delivering a lecture at the Royal Academy of Sciences in Stockholm, Sweden in 1911, Curie shared some critical details about “radioactive elements” and the phenomenon called “radioactivity”.
- She also spoke about the chemical properties of radium, the new element that was about a million times more radioactive than uranium.
- Radium in solid salts was about 5 million times more radioactive than an equal weight of uranium.
Back2Basics: Radioactivity
- Radioactivity refers to the particles which are emitted from nuclei as a result of nuclear instability.
- It is the process by which an unstable atomic nucleus loses energy by radiation.
- The most common types of radiation are called alpha, beta, and gamma radiation, but there are several other varieties of radioactive decay.
- Radioactive decay rates are normally stated in terms of their half-lives, and the half-life of a given nuclear species is related to its radiation risk.
- Examining the amounts of decay products makes possible radioactive dating.
Its applications
- Medical use: Many diseases such as cancer are cured by radiotherapy. Sterilization of medical instruments and food is another common application of radiation.
- Scientific use: Alpha particles emitted from the radioisotopes are used for nuclear reactions.
- Industrial use: Radioisotopes are used as fuel for atomic energy reactors. Also used in Carbon dating.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Various passes in news, BRO
Mains level: NA
The Border Roads Organisation (BRO) has opened the Rohtang Pass, three weeks in advance, for transporting essential supplies and relief materials to Lahaul and Spiti districts of Himachal Pradesh.
Rohtang Pass
- It is a high mountain pass (elevation 3,980 m) on the eastern Pir Panjal Range of the Himalayas around 51 km from Manali.
- It connects the Kullu Valley with the Lahaul and Spiti Valleys of Himachal Pradesh, India.
- The pass lies on the watershed between the Chenab and Beas basins.
- On the southern side of this pass, the Beas River emerges from underground and flows southward and on its northern side, the Chandra River, a source stream of the river Chenab, flows westward.
Another pass in new:
Sela Pass Tunnel Project
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Exercise Pitch Black 2020
Mains level: NA
Australia has informed India that their premier multilateral air combat training exercise Pitch Black 2020 scheduled in July has been cancelled due to the COVID-19 situation.
All-time generic question seeking ‘match the pairs’ can be asked from the news as such. Click here for more exercises.
Ex Pitch Black 2020
- Exercise Pitch Black is a biennial warfare exercise hosted by the Royal Australian Air Force (RAAF).
- The aim of the exercise is to practice Offensive Counter Air (OCA) and Defensive Counter Air (DCA) combat, in a simulated war environment.
- In the last edition of Pitch Black in 2018, the IAF for the first time participated with its Su-30MKI fighters, one C-130 and one C-17 transport aircraft.
- It provided a unique opportunity for an exchange of knowledge and experience with these nations in a dynamic warfare environment.
- The next edition of Pitch Black is scheduled in 2022.
India’s defence relation with Australia
- The defence and strategic engagement with Australia have steadily gone up in recent years especially on the bilateral front with naval cooperation at the forefront.
- The bilateral naval exercise AUSINDEX early last year saw the participation of the largest Australian contingent ever to India with over 1,000 personnel.
- The Mutual Logistics Support Agreement (MLSA) has been long pending and is expected to be concluded soon as well as a broader maritime cooperation agreement including the Maritime Domain Awareness (MDA) to elevate the existing strategic partnership.
- Australia recently made a pitch for trilateral cooperation among India, Australia and Indonesia to identify new ways that our three countries can collaborate to be the best possible custodians of the Indian Ocean.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- What measures are necessary to revive the economy after corona crisis?
The article deals with the policy response to the crisis. Reducing the pain inflicted on the poor and vulnerable section should be the priority. The size and nature of the stimulus package is also discussed in the article.
The dilemma of lives Vs. livelihood
- As the coronavirus spreads, severe dilemmas haunt policymakers.
- Testing of lockdown? Even the scientific community is confused and does not seem to know whether the South Korean model of more intensive testing is preferable to the European model of a complete lockdown.
- The economic crisis that we are facing today is very different from any crisis that we have encountered recently.
- This is the first economic crisis in recent memory to have been triggered by a non-economic factor — a pandemic.
- A lockdown essentially amounts to limited economic activity and this results in throwing temporary workers and daily wage earners out of employment.
- Migrant labour falls in this category.
- According to the 2011 census, the number of migrant workers under the category, “migrants for work/employment” was 41.42 million.
- This number must have grown substantially by now.
- The impact of the lockdown has fallen very heavily on the poor and vulnerable groups.
- We need to bear this in mind while evolving the strategy to combat the virus.
Expenditure during the pandemic
- First, medical and healthcare expenditure, which includes the money spent on extension of hospital facilities, employment of additional medical and healthcare workers, costs of testing on a much wider scale and the purchase of accessories like personal protection equipment, ventilators and testing kits.
- The expenditure under this category is a “must” and there can be no compromise on it.
- The length of the battle will decide the cost.
- Second, the expenditure involved in taking care of the people thrown out of employment, and other vulnerable sections of the population.
- Third, stimulation expenditure aimed at restarting the economy. Here, the financial system presided over by the RBI will play an important role. But the government also has a role.
Two issues to consider while deciding on the lockdown
- The “life” versus “livelihood” dilemma pertains to the lockdown policy.
- A tight lockdown over an extended period may save lives by curtailing the progress of the virus.
- But at the same time, it places several segments of society under severe hardship.
- With the lack of economic activity, many will go hungry.
- In this context, the government must look at two issues.
- First, it must consider to the extent to which the lockdown can be relaxed while keeping in mind the priority of restricting the spread of the virus.
- The government has recently announced some relaxations.
- This is a welcome step. However, it must keep this concern under continuous consideration. It must explore other options on the medical front as well.
- For example, will more testing make it possible to reduce restrictions?
- Second, if the lockdown is a “compulsion”, we need to pay adequate attention to the plight of people who have been affected adversely.
- The government had earlier announced certain measures to help some segments of society.
- With the lockdown being extended, it is necessary to raise the levels of relief, and also cover segments of society not covered earlier — migrant labour, for example.
The following points about the stimulus package are appearing repeatedly in most of the article on economic damage to the economy. They are also relevant from the UPSC perspective. A question based on it, like “What steps were taken by the government to revive the Indian economy in the aftermath of the corona crisis?” can be asked.
What should be the nature of the stimulus package?
- There is much talk about a “stimulation package” to revive the economy.
- The financial system will have to lead the charge.
- Additional expenditure: Expectations regarding additional expenditures by the government vary from 2 per cent of the GDP to 5 per cent of the GDP.
- Normal sources of financing will not be adequate to meet this order of expenditure.
- Many analysts felt that the figure of 3.5 per cent of the GDP as the fiscal deficit, indicated in the budget for 2020-21, would be exceeded.
- The pandemic will necessitate an increase in expenditure.
- Moreover, with the decline in economic activity, revenues will also go down.
- The revenue projections were made on the assumption that the nominal income growth would be 10 per cent.
- But this is unlikely to be achieved. The nominal income growth is likely to be 7 per cent, at best.
- Given the increase in expenditures and the slowdown in revenue collection, the borrowing programme will exceed significantly over what was indicated in the budget.
- The monetisation of debt is inevitable and it will have its own consequences.
- Provisions for states: The brunt of the expenditures will be borne by the state governments and therefore, the Centre must allocate additional resources to them.
- They may also be allowed additional borrowing above 3 per cent of the state domestic product.
What will be the overall growth rate for India?
- In the first quarter of 2020-21, the GDP growth rate will be negative.
- Agricultural performance during the year could be the same as in 2019-20 as the rainfall is expected to be normal.
- The developed world may go through a recession over the year.
- Thus the external sector may not be of much help.
- It is quite possible for the economy to have a V-type recovery from the second quarter of 2020-21.
- On that assumption, the overall growth rate for the year can be 3 per cent. This is an optimistic estimate.
Conclusion
To return to the present, the focus of the government has to be two-fold. It must act vigorously to contain the virus, explore the possible alternatives to complete lockdown. Second, it must take all actions to provide adequate help to the poor and the needy including the migrant workers. Lockdown, as necessary, must be with a human face.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Policy making and balancing the conflicts between various stakeholders.
This article deals with how the different sections of a society assign different weightage to the various factors they are faced with in life. In the case of Covid-19, one section of society which is well-off might care more about the possible loss of life while other section might end up attaching more weightage to the loss of livelihood than to the possible loss of life due to infection. The article discusses this issue in detail.
Difference between risk and uncertainty
- Since the days of Frank Knight, economists have differentiated between the two.
- Risk has a known probability distribution.
- For uncertainty, the probability distribution is unknwon.
- COVID-19 makes us confront uncertainty, not risk.
- For uncertainty, there is a subjective probability distribution, which can, and does, vary from individual to individual.
So, how the subjective probability distribution is devised by a person?
- Through information and experience, one already possesses.
- There are various rationality assumptions used by economists. They are often violated.
- Otherwise, behavioural economics wouldn’t have come into existence.
- Typically, given a situation, when your decision doesn’t agree with someone else, you say they are being irrational.
- However, with uncertainty, the problem may not be with rationality assumptions, but with differences in subjective probability distributions.
Lack of data for various factors
- Because of COVID-19, there is a certain risk of getting infected. Let’s call this the infection rate — total infections divided by the total population.
- We don’t know this infection rate for India or for any other country for that matter.
- No country has done universal testing.
- No testing for random sample: No country has done universal testing for a proper random sample either.
- The ICMR has told us more than 75 per cent of Indian patients will be asymptomatic.
- Who do we test? Those who show symptoms, those who have been in contact with confirmed patients and those who suffer from severe respiratory diseases.
- Most countries do something similar.
- Sampling bias: In other words, when we work out an infection rate based on those tested, there is a sampling bias.
- This isn’t a proper infection rate.
- The only country where we have had something like a random sample is Iceland.
- There, the infection rate was 0.8 per cent.
- Data for death rate: There are similar caveats about the death rate.
- If we mechanically divide the number of deaths by the number of confirmed cases for India, we will get a death rate just over 3 per cent.
- The global figure is a little less than 7 per cent.
- But neither of these is a death rate for the total population since only those with severe symptoms are included in infection numbers.
- Three per cent or seven per cent are over-estimates.
- In a controlled environment like Diamond Princess, death rate as a ratio of total passengers, and not those infected, was less than 0.4 per cent.
- The true infection rate and true death rate are not alarming numbers.
How the lack of data is reflected in subjective probability distribution?
- There are slices in India’s population pyramid with rural/urban and other spatial differences too.
- Consider two extreme types-type A and type B.
- Type A, who are globalised in information access and morbidity.
- Life expectancy is 80 plus and there are lifestyle diseases like diabetes and high blood pressure.
- This co-morbidity increases possible death rates and thanks to globalised access to information, certainly increases perceptions about death rates, making them out to be higher than they are.
- Some of them have fixed incomes, regardless of what happens to lockdown.
- The high probability assigned to loss of life: In terms of maximising expected payoffs with a subjective distribution, high probability is attached to loss of life and low probability to loss of livelihood.
- How type B forms a subjective probability?
- Type B, someone whose life expectancy is 60, without a fixed income stream and whose health concerns are tuberculosis and water-borne diseases, not COVID-19.
- Nor is access to information that globalised.
- The high probability assigned to loss of livelihood: High subjective probability will be attached to loss of livelihood and low probability to death from COVID.
- Both types reflect subjective probabilities. Neither is “irrational”.
- The tension between the two: Type A would like the lockdown to continue indefinitely, until the long tail of the infection curve tapers off, perhaps beyond September.
- Type B would like lockdown to be eased soon, with necessary restrictions in hotspots.
- There is indeed tension between lives and livelihood.
- Even if health outcomes and information access are like Type A, but income is contingent on growth, preferences might mirror Type B.
The issues highlighted here can be broadly used in the various scenario where there is uncertainty involved and various stakeholders perceive the probable outcomes in entirely different ways. Various points here can be used to answer the question based on policy making.
Balancing the differential individual preferences in public policy
- One set of individuals imposes its choice on the rest.
- Type A disproportionately influences policy.
- This determination of aggregate preferences is a dynamic process.
- Therefore, sooner or later, Type B contests this and as the lockdown is prolonged and livelihood costs mount, discontent surfaces, as it has across a range of countries.
- There were also welfare economics notions that pre-dated social choice theory, such as compensation principles of Kaldor, Hicks and Scitovsky.
- The point can be made using the two stereotypes. Specifically, Type A need to compensate Type B for their losses.
- To state it starkly, livelihood losses suffered by Type B need to be compensated by the government through redistributive measures and this has to be financed by higher taxes imposed on Type-A.
- The right question for the Type A is not whether they want the lockdown to continue, but whether they are willing to pay a COVID-tax to support lockdown extension.
A question based on policy formation issues explained here can be framed, for ex. “Risk has a known probability distribution. For uncertainty, the probability distribution is unknown. COVID-19 makes us confront uncertainty, not risk. In this context, there is a debate between saving lives and saving livelihoods. In such a scenario, what can be the most probable solutions that public policy must delve into, in order to maintain the balance between this uncertainty and risk.”
Conclusion
Extending or ending the lockdown decision represent the public policy dilemma. Without a revival in growth, the tax-paying capacity of Type B is limited and with job losses, some Type As become Type Bs. The choice is starker.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Do you agree with the view that coordination at global level was lacking in fight against Covid-19?
The article discusses the three stages involved in successfully dealing with the pandemic. In the next part, it goes on to explain the factors that determine the success or failure of the governments. In the last week, we read about the success story of Kerala and underlying reasons. This article is also written on similar lines.
Stages in the pandemic response
- Disease outbreaks, even global pandemics, are scarcely new. The playbook for dealing with them, therefore, is well understood and has been honed by practices and lessons gleaned from hard-fought battles.
- A first stage is an early clear-eyed recognition of the incoming threat, and, in the case of COVID-19 at least, requires the unpalatable decision to lock down society.
- Ideally, this is done with full consideration of how to support the most vulnerable members of society, especially in a country such as India, where so many survive hand-to-mouth.
- This is a phase aimed at buying time, of flattening the epidemic curve, so that public health facilities are not overwhelmed.
- And, for using this time, paid for by collective sacrifice, to secure the personal protective equipment (PPE) and medical supplies necessary to save lives.
- The second phase of the pandemic response is slowly to ease the burden on the economy by permitting a measured return of business activity so that livelihoods and supply chains can be restored.
- This stage can only be safely executed if accompanied by a war-footing expansion of testing capacity so that new infections can be identified and isolated at once, allowing contact tracing to be implemented by masses trained to do this crucial and painstaking work in communities across the country.
- The final stage, which for COVID-19 seems a lifetime away, is a mass vaccination programme and then the full rebuilding of economic and social life.
- None of this is easy, but, like an examination in a dreaded subject, one’s only hope is early and persistent preparation and, at crunch time, remembering the lessons learned.
The above-mentioned stages are sort of a template that seems to have gained acceptance for dealing with the pandemic. A question based on it, like “What are the various stages involved in government’s response to deal with a pandemic?”
Following three factors make the difference between successful and failed response
1. Leadership problems in global politics
- The defensive finger-pointing, opportunistic politicking and xenophobic posturing are shown by some leaders amid pandemic.
- This is not a crisis that can be tackled without robust and multidimensional international cooperation between nations.
- We are watching in real-time the benefits of intellectual collaboration that does not stop at national borders.
- From the epidemiologists to the medical community identifying more effective treatments, to the research scientists racing to find a vaccine, we are benefiting from collaboration.
- But the nationalistic turn in global politics over the past two decades has reduced investment in and undermined the legitimacy of the very institutions that facilitate international partnership at the very time they are needed most.
- Prime Minister Narendra Modi did well to convene the leaders of the South Asian Association for Regional Cooperation (SAARC) nations in mid-March to discuss the possibility of a regional response.
- But that video-conference call also highlighted that there have been no summit-level meetings of SAARC since 2014.
- Similarly, United States President Donald Trump demanded that the U.S. end funding of the World Health Organization (WHO).
- This not only endangers American lives by cutting off his own administration’s access to vital international data.
- But also directly affects India which receives significant funding and expertise from WHO with ~10% of its overall WHO financing in 2019 coming directly from the U.S.
2. The whole-of-the-government strategy
- Pandemic response requires a whole-of-government strategy, for which political will and legitimate leadership are vital to convene and maintain.
- Germany and Kerala provide two powerful though different examples of this in action.
- In Germany, in spite of a high level of federalism that gives its States (Länder) a lot of power, Chancellor Angela Merkel’s ability to mobilise the entire system has allowed Germany to emerge as a success story in Europe.
- In Kerala, State Chief Minister Pinarayi Vijayan convened a State response team at the earliest possible moment and has provided the full weight of his office in support of a coordinated public health strategy that has been accepted by the State’s citizens who have learned to trust the government in such situations.
- Yet these two examples stand out in part for how rare they are.
- Consider again the cautionary tale of the U.S. where some State Governors have yet to issue stay-at-home orders.
3. The robust public health system
- We are seeing first hand the consequences of starving public health systems of necessary funds and resources.
- The comparative advantage of the private sector is efficiency; the need of the hour in pandemic response is redundancy, or, more precisely, excess capacity.
- Most hospitals do not need invasive ventilators normally, just as they do not need vast stocks of PPE and extra intensive care units beds, but these are essential goods right now as we brace ourselves for a flood of sick patients into hospitals.
- Watching the advanced health-care system of northern Italy buckle under the unimaginable pressures to which it was exposed over the past six weeks should be a cautionary tale for all countries that thought turning health care over to private actors was responsible governance. It is not.
- Again, consider Kerala, which has consistently ranked at the top of State rankings for health expenditures.
- Kerala has, a well-functioning local public health system capable of implementing the test-isolate-trace protocols critical for fighting COVID-19.
Conclusion
With the central role of leadership and governance underlined in the successful dealing with the pandemic, leadership across the world need to come together to coordinate at all levels in dealing with the problems that are not bound by any border.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: “Direct” monetisation of the deficit
Mains level: Various tools for deficit financing and their feasiblity
With the economy stalled, there isn’t enough money in the market for the government to borrow. Can it ask the RBI to print more money? How does this process work, and what are the arguments against it? Let us see:
Discuss the scope and feasiblity of “Direct” Monetization by the government for Deficit Financing as an option of the last resort.
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What is “direct” monetisation of the deficit?
- Imagine a scenario where the government deals with the RBI directly — bypassing the financial system — and asks it to print new currency in return for new bonds that the government gives to the RBI.
- Now, the government would have the cash to spend and alleviate the stress in the economy — via DBT to the poor or starting social and capital expenditure etc.
- In lieu of printing this cash, which is a liability for the RBI (recall that every currency note has the RBI Governor promising to pay the bearer the designated sum of rupees), it gets government bonds.
- Such bonds are an asset for the RBI since such bonds carry the government’s promise to pay back the designated sum at a specified date.
- And since the government is not expected to default, the RBI is sorted on its balance sheet even as the government can carry on rebooting the economy.
What triggers a demand for direct monetization?
1) Decline of Demand
- With a nationwide lockdown, incomes have fallen and so have consumption levels.
- In other words, the demand for consumer goods and services (say a haircut) in the economy has gone down.
- What can be done to boost demand? People need to have money. But, of course, who will give them money.
- From the highest-ranking CEOs to stranded workers, incomes have taken a huge hit, if not completely dried up.
2) Moving ahead for a fiscal deficit
- For its part, the RBI has been trying to boost the liquidity in the financial system. It has bought government bonds from the financial system and left it with money.
- Most banks, however, are unwilling to extend new loans as they are risk-averse. Moreover, this process could take time.
- The government’s finances were already overextended going into this crisis, with its fiscal deficit way over the permissible limit.
- On top of that, if the government was to provide some kind of a bailout or relief package, it would have to borrow a huge amount. The fiscal deficit will go through the roof.
3) No money in the market
- There isn’t enough money in the market for the government to borrow.
- Moreover, as the government borrows more from the market, it pushes up the interest rate.
- Hence, the govt. is left with the only solution — the “direct” monetisation of government deficit.
How is DM different form OMOs?
- Direct monetization is different from the “indirect” monetizing that RBI does when it conducts the so-called Open Market Operations (OMOs) and/ or purchases bonds in the secondary market.
Global examples
- Other countries are doing it to counter the economic crisis related to COVID-19.
- In the UK on April 9, the Bank of England extended direct monetisation facility to the UK government even though the Governor of the Bank opposed the move till the last moment.
Has India ever done this in the past?
- Yes, until 1997, the RBI “automatically” monetized the government’s deficit.
- In 1994, Manmohan Singh (former RBI Governor and then Finance Minister) and C Rangarajan, then RBI Governor, decided to end this facility by 1997.
- Now, though, even Rangarajan believes that India would have to resort to monetising the deficit.
Issues with Direct monetisation
- Direct monetisation of the deficit is a highly contested issue.
- Another former RBI Governor D Subbarao has said that there is no question that India must borrow and spend more in this crisis.
- He regarded this as a moral and a political imperative.
Issues: Inflationary practice
- Ideally, this tool provides an opportunity for the government to boost overall demand at the time when private demand has fallen — like it has today.
- But if governments do not exit soon enough, this tool also sows the seeds for another crisis. Here’s how:
- Government expenditure using this new money boosts incomes and raises private demand in the economy. Thus, it fuels inflation.
- A little increase in inflation is healthy as it encourages business activity. But if the government doesn’t stop in time, more and more money floods the market and creates high inflation.
To what level should government debt be ideally limited?
- While no ideal level of debt is set in stone, most economists believe developing economies like India should not have debt higher than 80%-90% of the GDP. At present, it is around 70% of GDP in India.
- It should commit to a pre-determined amount of additional borrowing and to reversing the action once the crisis is over.
- Only such explicitly affirmed fiscal restraint can retain market confidence in an emerging economy.
- The other argument against direct monetizing is that governments are considered inefficient and corrupt in their spending choices — for example, whom to bail out and to what extent.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Discretionary powers of Governor
Mains level: Read the attached story
- Maharashtra CM is yet to be nominated to one of the seats reserved for the Governor’s nominee in the state Legislative Council.
- His current term in office approaches its end with a looming constitutional crisis.
The discretionary powers of the governor have been subjected to various debates this year. Be it Karnataka, Maharashtra, MP or erstwhile J&K (under Lt. Governor) or the UT of Delhi.
CM without Election
- Maha CM took oath in accordance with Article 164(4).
- The article states that a Minister who for any period of six consecutive months is not a member of the Legislature of the State shall at the expiration of that period cease to be a Minister.
- It follows that the Chief Minister must become part of the legislature before the said expiration of 6 months.
Governors dilemma
- A situation in which an individual who is not a member of the legislature becomes chief executive of the government is in itself fairly common.
- But with the pandemic raging, a by-election cannot be held.
- The only way to fulfil the requirement, therefore, is for a person to be nominated to the Upper House by the Governor.
- If that does not happen, the Governor is obligated to make way for someone else to lead the coalition govt.
- CM Uddhav Thackeray is likely to have had no problems becoming a member of the legislature had the pandemic not hit.
What does the Judiciary have to say?
- In S R Chaudhuri vs State of Punjab and Ors (2001), the Supreme Court had ruled that it would be subverting the Constitution to permit an individual, who is not a member of the Legislature.
- Such a person should not be appointed a Minister repeatedly for a term of ‘six consecutive months’, without him getting himself elected in the meanwhile.
- The practice would be clearly derogatory to the constitutional scheme, improper, undemocratic and invalid.
Testing the nomination route
- The nomination route for non-member Ministers is less common — but not unconstitutional.
- In 1952, C Rajagopalachari was nominated as CM of Madras by Governor Sri Prakasa.
- Under Article 171(5), the Governor can nominate “persons having special knowledge or practical experience in respect of. literature, science, art, co-operative movement and social service”.
- Last month, the President nominated former Chief Justice of India Ranjan Gogoi to Rajya Sabha even though there were doubts about him meeting these prescribed qualifications.
- Thackeray can be said to have a stronger claim in this regard — he is an ace wildlife photographer.
- Moreover, as per the Allahabad High Court in Har Sharan Varma vs Chandra Bhan Gupta And Ors (February 15, 1961), even politics can be seen as ‘social service’.
The role of the Governor
- It has been argued that Section 151A of The Representation of the People Act, 1951, prohibits the filling of a vacancy if “the remainder of the term of a member in relation to a vacancy is less than one year”.
- However, this cannot be a reason for the Governor to refuse nomination — because the bar is in respect of by-election to fill a vacancy, not nomination.
- Of course, the Governor could argue that he is not obligated under the Constitution to act swiftly on the advice of the Council of Ministers; also, why should he nominate Thackeray only to save his chief ministership.
A new issue for debate
- It is important to note the extraordinary context — India is currently battling a health emergency of the kind not seen in the history of the republic.
- Political uncertainty is the last thing that Maharashtra, which has the highest coronavirus caseload and death toll by far in the country, needs at this moment.
The question of discretion
- What are the limits to the Governor’s discretion in nominations is the matter of discussion now.
- In Biman Chandra Bose vs Dr H C Mukherjee (1952) the Calcutta HC rejected the plea that none of the nine nominated members to the legislature fulfilled the required criteria and held that the Governor cannot use his discretion in nominating members to the Council.
- He has to go by the aid and advice of the Council of Ministers.
- Article 163(1) of the Constitution makes it clear that the Governor must follow the recommendations of the Council of Ministers in all situations “except in so far as he is by or under this Constitution required to exercise his functions or any of them in his discretion”.
Case in Maharashtra
- It can be argued that government is bound by the advice of the CoM only in executive matters as defined in Article 162 and since the nomination of members is not an executive power, he can act in his discretion.
- However, it must be noted that under Article 169, while Parliament has the power to abolish or create a Legislative Council, it can pass such a law only after the state Assembly has passed a resolution to that effect.
- Thus, the legislative power of the Assembly can be inferred from this provision.
Also read:
Role of Governor in State govt. formation
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Indira Sawhney judgment
Mains level: Making reservation system more efficient
- A Constitution Bench of the Supreme Court held it unconstitutional to provide 100% reservation for tribal teachers in schools located in Scheduled Areas across the country.
- The Bench was answering a reference made to it in 2016 on whether 100% reservation is permissible under the Constitution.
Reservation in India is a system of affirmative action by the State that provides representation for historically and currently disadvantaged groups in Indian society in education, employment and politics. The 10% EWS quota this year has raised the inevitability for a possible mains question.
No 100% quota
- The apex court held that it is an obnoxious idea that tribals only should teach the tribals.
- Merit cannot be denied in toto by providing reservation observed the judgement.
- Citizens have equal rights, and the total exclusion of others by creating an opportunity for one class is not contemplated by the founding fathers of the Constitution of India.
Invoking Indira Sawhney judgment
- The court referred to the famous Indira Sawhney judgment (Mandal case- Indra Sawhney v. Union of India 1992), which caps reservation at 50%.
- The court held that 100% reservation is discriminatory and impermissible.
- The opportunity of public employment is not the prerogative of few.
- A 100% reservation to the Scheduled Tribes has deprived SCs and OBCs also of their due representation.
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From UPSC perspective, the following things are important :
Prelims level: Swamitva Scheme, e-Gramswaraj Portal
Mains level: Land records management and its significance for urban and rural planning
The Prime Minister has launched the Swamitva Scheme and e-Gramswaraj Portal & mobile app as a portal to prepare and plan Gram Panchayat Development Plans.
Swamitva Scheme
- SWAMITVA stands for Survey of Villages and Mapping with Improvised Technology in Village Areas.
- Under the scheme, the latest surveying technology such as drones will be used for measuring the inhabited land in villages and rural areas.
- The mapping and survey will be conducted in collaboration with the Survey of India, State Revenue Department and State Panchayati Raj Department under the Ministry of Panchayati Raj.
- The drones will draw the digital map of every property falling in the geographical limit of each Indian village.
- Property Cards will be prepared and given to the respective owners.
Benefits
- The scheme will create records of land ownership in villages and these records will further facilitate tax collection, new building plan and issuance of permits.
- It will enable the government to effectively plan for the infrastructural programs in villages.
- It would help in reducing the disputes over property.
What is e-Gramswaraj Portal?
- E Gram Swaraj portal is the official portal of central govt for the implementation of Swamitva scheme.
- By visiting this portal people can check their Panchayat profile easily. It will also contain the details of ongoing development works and the fund allocated for them.
- Any citizen can create his or her account on the portal and can know about the developmental works of villages.
- The user of E Gram Swaraj portal can also access all work of the Ministry of Panchayati Raj.
- This single interface will help speed-up the implementation of projects in rural areas from planning to completion.
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From UPSC perspective, the following things are important :
Prelims level: Red Shirts, Khudai Khidmmatgars
Mains level: Various non-violent movements in the freedom struggle
- Qissa Khwani Bazaar is a renowned market place in the city of Peshawar.
- Before the Partition, the marketplace was also the site of a massacre perpetrated by British soldiers against non-violent protesters of the Khudai Khidmatgar movement on April 23, 1930.
We can expect a possible mains question inspired from this newscard. The question could be like- “Discuss the role of Abdul Ghaffar Khan and his Khudai Khidmatgar in infusing the Gandhian principle of non-violence in the Frontiers of India “.
The Red Shirts: Khudai Khidmatgars
- The Khudai Khidmatgar was a non-violent movement against the British occupation of the Indian subcontinent led by Abdul Ghaffar Khan, a Pashtuns freedom fighter, in the North-West Frontier Province.
- Over time, the movement acquired a more political colour, leading to the British taking notice of its growing prominence in the region.
- Following the arrest of Khan and other leaders in 1929, the movement formally joined the Indian National Congress after they failed to receive support from the All-India Muslim League.
- Members of the Khudai Khidmatgar were organised and the men stood out because of the bright red shirts they wore as uniforms, while the women wore black garments.
Why did the massacre happen?
- Abdul Ghaffar Khan and other leaders of the Khudai Khidmatgar were arrested on April 23, 1930 by British police after he gave a speech at a gathering in the town of Utmanzai in the North-West Frontier Province.
- A respected leader well-known for his non-violent ways, Khan’s arrest spurred protests in neighbouring towns, including Peshawar.
- Protests spilled into the Qissa Khwani Bazaar in Peshawar on the day of Khan’s arrest. British soldiers entered the market area to disperse crowds that had refused to leave.
- In response, British army vehicles drove into the crowds, killing several protesters and bystanders. British soldiers then opened fire on unarmed protestors, killing even more people.
- Historical records suggest the British attempted to deploy the Garhwal Regiment against the civilians in the marketplace, but two platoons of this respected regiment refused to shoot at unarmed protesters.
- In retaliation, British officials court-martialled the platoon members with upto eight years of imprisonment.
Aftermath of the massacre
- The British ramped up the crackdown on Khudai Khidmatgar leaders and members following the Qissa Khwani Bazaar massacre.
- In response, the movement began involving young women in its struggle against the British, a decision in line with tactics adopted by revolutionaries across undivided India.
- Women were able to move undetected with more ease than men.
- According to accounts by Khudai Khidmatgar activists, the British subjected members of the movement to harassment, abuse and coercive tactics adopted elsewhere in the subcontinent.
- This included physical violence and religious persecution. Following the recruitment of women in the movement, the British also engaged in violence, brutality and abuse of women members.
Khudai Khidmatgars gets wasted into history
- British adopted their tactic of sowing divisions on religious grounds in the North-West Frontier Province as well, in an attempt to weaken the Khudai Khidmatgar.
- In a move that surprised the British government, in August 1931, the Khudai Khidmatgar aligned themselves with the Congress party, forcing the British to reduce the violence they were perpetrated on the movement.
- The Khudai Khidtmatgar opposed Partition, a stance that many interpreted as the movement not being in favour of the creation of the independent nation of Pakistan.
- Post 1947, the Khudai Khidmatgar slowly found their political influence decreasing to such an extent that the movement and the massacre 90 years ago in the Bazaar has been wiped out from collective memory (of Pakistan).
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From UPSC perspective, the following things are important :
Prelims level: Unified Geologic Map of the Moon
Mains level: Studying topography of the moon
The first-ever digital, unified, global, geological map of the moon was released virtually by the United States Geological Survey (USGS), NASA and the Lunar Planetary Institute.
Unified Geologic Map of the Moon
- The UGM will serve as a blueprint for future human missions and a source of research and analysis for the educators and the general public interested in lunar geology.
- The map is a ‘seamless, globally consistent, 1:5,000,000-scale geologic map’.
- The mapped surface features of the moon included crater rim crests, buried crater rim crests, fissures, grabens, scarps, mare wrinkle ridges, faults, troughs, rilles, and lineaments.
How it was prepared?
- The researchers built on the original digital renovation of the six maps comprising of the near, central far, east, west, north and south sides that was released in 2013.
- The final map consists of 43 geologic units across the entire lunar surface, broken down into groups based on characteristics like materials of craters, basins, terra, plains and volcanic units.
- Data from NASA’s Apollo Missions were used to come up with the map.
Its’ significance
- The moon’s South Pole is especially interesting because the area is much larger than the North Pole and there could be a possibility of the presence of water in these permanently shadowed areas.
- Further, the South Pole region also contains the fossil record of the early Solar System.
- These present and future moon missions’ success can be further helped by the digital map of the moon.
- The Chandrayaan 2, an active mission also targets the Lunar South Pole for exploration.
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From UPSC perspective, the following things are important :
Prelims level: Reverse Vaccinology
Mains level: Coronovirus and the hunt for its vaccine
The Tamil Nadu Dr. MGR Medical University has developed a vaccine candidate against SARS-CoV-2 through ‘reverse vaccinology’.
A definition based prelims question can be expected on Reverse Vaccinology. Ex. Which of the following statements best describes ‘Reverse Vaccinology’?
Reverse Vaccinology
- Reverse vaccinology is an improvement on vaccinology that employs applied bioinformatics.
- The basic idea behind it is that an entire pathogenic genome can be screened using bioinformatics approaches to find genes.
- Some traits that the genes are monitored for may indicate antigenicity.
- Those genes are filtered for desirable attributes that would make good vaccine targets such as outer membrane proteins.
- Once the candidates are identified, they are produced synthetically and are screened in animal models of the infection.
- Since then, it has been used on several other bacterial vaccines.
Benefits
- Earlier researchers had to do a viral culture in the laboratory to develop a vaccine, and this was time-consuming.
- The major advantage for reverse vaccinology is finding vaccine targets quickly and efficiently.
- Traditional methods took decades to unravel pathogens and antigens, diseases and immunity
- With ‘reverse vaccinology’ scientists know what molecules make the genomic sequence.
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From UPSC perspective, the following things are important :
Prelims level: Asset-to-liability mismatch, Types of debt markets, Priority sector lending certificates, roll-over etc.
Mains level: Paper 3- What is the importance of debt market for the economy of a country? What are the factor responsible for the shallowness of the India's debt market?
India’s bond market suffers from several issues. This article discusses such issues, and also highlights the recent positive trends seen in the debt market owing to several steps taken by the government.
The Indian debt market, primarily of the fixed-income variety, can be broadly classified into:
- 1. Money Market
- Where the borrowing is for a tenor of less than a year.
- Different types of money market instruments: Inter-Bank Term Money, repo transactions, Certificate of Deposits, Commercial Papers, T-Bills, etc. are some of the money market instruments.
- Through these instruments, short term requirement of funds is met by banks, institutions and the state and central governments.
- 2. Bank and Corporate Deposits
- Bank fixed deposits (FDs) have been popular and widely subscribed to, as the feeling of no-default-risk.
- Corporate deposits are FDs issued by a company (non-bank).
- 3. Government Securities
- G-Secs are sovereign-rated debt papers, issued by the government with a face value of a fixed denomination.
- 4. Corporate & PSU Bond Market
- Corporate bonds are issued by public sector undertakings (PSUs) and private firms.
- These bonds are issued for a wide tenor between 1 year – 15 years.
- These bonds carry a different risk profile and hence will have associated rating.
Debt market plays a significant role in the economy of a country. But India’s debt market suffers from shallowness. Some of the steps taken by the government to improve the situation have been showing positive trends. In the light of this development, the UPSC can frame a direct question, for ex. “What are the factors responsible for the shallowness of the debt market in India? Suggest ways to increase the depth of the debt market in India.”
What are the problems of India’s debt market?
- Wholesale market: The Indian debt market is largely a wholesale market.
- It is a wholesale market in a sense that a majority of institutional investors comprises of mainly banks, financial institutions, mutual funds, EPFO, insurance companies and corporates.
- The concentration of these large players has resulted in the debt markets being fairly skewed, evolving into a wholesale & bilaterally-priced trades.
- Lack of retail sell and transparency: It also lacks the retailness and the contractual transparency that the Indian capital markets have been able to build in the past 2 decades.
- Skewed towards G-secs: Structurally, the debt market remains firmly skewed towards government securities (G-secs).
- Also, the largest investor group in the G-secs market are the banks, due to their regulatory requirement to invest in SLR.
- Low and unstable trading in the corporate bond market: The Indian corporate bond market has low & unstable trading volumes.
- Sadly, the corporate bond market remains largely about top-rated financial and public sector issuances.
- The domestic debt managers have forgotten that the logic of the business of finance is “to price the risk”.
Regulation and comparison with other countries
- RBI regulates money markets & G-secs.
- SEBI regulates the Corporate debt market & bond markets.
- The domestic debt market in India amounts to about 67% of GDP.
- The size of India’s corporate bond market is a mere 16% of GDP — compared with 46% in Malaysia, and 73% in South Korea.
The recent positive trend in the debt market
- In the past few years, the domestic corporate bond market had seen increasing volumes, largely due to financial investments going into it, including retail participation.
- Also, the banks had ceded space to NBFCs over past many years.
- This is because banks found it easier to buy securitisation pools to achieve their PSL targets rather than develop competencies that NBFCs had built-in serving affinity groups, in smaller cities & towns.
- And post the ILFS crisis, the markets have started shunning non-banks again.
- Policy initiative by the government: The various policy initiatives undertaken in the last few years would take time to fructify and to stabilise.
- These include the IBC, SEBI’s bond market policies, RBI’s large borrower framework for enhancing credit supply.
- Some of these have already seen changes/addendums to the original draft, with the intent being to course-correct, for the stability of the markets.
Roll over of debt papers in India
- We have seen liquidity problems in our markets every few years.
- The concept of “roll-over” of debt paper was usual as our markets did not build long term papers.
- With the ILFS slowdown, it was easy for name-calling on “ALM mismatch” concept.
- Not much had been anyways done before and later to address the availability of debt to reduce the Asset-to-Liability mismatches.
- Also, we have played it safe so far by even lending for large infra projects with shorter paper and hoped to roll it over at the end of the debt term.
Conclusion
This is the time that our regulators need to work along with the various governments, especially the states, for smoother ironing of fiscal hiccups and use this to redress any structural glitches. It’s time that there is actual intent to deepen the domestic debt market and to listen to the industry about their requirements.
Back2Basics: What is ASM?
- Banks’ primary source of funds is deposits, which typically have short- to medium-term maturities.
- They need to be paid back to the investor in 3-5 years.
- In contrast, banks usually provide loans for a longer period to borrowers.
- Home loans, for instance, can have a tenure of up to 20 years.
- Providing such loans from much shorter maturity funds is called an asset-liability mismatch.
- It creates risks for banks that need to be managed.
- The most serious consequences of asset-liability mismatch are interest rate risk and liquidity risk.
- Because deposits are of shorter maturity they are repriced faster than loans.
- Every time a deposit matures and is rebooked if the interest rates have moved up the bank will have to pay a higher rate on them.
- But the loans cannot be repriced that easily. Because of this faster adjusting of deposits to interest rates asset-liability mismatch affects net interest margin or the spread banks earn.
Priority Sector Lending (PSL)
- Priority Sector Lending is an important role given by the (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low-income groups and weaker sections etc.
Roll over of debt
- When debt becomes due there is a need to either repay the principal or alternatively, to enter into a new agreement.
- Structurally, funds from the second debt are used to repay the first debt.
- Then you repay the second debt as required. Quite often these new terms will be agreed with the initial lender.
- In essence, you’re ‘rolling’ the repayment obligation from one period into the next.
- This all leads to rollover risk, which is the risk you that you won’t be able to find anyone willing to lend the value of the outstanding debt and/or offer a comparable rate as the first principle repayment obligation approaches.
- This may be due to either movement in the borrowers perceived credit status and/or changes to the broader credit environment.
- This was a key theme during the financial crisis of 2007 – 2008.
- The reasons for refinancing may include the above, but also other themes such as debt consolidation (which doesn’t directly imply a change to the debt term).
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From UPSC perspective, the following things are important :
Prelims level: 10 % condition for FDI.
Mains level: Paper 3-What are the implications of two dominant players in IT and telecom respectively coming together for data privacy and net neutrality?
Facebook’s decision to acquire a 9.99 per cent stake in the parent company of Reliance Jio could have several implications. It could impact retail stores which we are trying hard to protect by restricting FDI in retail. Second, it could have implications for net neutrality. Third, it would have implications for data privacy.
Implications for the country’s retail landscape
- Recently, Reliance Industries and Facebook announced that the California-based social media giant will acquire a 9.99 per cent stake in Jio Platforms limited, the holding company of Reliance Jio, for $5.7 billion (Rs 43,574 crore).
- At its core, the idea is to create an ecosystem around JioMart, enabling customers to access the local Kirana stores using WhatsApp, combining both offline and online retail.
- This ability to connect millions of local businesses with end consumers, and provide them a seamless online transaction experience could radically alter the country’s retail landscape.
- Both firms have stressed on the new opportunities for businesses of all sizes, and especially for the millions of small businesses across the country.
- With the ongoing lockdown in the country only reaffirming the importance of the local Kirana store — major online delivery channels have struggled to reach consumers during this period — integration is bound to be an enticing proposition.
Opportunities for cross-selling
- A scaling up of this model will also provide opportunities for cross-selling — significantly increasing the upside for firms and increasing the valuation of its retail arms.
- At present, though, the reach of WhatsApp Pay is limited — just over a million Indians are reported to currently have access to the pay feature.
- But this sort of model is popular in other Asian economies such as China, Korea and Japan where apps like WeChat have a wide range of product offerings, which induces consumer stickiness.
- This arrangement also allows Jio to greatly expand its product offering to its more than 370 million-odd subscriber base.
- The deal may also open up the entire WhatsApp consumer base of around 400 million — to Reliance, including those on other telecom platforms such as Airtel and Vodafone.
The following concern could arise from the deal and the UPSC can frame a question based on these concern, like ” Recently a global IT giant acquired a significant stake in an Indian telecom giant. Discuss the various issues which could arise from coming together of such dominant players.”
What are the concerns in such deals?
- Implications for consumer welfare: Given the dominant market position of the players, concerns over the market structure and its implications for consumer welfare are bound to arise.
- Questions over net neutrality: The tie-up also raises questions on net neutrality with the possibility of preferential treatment being granted.
- Data privacy issue: Third, given the data privacy issues highlighted in the past by the Cambridge Analytica episode, for instance, there are apprehensions over the enormous amounts of data that will be collected by these entities.
- This concern gains significance especially when India still does not have a personal data protection law.
Conclusion
Whenever two dominant players of respective fields come together, it gives rise to concern. The government must keep watch on the implications and how such a deal plays out in the future. If the concerns raised turn out to come true, maybe India should come out with the antitrust law of its own.
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From UPSC perspective, the following things are important :
Prelims level: WTO benchmark, Brent crude.
Mains level: Paper 3- What are the implications of oil price fluctuations for Indian economy?
This article discusses the factors that contributed to oil prices falling below zero, and where the prices are headed in the near future. There are suggestions for India to make the most of this oil crisis. In the last week, we covered the same topic but its focus was on increasing the storage capacity. This article also covers the geopolitical implications of oil prices remaining low for long.
What negative price of the benchmark US crude WTI mean?
- The collapse in the price of WTI reflected a technical peculiarity of futures trading.
- Paper traders would normally have had two options- 1) To let their contract expire and take physical delivery 2) To pass on the contract to someone else.
- The US was running out of crude oil storage capacity and traders knew they could not “risk” taking delivery.
- There was no physical space to hold the product.
- So their only option was to sell the contract.
- On the last day before the contracts expired, the traders in desperation “paid” to offload their risk.
- There was no physical transaction of oil.
- The current future price is back in positive territory.
The world running out of oil storage capacity
- The world and not just the US was fast running out of storage capacity.
- Production in excess of demand: This was because oil production was way in excess of demand.
- The latter had crashed by almost 30 million barrels a day or mbd (the equivalent of OPEC’s entire production) because of the COVID-induced lockdown of transportation and industry.
- The price of the other crude benchmarks had also dropped but not the same extent — the North Sea Brent fell, for instance, to $15/bbl, a level not seen since 1999.
- The reason was that unlike the WTI, which is traded in the US and therefore dependent on US inland storage capacity, the other crudes have access to seaborne storage (oil tankers).
- This latter capacity is, however, fast filling up and the price of these crudes may also hit historic lows.
So, where the oil prices are headed?
- Oil prices will be volatile downwards until demand picks up and/or supply is further cut.
- Demand will depend on the curve of post-COVID economic recovery.
- Supply will rest on the outcome of further discussions amongst OPEC, Russia and, ironically, the US.
- OPEC and Russia had earlier this month agreed to cut production by 10 mbd.
- But clearly, this is not enough and further cutbacks have to be agreed on.
- Whatever the scenario for economic recovery or supply constraints, there is a slim likelihood of crude oil prices reaching the average price levels of 2019 ($64) over the next 12 months or so.
- More likely, they will be volatile downwards with $50 as the ceiling and with no floor.
- This “low for longer” price outlook raises two issues for India’s policy-makers.
As India depends on imports for over 80% of its oil requirements, oil prices have wide implications for the financial health of India. Safe oil supply lines are essential for its energy security. Both these points are important from the UPSC point of view. Following two points deal with these two factors.
Two issues that India’s policy-makers need to consider-
1. Disruption of oil supply lines and problems of diaspora
- Every oil producer with no exception will face a budgetary crisis.
- Some, like Saudi Arabia, the UAE and Kuwait will finance their social and economic commitments by cutting costs, increasing debt and drawing down on their sovereign reserves.
- Others like Iran, Iraq, Nigeria and Venezuela, who have no such cushion and whose credit ratings are junk, will confront deepening political and social crises.
- Economic plan: India should build into its economic plans the possibility that its traditional oil supply routes could get disrupted.
- And that its diaspora, whose remittances are of significance, could face disproportionate hardship as these economies retrench.
India has the largest diaspora in the world and sends as much as $80 billion back home as remittances. So, any impact on diaspora in oil economies has implication for India from this perspective as well.
2. Empower the oil traders and remove bureaucratic control
- On the day prices hit negative territory, it is unclear whether the trading experts in our oil PSUs had the flexibility to even contemplate “buying” the WTI futures contract for June, taking delivery, shipping it to India and storing it someplace.
- It is also not clear whether they had the authority to lock in low prices through forward contracts.
- Storage capacity and WTI quality mismatch: There is a shortage of storage capacity in India and a mismatch between the quality of WTI and the requirements of our refineries.
- India cannot leverage the current market conditions of low and volatile oil prices to our national advantage unless we empower the traders and leave them unencumbered from bureaucratic control.
- Most importantly, protect them from the three Cs ( CVC, CBI and CAG) in case their trade goes awry.
Conclusion
This oil market crisis could be made to work to our advantage. We must not waste this opportunity. There is a need to remove the bureaucratic hurdles in our PSUs, increasing storage capacity and sound financial planning by the government to make the most of this oil crisis.
Back2Basics: What is WTI and Brent crude benchmark?
- West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing.
- This grade is described as light crude oil because of its relatively low density, and sweet because of its low sulfur content.
Brent Crude
- Brent Crude is a trading classification of sweet light crude oil that serves as one of the two main benchmark prices for purchases of oil worldwide.
- This grade is described as light because of its relatively low density, and sweet because of its low sulphur content.
Futures contract
- In finance, a futures contract is a standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties not known to each other.
- The asset transacted is usually a commodity or financial instrument.
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From UPSC perspective, the following things are important :
Prelims level: Greenland and its geographical features
Mains level: Neo-imperialism and its re-emergence
Context
- The US had last year sent a proposal to “purchase” Greenland from the Nordic nation.
- This proposal follows plans by the US government to open a consulate in Nuuk, Greenland’s capital.
- This move is being considered to be “extremely provocative” interference by the US.
Go for a detailed map reading of the Arctic region. It has been in news for several times this year.
Why is the US opening a consulate in Greenland?
- The US is opening a consulate in Greenland after nearly seven decades of closing its first consulate after the Second World War.
- Russia has been steadily expanding its military presence in the Arctic and China has done its bit on the economic front.
US’s interests in Greenland
1) Domestic interest
- The US claims that its aid is to ensure “sustainable growth” in the autonomous island.
- It also cited Russia’s “aggressive behavior and increased militarisation in the Arctic” and China’s “predatory economic interests” as reasons for the decision.
- The US acquiring new territory under Trump would appeal to the nationalistic and imperialistic views of Americans.
- Acquiring Greenland would also secure Trump’s position in US history of having been the third president to add land to the country’s territory.
2) Strategic interest
- Due to climate change, the Arctic ice is melting at an accelerated rate, opening up water routes for military and maritime trade.
- This is in addition to global superpowers and regional players vying for control over Greeland’s vast untapped natural resources.
3) Economic interest
- Greenland is also a resource-rich landmass, strategically located between the Arctic Sea and the Atlantic Ocean, with some of the largest deposits of rare-earth metals, including iron-ore, uranium, and by-products of zinc, neodymium, praseodymium, dysprosium and terbium.
- These rare-earth metals are used in the production of electric cars, mobile phones and computers.
- For the longest time, China has been the world’s largest supplier of these rare-earth metals and has expanded its acquisitory plans by excavating mines across the African continent.
- An acquisition of Greenland would make the US less reliant on China for these rare-earth metals.
- Greenland, as a part of the Arctic region, also has large deposits of undiscovered oil and gas, resources that the US always wants more of.
The US obsession
- Trump’s interest in Greenland is almost an extension of his world view and US foreign policy in his administration.
- Purchasing another country or territory is unusual, but the US government has done this twice before.
- Erstwhile President Thomas Jefferson acquired Louisiana from the French in 1803 and the second time when President Andrew Johnson purchased Alaska from Russia in 1867.
Back2Basics: Greenland
- Greenland is the world’s largest island located between the Arctic and Atlantic oceans, east of the Canadian Arctic Archipelago.
- It is an autonomous territory within the Kingdom of Denmark.
- Though physiographically a part of the continent of North America, Greenland has been politically and culturally associated with Europe
- The majority of its residents are Inuit, whose ancestors migrated from Alaska through Northern Canada, gradually settling across the island by the 13th century.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Operation Twist, OMOs
Mains level: Operation Twist
The Reserve Bank of India (RBI) has announced simultaneous purchase and sale of government bonds in a bid to soften long-term yields under its Operation Twist.
Operation Twist
- Operation Twist is a move taken by U.S. Federal Reserve in 2011-12 to make long-term borrowing cheaper.
- It first appeared in 1961 as a way to strengthen the U.S. dollar and stimulate cash flow into the economy.
- It is the name given to a Federal Reserve monetary policy operation that involves the purchase and sale of bonds.
- The operation describes a form of monetary policy where the bank buys and sells short-term and long-term bonds depending on their objective.
Its genesis
- The name “Operation Twist” was given by the mainstream media due to the visual effect that the monetary policy action was expected to have on the shape of the yield curve.
- If we visualize a linear upward sloping yield curve, this monetary action effectively “twists” the ends of the yield curve, hence, the name Operation Twist.
- To put another way, the yield curve twists when short-term yields go up and long-term interest rates drop at the same time.
Back2Basics: Open Market Operations
- Open market operations are the sale and purchase of government securities and treasury bills by RBI or the central bank of the country.
- The objective of OMO is to regulate the money supply in the economy.
- When the RBI wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the system.
- OMO is one of the tools that RBI uses to smoothen the liquidity conditions through the year and minimise its impact on the interest rate and inflation rate levels.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: BSL ratings
Mains level: Not Much
The Defence Research and Development Organisation (DRDO) has developed a mobile virology research lab.
We can expect a prelim question on BSL ratings as the term is widely appearing in news these days.
About the MVRDL
- The MVRDL is the combination of a bio-safety level (BSL)-3 lab and a BSL-2 lab and was set up in a record time of 15 days.
- It can process 1,000-2,000 samples a day.
- The mobile lab will be helpful in carrying out a diagnosis of COVID-19 and in virus-culturing for drug screening, convalescent plasma-derived therapy, comprehensive immune profiling of patients towards vaccine etc.
What are Biosafety Level (BSL) Ratings?
- A BSL is a set of biocontainment precautions required to isolate dangerous biological agents in an enclosed laboratory facility.
- The levels of containment range from the lowest biosafety level 1 (BSL-1) to the highest at level 4 (BSL-4).
- BSL-1 is suitable for work with well-characterized agents which do not cause disease in healthy humans.
- BSL- 2 is suitable for work involving agents of the moderate potential hazard to personnel and the environment.
- BSL-3 is appropriate for work involving microbes which can cause serious and potentially lethal disease via the inhalation route.
- BSL-4 is the highest level of biosafety precautions and is appropriate for work with agents that could easily be aerosol-transmitted within the laboratory and cause severe to fatal disease in humans for which there are no available vaccines or treatments.
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