Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- India is unprepared for dealing with pandemics.
Context
India is unprepared for dealing with the outbreak of coronavirus.
Is India really faring better than the other countries?
- 45 days for first 100,000: Globally, it took roughly 45 days for the first 100,000 cases. It is likely to take nine days for the next 100,000.
- Death count: The global death count is now doubling every nine days and stands at 8,248, with 207,518 confirmed cases.
- That is how epidemics work — they gather steam as infected individuals go on to infect even more people. Confirmed cases in India, as of today stand at 169.
- It is much lower than in small countries such as Iceland (around 250). Could this really be the case that we have fared better than everyone else?
- Probably India is not performing better: Testing in India remains abysmally low. Only about 10 in a million people in India have been tested, compared to say nearly 120 in a million in Thailand or 40 per million in Vietnam.
- Why testing in not being done in India? The stated explanation is that the limited number of test kits are being conserved for when they are truly needed but when is the need greater than right now?
- There are probably shortages even in being able to procure adequate supplies given that many countries are seeking to buy the limited stocks.
- Importance of testing: Testing is the most important thing we could be doing right now.
- As the Director-General of the World Health Organization, said recently about the need for more testing, “You cannot fight a fire blindfolded.”
Avoiding undercounting
- Timely identification is essential to prevent secondary infection: We need to identify coronavirus-infected patients in a timely manner in order to increase our chances of preventing secondary infections.
- There is no shame in saying that we have far more cases than what we have detected so far.
- K.’s admitted undercounting: Even the United Kingdom, which has a far better health system than India, has admitted that it is probably undercounting its true infections by a factor of 12, and is likely have about 10,000 cases.
- Is it possible that India with 20 times their population has only 169 cases?
- Preparedness to deal with a higher number of cases: If widespread testing were to commence in India, the number of confirmed cases would likely climb to the thousands very quickly. This is something we have to be prepared for without panic or fear-mongering.
- Positive action: This is how epidemics move and the real numbers should spur us into positive action.
- Strict measures by the government: At some stage, it is possible that the government may have to put in place very strict measures on quarantining and closures, much like what China had to do to control the epidemic in Wuhan.
How prepared is India?
- There is not an easy answer to how worst things could go.
- Mutation or sensitivity of virus: If we escape the worst, either because this virus mutates to a less virulent form or because there is something about its temperature or geographical sensitivity that we know nothing about, then we should count our blessings.
- Viruses do mutate and generally to be less lethal.
- Projection from Europe: If the projections from Europe are applicable in India, our ‘namastes’ and clean hands notwithstanding, the prevalence in India would be upwards of 20%.
- In other words, we should expect to see about 200-300 million cases of COVID-19 infections and about four and eight million severe cases of the kind that are flooding hospitals in Italy and Spain at the moment.
- More importantly, these cases are projected to appear in just a two to the four-month window.
- In the current scenario, we are not ready.
- India has somewhere between 70,000 and 100,000 intensive care unit beds and probably a smaller number of ventilators.
- That is simply inadequate.
- What should be done? The next two weeks should be spent on planning for large, temporary hospitals that can accommodate such numbers. If we are lucky, we will not need them.
Unprepared for pandemics
- Catastrophic event with highest probability-Pandemic: This all sounds doomsday-like. But we have known for decades now that of all catastrophic events to befall humanity, between an asteroid hit and a nuclear war, a disease pandemic has always been the highest on our list of impact and probability.
- Not enough changes in preparedness: There were some changes after the Severe Acute Respiratory Syndrome (SARS) but not nearly enough.
- Pandemic preparedness always took a backseat to the crisis of the moment.
- And in fairness, there is truly no amount of preparation that can fully mitigate such an occurrence.
Conclusion
Things are about to get a lot worse. Let us hope that this brings out the best in us, and not the worst. Whether we know this or not, these events are just a dress rehearsal for the more challenging events such as climate change that are likely to be with us this century. And if we take care of each other, we will survive both these challenges with our humanity intact.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: AT-1 bonds.
Mains level: Paper 3- Issues involved in banking system and resolution process in case of failures.
Context
Resolving bank failure is tough but following a set of principles could achieve a fair and efficient outcome.
Key issues involved in the resolution
- Challenge in courts: Resolving Yes Bank’s failure is no easy task. Some bondholders are already challenging the restructuring plan of the Reserve Bank of India in court, and seem ready for a long-drawn battle.
- How much dilution is fair for existing shareholders to take?
- AT-1 Bonds issue: Should the value of the Additional Tier 1 (AT-1) bonds be written off entirely?
- As such issues become matters of policy discussion and address, we must not lose sight of some fundamental principles of resolving bank failures.
- Three of them should be on the top of the list: honour contracts, address market failure and protect systemic stability.
How honouring contracts matter for economy?
- For efficient outcomes: Honouring contracts is vital for achieving efficient outcomes between contracting parties such as lenders and borrowers, managers and shareholders, and insiders and outsiders.
- Shying away from entering a contract: If there is uncertainty over this fundamental principle, contracting parties will shy away from entering contracts in the first place.
- Lenders will be less willing to lend.
- Prospective minority shareholders will be less keen to buy shares in a company.
- Impact on allocative efficiency: This will ultimately compromise the economy’s allocative efficiency, or the market’s ability to deploy capital to its best use.
AT-1 bond issue
- Honouring contract in Yes banks resolution: There are several issues in the application of this principle in Yes Bank’s resolution.
- The most visible one concerns the decision of writing off its perpetual contingent, or AT-1, bonds.
- Write off: According to the original agreement, these additional tier-1 (AT-1) bonds are indeed supposed to be written off at a time like this.
- And this write-off need not happen before the common equity value goes down to zero.
- The entire idea behind these perpetual contingent bonds is to improve a bank’s capitalization if its common equity value falls below a certain threshold, but does not hit zero.
- Counter argument: These bondholders and some commentators are arguing that writing off those bonds will be a big blow to India’s bond market.
- Moral hazard problem: This is just the opposite of the truth. Not writing them off in accordance with the original contract will create a severe moral hazard problem.
- What incentive would any bondholder have to correctly price and monitor these banks in the future?
- Market discipline would die a quick death, and the bond market will suffer in the long run.
- What the resolution process should do? Therefore, the resolution process should honour the contract and write off the entire value of Yes Bank’s AT-1 bonds.
Dealing with critical market failures
- Second core principle: The second core principle in this resolution should be to tackle some critical market failures that led here.
- Several observers have pointed out the failure of board oversight, promoter negligence and reckless lending at the bank.
- Vital market failure in the purchase of AT-1 bonds by retail investors: Indeed, these issues must be addressed. But there seems to be another vital market failure hidden in this crisis: the purchase of AT-1 bonds by retail investors.
- Why AT-1 bonds are complex? AT-1 bonds are “information-sensitive” instruments, which means that the value of these instruments is extremely sensitive to information on the firm’s fundamentals.
- Complex financial security: They are very complex financial securities. Understanding the risk and reward associated with these securities and valuing them properly is not an easy task even for the best of market professionals.
- Retail investors are certainly not suited to buy this product. Still, several of them ended up holding Yes Bank AT-1 bonds in their asset portfolios.
- Demand deposits and market failure: Banking theory relies on the idea that demand deposits are information-insensitive instruments.
- Hence, a retail investor can place deposits in a bank without worrying about understanding the real risks borne by it. Government-backed deposit insurance makes deposits even more liquid and riskless.
- Hence, retail investors should hold regular deposits in a bank, and not complex securities like AT-1 bonds.
- Where is the market failure involved? If such bonds are sold to them without proper disclosure of the associated risks, then it amounts to a serious market failure.
- Way forward: This market failure must be corrected.
- Holding investment advisors to higher standards of fiduciary responsibility is one way of doing so.
- Prohibiting retail investors from investing in such securities is another critical step to prevent such a market failure.
Way forward to carry out the resolution process
- Restitution of value to retail investors: Meanwhile, the resolution process could consider partial or full restitution of value to retail investors in Yes Bank’s AT-1 bonds, if these products were indeed mis-sold to them.
- Large professional investors should be treated differently: But such a rescue must not extend to large professional investors who willingly bought these bonds for higher returns.
- One mechanism to do this could be to create a separate fund for retail investors with investments capped at a certain point.
- Or, their AT-1 investments up to a specific limit could be converted into a simple deposit contract. The legal hurdles may be insurmountable.
- However, in principle, those who mis-sold these products to retail investors should be required to compensate them.
- Conflict in two principles: Sometimes, these principles can come into direct conflict with each other.
- If the resolution allows retail investors in those AT-1 bonds to recover their investments, it would go against the “honour the contract” principle, but it would address the “market failure” issue.
- Ensuring systemic stability: How should we reconcile this conflict? That’s where the third principle comes in: ensuring systemic stability.
- After all, the regulator’s main objective is to restore the market’s faith in the country’s financial system.
- While this is not an easy task, protecting the capital and confidence of small investors can go a long way in restoring their faith in the banking system.
Conclusion
Resolving bank distress is never an easy job. But honouring contracts, addressing market failure and ensuring systemic stability can together go a long way in achieving a fair and efficient outcome.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Requirement of cooling off period for accepting the government office post-retirement by the judges to ensure the independence of judiciary.
Context
It has been recently announced that the President has nominated former Chief Justice of India, Ranjan Gogoi, to the Rajya Sabha. However, the time has come for us to ask a difficult question: Should judges stop accepting post-retirement jobs offered by the government, at least for a few years after retiring, because accepting such posts could undermine the independence of the judiciary?
The issue of post-retirement employment of the judges
- Retirement age of judges: Unlike federal judges in the US, judges in India do not hold office for life. They remain in office until they reach the retirement age — 65 for Supreme Court judges and 62 for high court judges.
- Protection against arbitrary removal: These judges do not hold their offices at the “pleasure” of the President. In other words, they cannot be arbitrarily removed by the government once they are appointed, and can only be impeached by a supermajority of both houses of Parliament “on the ground of proved misbehaviour or incapacity”.
- Difficult impeachment process: The impeachment process is a very difficult one and never in the history of independent India has a judge been impeached, though attempts have sometimes been made to do so. Judges, therefore, enjoy security of tenure while holding office, which is essential for maintaining judicial independence.
- How retirement of judges could undermine judicial independence? The retirement of judges threatens to undermine judicial independence.
- This is because some judges — not all — are offered post-retirement employment by the government. It is often feared that a judge who is nearing retirement could decide cases in a manner that pleases the government in order to get a favourable post-retirement position.
Not an unprecedented move
- Former CJI Gogoi is certainly not the first retired judge to be appointed to political office.
- In 1952, Justice Fazl Ali was appointed the Governor of Orissa, shortly after retiring from the Supreme Court.
- In 1958, Chief Justice M C Chagla resigned from the Bombay High Court in order to become India’s Ambassador to the US at Prime Minister Nehru’s invitation.
- In April 1967, Chief Justice Subba Rao resigned from the Supreme Court to contest elections for President.
- In 1983, Justice Baharul Islam resigned from the Supreme Court to contest as a Congress (I) candidate for a Lok Sabha seat, after ruling in favour of Bihar’s Congress (I) chief minister, Jagannath Mishra, in a controversial case where Mishra had been accused of criminal wrongdoing and misuse of office.
- In more recent times, Chief Justice P Sathasivam was appointed the Governor of Kerala. There are many other such examples.
Why restrictions about employment were not included in the Constitution?
- The Constitution provides that a retired Supreme Court judge cannot “plead or act in any court or before any authority within the territory of India”.
- Constituent assembly debate: In the Constituent Assembly, K T Shah, an economist and advocate, suggested that high court and Supreme Court judges should not take up an executive office with the government, “so that no temptation should be available to a judge for greater emoluments, or greater prestige which would in any way affect his independence as a judge”.
- However, this suggestion was rejected by B R Ambedkar because he felt that the “judiciary decides cases in which the government has, if at all, the remotest interest, in fact, no interest at all”.
- Government is the largest litigant in the courts: In Ambedkar’s time, the judiciary was engaged in deciding private disputes and rarely did cases arise between citizens and the government. “Consequently”, said Ambedkar, “the chances of influencing the conduct of a member of the judiciary by the government are very remote”.
- This reasoning no longer holds today because the government is one of the largest litigants in the courts.
Question of independence of the judiciary
- The question of constitutional propriety: In the words of India’s first Attorney General, M C Setalvad, all this raises “a question of constitutional propriety” relating to the independence of the judiciary.
- After all, could the government not use such tactics to reward judges who decide cases in its favour?
- Public perception of compromised judiciary: Further, if a judge decides highly controversial and contested cases in favour of the government and then accepts a post-retirement job, even if there is no actual quid pro quo, would this not lead to the public perception that the independence of the judiciary is compromised?
Law Commission recommendations
- In its 14th report in 1958, the Law Commission noted that retired Supreme Court judges used to engage in two kinds of work after retirement:
- Firstly, “chamber practice” (a term which would, today, mean giving opinions to clients and serving as arbitrators in private disputes).
- Secondly, “employment in important positions under the government”.
- The Law Commission frowned upon chamber practice but did not recommend its abolition.
- Ban on post-retirement government employment: It strongly recommended banning post-retirement government employment for Supreme Court judges because the government was a large litigant in the courts.
- The Commission’s recommendations were never implemented.
Conclusion
It is about time that we start expecting the judges of our constitutional courts to follow CJI Hidayatullah’s excellent example in which he had accepted government job only after the cooling period of several years.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Opportunity for India to assume global leadership in dealing with the COVID-19 pandemic
Context
A leadership role by India in mobilising world collaboration would be in keeping with its traditional activism globally.
Challenges and two aspects associated with it.
- The COVID-19 pandemic has brought out in sharp relief the compelling reality that has been staring us in the face for the past several years.
- This reality has two aspects.
- First aspect: That most challenges confronting the world and likely to confront it in the future are cross-national in character. They respect no national boundaries and are not amenable to national solutions.
- Second aspect: These challenges are cross-domain in nature, with strong feedback loops.
- A disruption in one domain often cascades into parallel disruptions in other domains.
- For example, the use of chemical fertilizers and toxic pesticides may promote food security but have injurious health effects, undermining health security.
- Whether at the domestic or the international level, these inter-domain linkages need to be understood and inform policy interventions. The UN Sustainable Development Goals (SDGs) reflect this awareness.
Rise in nationalism
- Need for multilateral approach: The intersection of cross-national and cross-domain challenges demand multilateral approaches.
- They require empowered international institutions of governance.
- Underlying these must be a spirit of internationalism and solidarity, a sense of belonging to common humanity.
- Moving in the reverse direction-Rise of nationalism: Over the past decade and more, the world has been moving in the reverse direction. There has been an upsurge in narrow nationalism, an assertion of parochial interests over the pursuit of shared interests and a fostering of competition among states rather than embracing collaboration.
- The global challenge of COVID-19: COVID-19 has brought these deepening contradictions into very sharp relief. This is a global challenge which recognises no political boundaries. It is intimately linked to the whole pattern of large-scale and high-density food production and distribution.
- Health crisis turned into economic crisis: It is a health crisis but is also spawning an economic crisis through disrupting global value chains and creating a simultaneous demand shock. It is a classic cross-national and cross-domain challenge.
How countries are dealing with COVID-19 and possible outcomes
- No coordination at the international level: But interventions to deal with the COVID-19 crisis are so far almost entirely at the national level, relying on quarantine and social distancing. There is virtually no coordination at the international level.
- Blame game at the international level: We are also seeing a blame game erupt between China and the United States which does not augur well for international cooperation and leadership.
- The hopeful outcome of international cooperation: While this is the present state of play, the long-term impact could follow alternative pathways.
- One, the more hopeful outcome would be for countries to finally realise that there is no option but to move away from nationalistic urges and embrace the logic of international cooperation through revived and strengthened multilateral institutions and processes.
- The depressing outcome of intense nationalist trends: The other more depressing consequence may be that nationalist trends become more intense, countries begin to build walls around themselves and even existing multilateralism is further weakened.
- Institutions such as the United Nations and the World Health Organization which are already marginalised may become increasingly irrelevant.
- There could be a return to autarkic economic and trade policies and an even deeper and more pervasive anti-globalisation sentiment.
- Depression decade ahead: Unless there is a conscious effort to stem this through a reaffirmation of multilateralism, we are looking at a very depressing decade ahead.
- This is when the world needs leadership and statesmanship, both in short supply.
- Contrast with the financial crisis: This is in contrast to the U.S.-led response to the global financial and economic crisis of 2008 when the G-20 summit was born and a coordinated response prevented catastrophic damage to the global economy.
Leadership role for India
- Is there a role here for India which is a key G-20 country, the world’s fifth-largest economy and with a long tradition of international activism and promotion of rule-based multilateralism?
- In this context, Prime Minister Narendra Modi’s remarks at the recent Economic Times Global Business Summit are to be welcomed.
- While speaking of the COVID-19 crisis, he said, “Like today, the world is facing a huge challenge in the form of Corona Virus. Financial institutions have also considered it a big challenge for the financial world. Today, we all have to face this challenge together. We have to be victorious with the power of our resolution of ‘Collaborate to Create’.”
- He went on to observe that while the world today is “inter-connected, inter-related and also interdependent”, it has “not been able to come on a single platform or frame a Global Agenda, a global goal of how to overcome world poverty, how to end terrorism, how to handle Climate Change issues.”
- From “Equal distance” to friendship with all: Modi lauded government’s policy of seeking friendship with all countries as contrasted from the earlier policy of non-alignment. He seemed to suggest that non-alignment was a defensive policy which advocated “equal distance from every country”.
- Now, he claimed, India was still “neutral” — presumably meaning non-alignment — “but not on the basis of distance but on the basis of friendship”.
- He cited India’s friendship with Iran and Saudi Arabia, and with the U.S. as well as Russia.
India’s foreign policy
- Non-alignment: Mr Modi may wish to distinguish his foreign policy from that of his predecessors, but what he describes as its “essence” is hardly distinguishable from the basic principles of Indian foreign policy since Nehru.
- Non-alignment was not defensive: India’s non-alignment was anything but defensive. The international peace-keeping contribution that the Prime Minister referred to has its origins in Nehru’s sense of international responsibility.
- Friendship with all: India has always professed its desire to have friendly relations with all countries but has been equally firm in safeguarding its interests when these are threatened.
- Mutually beneficial partnership: India’s non-alignment did not prevent it from forging strong and mutually beneficial partnerships with major countries.
- The India-Soviet partnership from 1960-1990 is an example just as the current strategic partnership with the U.S. is.
- Foreign policy rooted in a civilisational sense: The foreign policy of his predecessors had been rooted in India’s civilisational sense, its evolving place in the international system and its own changing capabilities.
- Their seminal contributions should be acknowledged and built upon rather than proclaim a significant departure.
Move in line with traditional foreign policy
- The Prime Minister’s plea for global collaboration to deal with a densely interconnected world is in line with India’s traditional foreign policy.
- Move in keeping with traditional activism on a global scale: A leadership role in mobilising global collaboration, more specifically in fighting COVID-19 would be in keeping with India’s traditional activism on the international stage.
- Commendable SAARC move: The Prime Minister has shown commendable initiative in convening leaders of the South Asian Association for Regional Cooperation nations for a regional collaborative effort on COVID-19.
- International initiative: This should be followed by an international initiative, either through the G-20 or through the U.N.
Way forward
- Reformed and Strengthened U.N. should be India’s agenda: The Prime Minister made no reference to the role of the U.N., the premier multilateral institution, as a global platform for collaborative initiatives. There may have been irritation over remarks by the UN Secretary-General on India’s domestic affairs and the activism displayed by the UN Commissioner for Human Rights on the Citizenship (Amendment) Act controversy.
- The U.N. Secretary General’s statement on India’s domestic affairs and activism by UN Secretary-General on India’s domestic affairs should not influence India’s long-standing commitment to the U.N. as the only truly inclusive global platform enjoying international legitimacy despite its failings.
- If one has to look for a “single platform” where a Global Voice could be created, as the Prime Minister suggested, surely a reformed and strengthened U.N. should be on India’s agenda.
- Opportunity for India in the pandemic: The COVID-19 pandemic presents India with an opportunity to revive multilateralism, become a strong and credible champion of internationalism and assume a leadership role in a world that is adrift. The inspiration for this should come from reaffirming the wellsprings of India’s foreign policy since its Independence rather than seeking to break free.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Decline in women's work participation rate and possible causes of it.
Context
India is one of the few countries in the world where women’s work participation rates have fallen sharply — from 29 per cent in 2004-5 to 22 per cent in 2011-12 and to 17 per cent in 2017-18.
What could be the possible explanations for the decline?
- No consensus among economists: Trying to explain whether women are choosing to focus on domestic responsibilities or whether they are pushed out of the workforce has become a minor industry among economists.
- Can the quality of data be the explanation? Strangely, the one explanation we have not looked at is whether the declining quality of economic statistics may account for this trend.
- Our pride in the statistical system built by PC Mahalanobis is so great that we find it unimaginable that it could fail to provide us with reliable employment data.
- However, as challenges to economic statistics have begun to emerge in such diverse areas as GDP data and consumption expenditure, perhaps it is time to consider the unimaginable.
- Issue of data collection: Is the decline in women’s labour force participation real or is it a function of the way in which employment data are collected?
Anatomy of the decline in participation rates
- Driven by rural women: The anatomy of the decline in women’s work participation rates shows that it is driven by rural women.
- Data of the prime working-age group: In the prime working-age group (25-59)-
- Urban area data: Urban women’s worker to population ratios (WPR) fell from 28 per cent to 25 per cent between 2004-5 and 2011-12, stagnating at 24 per cent in 2017-18.
- Rural area data: However, compared to these modest changes, rural women’s WPR declined sharply from 58 per cent to 48 per cent and to 32 per cent over the same period.
- Among rural women, the largest decline seems to have taken place in women categorised as unpaid family helpers — from 28 per cent in 2004-5 to 12 per cent in 2017-18.
- This alone accounts for more than half of the decline in women’s WPR. The remaining is largely due to a drop of about 9 percentage points in casual labour.
- In contrast, women counted as focusing solely on domestic duties increased from 21 per cent to 45 per cent.
What are the explanations for this massive change?
- Data collection issue: It is the change in our statistical systems that drives these results.
- Change of workforce collecting data: The questionnaires through which the National Statistical Office (NSO) collects employment data have not changed, but the statistical workforce has, and the surveys that performed reasonably well in the hands of seasoned interviewers are too complex for poorly trained contract data collectors.
- How data is collected? The National Sample Surveys (NSS) do not have a script that the interviewer reads out. They have schedules that must be completed. The interviewer is trained in concepts to be investigated and then left to fill the schedules to the best of his or her ability.
- The NSS increasingly relies on contract investigators hired for short periods, who lack
- Need for redesigning the surveys: Do we need to return to the days of permanent employees or can we design our surveys to overcome errors committed by relatively inexperienced interviewers?
- A survey design experiment led by Neerad Deshmukh at the NCAER-National Data Innovation Centre provides an intriguing solution.
- In this experimental survey, interviewers first asked about the primary and secondary activity status of each household member, mimicking the NSS structure.
- They then asked a series of simple questions that included ones like, “do you cultivate any land?” If yes, “who in your household works on the farm?”
- Similar questions were asked about livestock ownership and about people caring for the livestock, ownership of petty business and individuals working in these enterprises.
- What was the result of survey experiment: The results show that the standard NSS-type questions resulted in a WPR of 28 per cent for rural women in the age group 21-59, whereas the detailed activity listing found a WPR of 42 per cent — for the same women.
- This is an easily implementable module that does not require specialised knowledge on the part of the interviewer.
Identifying the sectors from which women are excludes
- Missing the identification of sector: In our concern with ostensibly declining women’s work participation, we have missed out on identifying sectors from which women are excluded and more importantly, in which women are included.
- What data for men indicate? For rural men, ages 25-59, between 2004-5 and 2017-18, casual labour declined by about 6 percentage points.
- However, this decline is counterbalanced by regular salaried work which increased by 4 percentage points.
- Thus, it seems likely that men are exchanging precarious employment with higher-quality jobs.
- What data for women indicate? In contrast, women’s casual work has declined by 9 percentage points while their regular salaried work increased by a mere 1 percentage point.
- Moreover, the usual route to success, gaining formal education, has little impact on women’s ability to obtain paid work.
- The explanation for the disparity: Rural men with a secondary level of education have options like working as a postman, driver or mechanic — few such opportunities are open to women.
- It is not surprising that women with secondary education have only half the work participation rate compared to their uneducated sisters.
- Takeaway: The focus on employment for women needs to be on creating high-quality employment rather than getting preoccupied with declining employment rates.
Conclusion
It may be time for us to return to the recommendations of ‘Shramshakti: Report of National Commission on Self Employed Women and Women in the Informal Sector’ and develop our data collection processes from the lived experiences of women and count women’s work rather than women workers. Without this, we run the risks of developing misguided policy responses.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Growing difficulties for Iran amid sanctions and cooperation with China and Pakistan, and implications for India.
Context
The coronavirus pandemic creates fresh possibilities for cooperation between the West Asian nation and its neighbours.
Challenges faced by Iran
- Hardest hit by COVID-19 among the West Asian countries: Iran, the hardest-hit among the West Asian countries in the global pandemic, is on the front line of the battle against the coronavirus that causes the causes coronavirus disease, COVID-19.
- Healthcare reeling under combined load: With nearly 900 deaths and over 14,000 cases of infection, its health-care system is reeling under the combined effect of the pandemic and American sanctions.
- Possibility of social unrest resurfacing: The masses thronging the streets some weeks ago may have receded out of fear of both the coronavirus and the wrath of the regime, but there is a possibility of social unrest resurfacing if the government’s response to the spread of the virus is ineffective and shortages are exacerbated.
- Emergency funding from IMF: Iran has already approached the International Monetary Fund for $5-billion in emergency funding to combat the pandemic.
- Easing of some sanctions by the US: The U.S. Treasury had announced in end-February that it was lifting some sanctions on the Central Bank of Iran to facilitate humanitarian trade such as the import of testing kits for COVID-19. Clearly, Iran thinks this is inadequate.
Iran’s nuclear policy
- Iran to resumed nuclear activities: Following the U.S.’s decision to jettison the deal, Iran had announced that it would resume its nuclear activities but had agreed to respect the International Atomic Energy Agency (IAEA) inspections and enhanced monitoring as part of its obligations under the additional protocol.
- What were the conditions of JCPOA? The JCPOA limited Iran to enrich uranium only up to a 3.67% concentration and its stockpile to 300 kg of UF6 (corresponding to 202.8 kg of U-235), and further capped its centrifuges to no more than 5,060, besides a complete cessation of enrichment at the underground Fordow facility.
- It also limited Iran’s heavy water stockpile to 130 tonnes.
- Restriction on enrichment lifted by Iran: Since July 2019, Iran has lifted all restrictions on its stockpiles of enriched uranium and heavy water.
- It has been enriching uranium to 4.5%, beyond the limit of 3.67%.
- Moreover, it has removed all caps on centrifuges and recommenced enrichment at the Fordow facility.
- An increased stockpile of Uranium: As of February 19, Iran’s enriched uranium stockpile totalled 1,020.9 kg, compared to 372.3 kg noted in the IAEA’s report of November 3.
- IAEA’s second report: In a second report issued on March 3, the IAEA has identified three sites in Iran where the country possibly stored undeclared nuclear material or was conducting nuclear-related activities.
- The IAEA has sought access to the suspect sites and has also sent questionnaires to Iran but has received no response.
- Possibility of being on the collision course with the UNSC: The United Kingdom, France and Germany had invoked the JCPOA Dispute Resolution Mechanism (DRM) as early as in January this year.
- The threat to abandon the NPT: With the next Review Conference of the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) set to take place in New York from April 27 to May 22, 2020, Iran’s threat to abandon the NPT if the European Union takes the matter to the UN Security Council (UNSC) may yet only be bluster, but the failure of the DRM process would certainly put Iran on a collision course with the UNSC.
- Support from China at UNSC: A sympathetic China, which holds the rotational presidency of the UNSC for March, should diminish that prospect, albeit only temporarily.
- Possibility of reversing the sanctions: As things stand, the terms of UNSC Resolution 2231, which had removed UN sanctions against Iran in the wake of the JCPOA, are reversible and the sanctions can be easily restored.
- That eventuality would prove disastrous, compounding Iran’s current woes.
- Possibility of Iran continuing its nuclear program: While recognising that cocking a snook at the NPT in the run-up to the NPT RevCon and the U.S. presidential elections will invite retribution, Iran may use the global preoccupation with the pandemic to seek a whittling down of sanctions and to continue its nuclear programme.
- More breathing time amid due to pandemic: In the event that the NPT RevCon is postponed due to the prevailing uncertainty, Iran may yet secure some more breathing time.
Iran’s ties with China and implications for India
- China- only major country to defy the US sanctions: Meanwhile, the U.S. continues to implement its “maximum pressure policy”. China remains the only major country that continues to defy U.S. sanctions and buy oil from Iran, apart from a small quantum that goes to Syria.
- The sale of oil to China, however, does little to replenish Iran’s coffers. China is eschewing payments in order to avoid triggering more sanctions against Chinese entities.
- Trilateral naval exercise: When seen in the context of the trilateral naval exercise between China, Iran and Russia in the Strait of Hormuz in the end of December 2019 codenamed “Marine Security Belt”, these developments suggest a further consolidation of Sino-Iran ties in a region of great importance to India.
- Inclusion of Pakistan in the exercise: Over time, this could expand into a “Quad” involving China’s “all-weather friend” Pakistan in the Indian Ocean and the northern Arabian Sea, with broader implications for India as well as the “Free and Open” Indo-Pacific.
Conclusion
- Iran’s foreign policy to remain unchanged: The first round of Iran’s parliamentary elections in February showed that the hardliners are firmly ensconced. The fundamental underpinnings of Iran’s foreign policy are likely to remain unchanged.
- Possibility of cooperation among neighbours: Yet, the rapid spread of the coronavirus in the region creates fresh possibilities for cooperation between Iran and its neighbours, if regional tensions are relegated to the back-burner.
- Laudable example by India: Prime Minister Narendra Modi’s initiative to develop a coordinated response to the pandemic in the South Asian Association for Regional Cooperation framework, indeed, sets a laudable example.
- Much depends on Iran’s willingness: Much though will depend on Iran’s willingness to rein in its regional ambitions and desist from interference in the domestic affairs of others.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Need to revive the SAARC to deal with the COVID-19 outbreak
Context
SAARC has become the ‘virtual’ platform through which leaders of the eight countries of our troubled region agreed to work together to combat unarguably the greatest immediate threat to the people: the COVID-19 health pandemic.
Success depends on India
- The success of the Modi-SAARC initiative will largely depend on India—the dominant power of the region, in every sense.
- Pakistan’s position may become marginal: Once New Delhi demonstrates that it has the capacity, the political willingness to institutionalise and to lead a mutually beneficial cooperative regime in the region, Pakistan’s “churlish” behaviour will become marginal to SAARC.
- Various international relations theorists view this as a function of “hegemonic stability”.
- Much needs to be done: Much more will need to be done by New Delhi to establish that the video conference was not a mere event, but the assertive expression of its new willingness to stabilise the region through cooperative mechanisms, for our common future.
- Rare opportunity: This is a moment thus of a rare opportunity for India to establish its firm imprimatur over the region, and to secure an abiding partnership for our shared destiny.
The genesis of SAARC
- SAARC was born at a moment of hope in the 1980s.
- An initiative by Zia Ur Rehman: The idea was initiated by one of the most inscrutable leaders of the region, General Zia Ur Rehman of Bangladesh, who, met many of the other leaders personally and dispatched special envoys to the capitals of the countries of the region.
- Dhaka’s persistence resulted in the first summit of the seven leaders of the region in 1985.
- Afghanistan joined in 2007.
- Not lived up to expectation: In the nearly 35 years of its existence, even its champions will concede however that SAARC has, to put it euphemistically, not lived up to the promise of its founder.
How the SAARC has performed?
- The dismal performance in the trade: South Asia is the world’s least integrated region; less than 5% of the trade of SAARC countries is within. A South Asian Free Trade Zone agreed on, in 2006, remains, in reality, a chimera.
- Moribund state: The last SAARC summit, scheduled to be held in Islamabad in November 2016, was postponed after the terrorist attacks in Uri; none has been held since then, and until Mr. Modi’s initiative, no major meeting had been planned.
- Marginal in our collective consciousness: A quick look at some of the questions posed in the Lok Sabha and Rajya Sabha on SAARC, in the last years, suggest that Indian MPs seek answers on why India is still a member of SAARC and on the strength of other organisations such as the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) that India is engaged with.
- Thus SAARC had become almost marginal to our collective consciousness.
The fadeout and revival of SAARC
- India-Pakistan tension: Clearly, most of the smaller states and external players believe that the India-Pakistan conflict has undermined SAARC.
- How Pakistan derails the initiatives? Bilateral issues cannot be discussed in SAARC but since the organisation relies on the principle of unanimity for all major decisions, Pakistan has often undermined even the most laudable initiative lest it gives India an advantage.
- Relative gains by India are more important for Pakistan than the absolute gains it secures for itself.
- Pakistan’s use of terror: For India, Pakistan’s use of terror as an instrument of foreign policy has made normal business impossible.
- Need of the revival to deal with the COVID-19: There is no doubt that the impact of COVID-19 will be unprecedented, in terms of those it targets and the way we live. It is too early to judge the consequences , but it will take years for the world to return to the old and familiar.
- Strategies to cope with this new insidious, scheming and diabolic strain of the coronavirus have to be dynamic and ad hoc.
- Two principles to deal with the epidemic: Containment and the possible prevention of community transmission are the only two principles that are firmly tested.
- If community transmission occurs and cannot be contained, the consequences will be calamitous.
- Time to act together: This is indeed a time for SAARC and the experts of the region to think and act together and India can lead this effort.
Conclusion
It is evident that Mr Modi is an out-of-the-box lateral thinker, especially on foreign policy. More importantly, the tragedy of COVID-19 may provide an opportunity for India to demonstrate its compassionate face to secure a region at peace with itself. India cannot afford to not to harvest this opportunity, after having sowed the seeds of a New South Asia.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Role of agri-growth in inclusive growth and reforms in PDS.
Context
Last month, Montek Singh Ahluwalia’s book, Backstage: The Story Behind India’s High Growth Years, was released. Which tilt in favour of consumer in food policy reduces incentives for farmers, makes it difficult to unlock resources for growth.
What is covered in the book
- Besides some very interesting episodes pertaining to author’s personal and professional life, the book is full of useful insights into policy debates and their complexities.
- At many places, it provides evidence of the impact of these policies.
- This can be extremely useful as we try to rejuvenate the country’s sluggish economy and abolish poverty.
Inclusive growth and agriculture
- Growth in agriculture must for inclusive growth: During the UPA period, from 2004-05 to 2013-14, it was believed that inclusive growth is not feasible unless agriculture grows at about 4 per cent per year while the overall economy grows at about 8 per cent annually.
- The reason was simple: More than half of the working force at that time was engaged in agriculture and much of their income was derived from agriculture.
- But many political heavyweights, did not believe that agri-growth could reduce poverty fast enough.
- Main instrument of agricultural strategy: The main instrument of agricultural strategy was the Rashtriya Krishi Vikas Yojana (RKVY), which gave more leverage to states to allocate resources within agriculture-related schemes.
What was the impact of strategy?
- Agri-growth increased: The agricultural strategy, along with other infrastructure investments in rural areas, had a beneficial impact on agri-growth.
- Agri-growth increased from 2.9 per cent during the Vajpayee period (1998-99 to 2003-04) to 3.1 per cent during the UPA-1 period (2004-05 to 2008-09) and further to 4.3 per cent during UPA-2 (2009-10 to 2013-14).
- The agri-GDP growth during UPA-2 was driven not as much by RKVY as it was by high agri-prices in the wake of the global economic crisis of 2007-08.
- Impact on poverty reduction: Agri-GDP growth had a significant impact on poverty reduction, whichever way it was measured — the Lakdawala poverty line or Tendulkar poverty line, which is higher.
- At what rate poverty reduced? The rate of decline in poverty (headcount ratio), about 0.8 per cent per year during 1993-94 to 2004-05, accelerated to 2.1 per cent per year, and for the first time, the absolute number of the poor declined by a whopping 138 million during 2004-05 to 2013-14.
- Interestingly, this holds even on the basis of the international poverty line of $1.9 per capita per day (on 2011 purchasing power parity, PPP, also see graphs).
Right to food and debate around it
- Scepticism over the success of agriculture support to food subsidy: Instead of celebrating this success of the growth strategy in alleviation of poverty, several NGOs and even Congress stalwarts remained sceptical.
- They advocated food subsidy under the Right to Food Campaign.
- National Advisory Council (NAC) came up with a proposal to subsidise 90 per cent of people by giving them rice and wheat at Rs 3/kg and Rs 2/kg.
What were the arguments put forward by Montek Singh Ahluwalia?
- Burden on exchequer: He tried to convince them that this was likely to create an unsustainable burden on the exchequer.
- India could end up importing food: He also argued that India could end up importing grains to the tune of 13-15 million tonnes per year.
- Cap the population coverage at 40%: He favoured a cap at 40 per cent of the population to be covered under the Food Security Act as the poverty ratio (HCR) in 2011-12 was 22 per cent.
- Smart card to beneficiaries: He also favoured providing smart cards to the beneficiaries so that they could opt for buying more nutritious food rather than just relying on rice and wheat.
- Chance for diversification of agriculture: Smart card with beneficiaries would have also allowed diversification of agriculture and augmented farmers’ incomes.
- But he could not win over the NAC — although the coverage for food subsidy was reduced from the original proposal of 90 per cent to 67 per cent of the population.
- Against the ban on agri. export: Montek also argued against export bans on agricultural commodities as these impacted farmers’ incomes adversely.
- Government siding with consumers: But the government of the day often ended up taking the consumer’s side, as that was considered pro-poor.
- This reduced the incentives for farmers, who then had to be compensated by increasing input subsidies.
What are the result of this strategy adopted by the government?
- Negative PSE: No wonder, years later, when we estimated the producer support estimates (PSEs), as per the OECD methodology — used by countries that produce more than 70 per cent of the global agri-output — we found a deeply negative PSE.
- What negative PSE indicates? This indicates implicit taxation of agriculture through trade and marketing policies, even when one has accounted for large input subsidies going to farmers (see graph on PSE).
- Consumer bias in the system: Today, the food subsidy is the biggest item in the Union budget’s agri-food space. In the current budget, it is provisioned at Rs 1,15,570 crore.
- Borrowing by FCI not factored in: But this factor hides more than it reveals. Lately, the government has been asking the Food Corporation of India (FCI) to borrow from myriad sources, and not fully funding the food subsidy, which should logically be a budgetary item.
- The outstanding dues of the FCI are more than the provisioned subsidy, and if one adds these dues to the budgeted food subsidy, the effective amount of food subsidy comes to Rs 3,57,688 crore.
- This displays the consumer bias in the system.
Conclusion
- Restrict the population coverage of food subsidy: The Economic Survey of 2019-20 makes a case for restricting food subsidy to 20 per cent of the population — the headcount poverty in 2015 as per the World Bank’s $1.9/per capita per day (PPP) definition was only 13.4 per cent.
- For the others, the issue prices of rice and wheat need to be linked to at least 50 per cent of the procurement price or, even better, 50 per cent of the FCI’s economic cost.
- Unless we make progress on this front, it is difficult to unlock resources for the growth of agriculture, which slumped from 4.3 per cent during UPA-2 to 3.1 per cent during Modi 1.0.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Strategies to deal with the COVID-19 pandemic.
Context
Currently, India has entered Stage 2 of the COVID 19 epidemic, but can we do something urgently to halt it before Stages 3 and 4, and prevent it from becoming another China or Italy? Let’s look at what COVID 19 is doing globally and what it has already done in India.
Nature and characteristics of COVID-19
- It belongs to a simple family of cold viruses: Coronavirus 19, which emerged from China but has now spread globally, belongs to a simple family of common cold viruses which look innocent and harmless, unlike the sinister flu.
- Footprints of similar epidemics: It has footprints of two similar epidemics: SARS (2002) and MERS (2012) apart from Ebola, which were contained well globally in the last two decades.
- They are the group of viruses: Coronaviruses are large groups of viruses seen in humans as well as animals like camels, bats, cats, and even cattle, which India should take note of.
- The current COVID 19 appears to be a bat-originated beta variant of the coronavirus.
- Who is the most vulnerable? The human COVID disease is fatal predominantly in elderly or vulnerable groups, such as people with a chronic disease like hypertension, diabetes, cancer or people with suppressed immune systems.
- How it is spread? It is spread via airborne droplets (sneeze or cough) or contact with the surface. It is possible that a person can get COVID-19 by touching a surface or an object that has the virus on it and then touching their own nose, eyes or mouth.
Susceptibility and the measures needed to contain the spread
- Mode of spread: The way virus spreads creates vulnerability and susceptibility of the spread of the virus through airborne droplets and contact surfaces — which are now, therefore, targets of public hygiene for preventing the spread.
- Why India is more vulnerable? We are vulnerable due to the large population constantly travelling and working: This needs immediate containment to halt the virus spread. We are a ticking time bomb now with less than 30 days to explode in Stage 3, which will be the virus getting deeper into communities, and which will then be impossible to contain.
- Poor public hygiene in India: Public hygiene in India is poor despite the “Swachh Bharat (Clean India)” movements. We need to have legislation with a penalty to stop spitting in public as well as private spaces.
- Past performance: India has done very well to contain both SARS and the novel Nipah viral spread very well.
Should India shut down the cities?
- From China to global spread: The COVID 19 virus possibly came from the Wuhan epicentre of central China. Subsequent it assumed a large enough proportion to be called a pandemic. It rapidly transitioned across different geographies of the world including Korea, Japan, Iran, Italy and others for the WHO to declare it as a pandemic.
- Neighbouring countries shutting down the cities: neighbouring countries like Thailand and Singapore shut down their major cities and towns for a few weeks to stop it from moving onto the next stages.
- Should India shut down the cities? The big question today is, should the Indian government and the state governments stop the virus spread from Stage 2 to 3 by totally shutting down cities and towns when the economy is already fragile and on the brink?
- From cluster to community spread: India had its first case diagnosed on January 30, from a student who returned from China. Later, it had a very slow spread despite the global transit involved. Such individual cases will become small clusters.
- These clusters will then spread to communities.
- We must halt the community-wide spread: Currently, we have just moved from case to clusters, but we must halt the community-wide spread.
- Biphasic or dual-phase infection: COVID 19 usually follows what is known as a biphasic or dual-phase infection, which means the virus persists and causes a different set of symptoms than observed in the initial bout.
- Also, sometimes, the recovered person can relapse.
- The possibility of “super spreader”: Currently, the cases and clusters in India are simple spreaders which means an infected person with normal infectivity.
- What is it? But COVID 19 can also have a “super spreader”, which means an infected person with high infectivity who can infect hundreds in no time.
- This was reportedly seen in Wuhan where a fringe group spread the virus via a place of worship in Korea, infecting almost 51 cases.
- India saw a mini spurt of cases on March 4, and then again between March 10 and 13, when cases jumped from 23 to 35, yet no super spreader was present.
- We need to halt transition from stage 2 to stage 3: Now we have almost crossed a hundred cases and we must be vigilant.
- As we enter Stage 2, we will now see a geometric jump in the number of cases which will put us at risk of rapidly transitioning from Stage 2 to 3 like Italy, which we need to halt urgently.
Conclusion
The ICMR has rightly advised the government to go into partial shutdown but is it too little too late now? It’s time to halt COVID 19 by smartly locking the country at home so that we can have a better tomorrow. This needs a political will which we currently have.
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Note4Students
From UPSC perspective, the following things are important :
Mains level: Paper2- India has shown that it has political will, technical capacity and financial resource to control the infectious diseases it need to marshal these resou.rce to eradicate TB
Context
India needs to take TB at the same level of seriousness at which it is dealing with the Covid-19.
Contrast and between the response
- Tuberculosis in India: Indians will still have to contend with other deadly respiratory tract infections which spread via airborne transmission. We will still have to contend with one particular bug which kills millions of us and which has been around for millennia. Tuberculosis.
- But all comparisons between COVID-19 and TB end with the superficial observation that they are both deadly respiratory tract infections.
- Speedy tackling of COVID-19: COVID-19 began its march through humankind barely half a year ago and, in record time, scientists have identified the virus and hundreds of millions of dollars have been allocated to controlling its spread, developing vaccines (at last count, more than a dozen candidates) and testing medication regimens for those infected.
- Waning of the epidemic: While the virus has spread to over 100 countries, the epidemic already shows signs of waning in the Asian countries where it hit first and hardest.
Response to the TB
- How long has the TB infected us? On the other hand, TB is as old as humanity itself, infecting us for at least 5,000 years.
- The infecting agent, a bacterium, was identified way back in 1882, by Robert Koch, signalling one of the landmark discoveries which laid the foundation of modern medicine.
- How was the response to TB? The subsequent response to this disease, which was infamously called the White Plague and was a leading cause of death globally at the start of the 20th century, is similar to what we see today for COVID-19, but played out over decades rather than months.
- Measures taken: TB was made a notifiable disease, campaigns were launched to prohibit spitting and containment policies, including sequestering infected persons, were implemented.
- The first vaccine was produced over a hundred years ago, and the first curative treatments available by the 1950s.
- Divide between rich and poor in TB infections: TB was largely beaten in the rich world, not only because of these medical miracles but also thanks to the dramatic reduction in poverty and improvement in living standards.
- There is compelling evidence that addressing these social determinants was even more impactful than medical interventions in the war against TB.
- The disease of squalor: TB has always been, and this is even more true now than ever before, a disease of poverty and squalor. And no country is more affected than India.
- Every TB statistic is grim:
- We are home to 1 in 4 of the world’s TB patients.
- Over 2.5 million Indians are infected.
- In 2018, over 4,00,000 Indians died of the disease.
- To put this in stark perspective, more people died of TB in India last week than the entire global death toll of COVID-19 to date.
- Contrast with the response to COVID-19: Given our urgent, energetic and multifaceted response to the latter Covid-19, one is left wondering why we have failed so miserably for another bug, particularly one which has been around for so long, which has been exquisitely studied and characterised, which is preventable and treatable, and which most of the world has conquered.
Why TB has not been given such attention?
- It is because those who suffer from TB are not likely to be boarding international flights or passing through swanky airports to attend conferences.
- It is because TB infects people in slower tides, slow enough for industries to replace the sick with healthier recruits without endangering the bottom line.
- It is because TB does not threaten the turbines that keep the global economy throbbing.
- It is because TB no longer poses a threat to rich and powerful countries.
- It is because those who have TB live on the margins and have little political influence.
- It is because TB control requires society to address the squalid environments, which shroud the daily lives of hundreds of millions of Indians.
- It is because TB is a medieval scourge that reminds us of our shameful failure to realise a just, humane and dignified life for all our people.
Conclusion
If there is one lesson from COVID-19, it is that India, and the global community, has the political will, technical capacity and financial resources to act in a committed and concerted way to control infectious diseases. It needs to marshal these assets to eradicate TB, the most pernicious and pervasive infection of all, both through addressing its social determinants and scaling up effective biomedical interventions. But, for this to happen, we will have to be as concerned about the health needs of those who travel by foot and bicycle as we do for those who board cruise ships and international flights.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3-How IBC has fared so far?
Context
The IBC has started emerging stronger as it delivered on its promise, passed the constitutional muster, earned global recognition and became the preferred option for stakeholders in case of default.
Demystifying the myths surrounding IBC
Myths about recovery:
Most of the myths surround recovery. Consider the following example for quick appreciation.
- M/s. Synergies Dooray was the first company to be resolved under the IBC. It was with the Board of Industrial and Financial Reconstruction (BIFR) for over a decade.
- The realisable value of its assets was Rs 9 crore when it entered the IBC process. It, however, owed Rs 900 crore to the creditors.
- How much did IBC recover? The resolution plan yielded Rs 54 crore for them.
- Some condemned IBC because the resolution plan yielded a meagre 6 per cent of the claims of the creditors, disregarding the fact that they recovered 600 per cent of the realisable value of the company, which had been in the sick bed for over a decade.
- If the company was liquidated, assuming no transaction costs, the creditors would have got at best Rs 9 crore — 1 per cent of their claims.
The myth that recovery under IBC is dismal
- Let’s examine the myth that the recovery through resolution plans is dismal.
- Two hundred companies had been rescued till December 2019 through resolution plans.
- They owed Rs 4 lakh crore to creditors. However, the realisable value of the assets available with them, when they entered the IBC process, was only Rs 0.8 lakh crore.
- The IBC maximises the value of the existing assets, not of the assets which do not exist. Under the IBC, the creditors recovered Rs 1.6 lakh crore, about 200 per cent of the realisable value of these companies.
- Why creditors had to take a haircut? Despite the recovery of 200 per cent of the realisable value, the financial creditors had to take a haircut of 57 per cent as compared to their claims. This only reflects the extent of value erosion that had taken place when the companies entered the IBC process.
- What is the conclusion? As compared to other options, banks are recovering much better through IBC, as per RBI data.
The myth that IBC is sending companies for liquidation:
-
- What is the primary objective of IBC: Recovery is incidental under the IBC. Its primary objective is rescuing companies in distress.
- More number of companies sent for liquidation: There is a myth that although the IBC process has rescued 200 companies, it has sent 800 companies for liquidation. The number of companies getting into liquidation is thus four times that of the companies being rescued.
- The context for the numbers: Numbers, however, to be seen in context. The companies rescued had assets valued at Rs 0.8 lakh crore, while the companies referred for liquidation had assets valued at Rs 0.2 lakh crore when they entered the IBC process.
- Looking from the value term angle: In value terms, assets that have been rescued are four times those sent for liquidation. It is important to note that of the companies rescued, one-third were either defunct or under BIFR, and of the companies sent for liquidation, three-fourths were either defunct or under BIFR.
The myth that IBC is resulting in huge job losses
- The next myth is that the IBC is resulting in huge job losses through liquidation. It is misconstrued that 600 companies — for which data are available and which have proceeded for liquidation — have assets (and consequently employment) at least equal to the aggregate claim of the creditors — Rs 4.6 lakh crore.
- Unfortunately, they have assets on the ground valued only at Rs 0.2 lakh crore.
- Take the examples of Minerals Limited and Orchid Healthcare Private Limited, which have been completely liquidated. They owed Rs 8,163 crore, while they had absolutely no assets and employment.
- What matters in this context is the assets a company has or the employment it provides — not how much it owes to creditors.
- The IBC process would release the idle or under-utilised assets valued at Rs 0.2 lakh crore, which would have dissipated with time, for business and employment.
- One also needs to consider the jobs saved through the rescue of 80 per cent of the distressed assets, and the job being created by these companies, post-rescue.
What changes IBC has brought?
- Changed the behaviour of debtors: A distressed asset has a life cycle. Its value declines with time if the distress is not addressed.
- The credible threat of the IBC process, that a company may change hands, has changed the behaviour of debtors.
- Debtors are settling debt at an early stage: Thousands of debtors are settling defaults at the early stages of the life cycle of a distressed asset.
- They are settling when the default is imminent, on receipt of a notice for repayment but before filing an application, after filing the application but before its admission, and even after admission of the application.
- These stages are akin to preventive care, primary care, secondary care, and tertiary care with respect to sickness. Only a few companies, who fail to address the distress in any of these stages, reach the liquidation stage.
- Value erosion at the liquidation stage: The value of the company is substantially eroded, and hence some of them would be rescued, while others are liquidated.
- The recovery may be low at this stage, but in the early stages of distress, it is much higher — primarily because of the IBC.
- The percentage of companies or distressed assets getting into liquidation is insignificant.
- Stakeholders should increasingly address the distress in the early stages and the best use of the IBC would be not using it all.
Conclusion
Stakeholders who understand business and have the backing of sophisticated professionals are using IBC with open eyes after evaluating all options. There is no reason to doubt their commercial wisdom. The 25,000 applications filed so far under IBC indicate the value and trust that stakeholders place on the law — the ultimate test of its efficacy.
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Note4Students
From UPSC perspective, the following things are important :
Mains level: Paper 3- Performance of agriculture sector, is the worst over for it?
Context
Estimates of gross domestic product (GDP) released on 28 February confirmed that India’s economy is decelerating. The silver lining was growth in agriculture, which accelerated for the third quarter in a row to 3.5%.
How agriculture sector has performed in the last few years?
- Robust growth in the last 5 years: A look at the national accounts for a longer period shows robust agricultural growth during the first five years.
- With agriculture growing at 3.17% per annum between 2013-14 and 2019-20.
- This is remarkable, given that the broader economy is witnessing a slowdown.
- Rural economy seen from the other indicators: A variety of other indicators show that the rural economy has been going through possibly its worst phase, with declining wage growth and farmer incomes causing serious distress.
Crop sector growth rate at lowest
- A clue to this disconnect between the national accounts and other indicators lies in a breakdown of the national accounts.
- Crop sector growing at lowest in two decades: The GDP data for the agricultural sector shows that the crop sector, which accounts for 56% of total agricultural output and employs a majority of the farmers, has been growing at only 0.3%, the lowest in two decades.
- By comparison, the sector grew 3.3% per annum during the 10 years under United Progressive Alliance governments.
- Which sector of agri. is growing at a high rate? The agricultural sub-sectors that showed high growth between 2013-14 and 2018-19 were livestock (8.1%), forestry (3.1%) and fisheries (10.9%).
- It is a puzzle what drove the high growth of livestock at a time when the crop sector was experiencing negligible growth.
- The trend defies the logic: This defies past trends and is also difficult to believe, given contrasting trends in other indicators of livestock
- The declining income of farmers and a decline in wages: The poor performance of the crop sector confirms the declining income of farmers, the majority of whom depend on crops for subsistence. Not surprisingly, even real rural wages are declining.
- Inflationary pressure and hopes of growth in income of farmers: Hopes were kindled in the last three months as agricultural commodities showed signs of inflationary pressures, with food inflation hitting double-digit rates.
- Increase in rural demand not the cause of inflation: A careful analysis of the data rules out rising rural demand as the cause of that inflationary trend.
- Many price pressures were due to the mismanagement of cereal supplies by the government and supply shocks in vegetables.
- In such circumstances, farmer income could not have risen. Some of this was also a result of food prices rising internationally.
Trend pointing to the fall in agri. prices
- Softening of food prices: Recent trends in international markets suggest a softening of food prices led by an overproduction of cereals and easing edible oil inflation. Following 3 factors may contribute to its fall.
- Impact of fall in crude oil price: This trend will gain strength in the wake of the recent slide in crude oil prices.
- With the global economy displaying signs of a slowdown, prices of agricultural commodities are likely to fall sharply.
- Relation of food prices with oil prices: They tend to follow movements in crude oil prices, as was seen during the latter’s collapse in August 2014. In all likelihood, a similar decline in agricultural prices is upon us.
- Food-grain stock with FCI: A second factor that may exacerbate the income troubles in agriculture is the presence of massive food-grain stocks with the Food Corporation of India.
- This may slow the procurement of farm produce and lower price realizations, particularly cereals but also other crops.
- The coronavirus outbreak: Lastly, the global slowdown due to the coronavirus outbreak is likely to dampen demand in the economy, and in turn hurt the agricultural sector.
Conclusion
- Limited room to improve the situation: These factors are likely to worsen agricultural incomes, and domestic policy has limited room to manoeuvre.
- Opportunity to revive the demand: This situation is also an opportune time to revive rural demand The government could pass on some of the windfalls from the drop in oil prices to rural consumers. This could help lift rural incomes.
- The government could also increase spending in rural areas to help boost demand and prevent a collapse in agricultural prices.
- Worst for agriculture is not yet over: Whether the government uses the opportunity or fritters it away again will be known in the coming months. What appears certain for now, though, is that the worst of the rural slowdown is far from over.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- International cooperation on dealing with the epidemic.
Context
The Chinese government has mobilised the whole nation with confidence, unity, a science-based approach and targeted response.
Aspects that were focused by China to deal with COVID-19
- Formulated timely strategies for epidemic prevention and control.
- Strengthened a unified command and response in Wuhan and Hubei.
- Coordinated the prevention and control work in other regions.
- Strengthened scientific research, emergency medical and daily necessity supplies.
- Effectively maintained social stability.
- Strengthened public education.
- Actively engaged in international cooperation.
Mutual support between India and China
- China and India have maintained close communication and cooperation on epidemic prevention and control. In a letter to President Xi, India’s Prime Minister has expressed support for China.
- China appreciates the medical supplies provided by India and have helped facilitate the safe return of Indian nationals in Hubei.
- The global footprint of COVID-19: China has been closely following the global footprint of COVID-19.
Cooperation on a global level for disease control:
- Chines govt. will stay in close communication with WHO.
- Share its epidemic control experience with other countries.
- Seek closer international cooperation on medicine and vaccine development.
- Provide assistance to the best of its capabilities to countries and regions that are affected by the spread of the virus in keeping with its role as a responsible major
- The Chinese reach-out: China has provided various kinds of assistance including testing reagents, remote assistance and medical supplies to countries with a severe outbreak.
- Sharing of experience and protocol for treatment: China have shared diagnosis and treatment experience and protocols with many countries including India.
- China is ready to maintain communication with India, share experience in a timely manner, render assistance and make joint efforts to overcome the epidemic.
Impact and recovery of China
- Robust economy: The impact on the Chinese economy will be short-lived and generally manageable. China has a resilient economy with robust domestic demand and a strong industrial base. We will definitely sustain the good momentum of economic and social development and meet the goal of achieving moderate prosperity in our society and eradicating extreme poverty in China.
- Strengthen coordination and communication: China will also strengthen coordination and communication with economic and trading partners and give priority to the resumption of production and supply of leading enterprises and key sectors that have a major impact on the stability of global supply chains.
- The fundamentals of China’s economy will remain strong in the long run, and China will remain an important engine for global economic growth.
Conclusion
The history of civilisation is also one of a history of fighting diseases and a great journey of ceaseless global integration. To prevail over a disease that threatens all, unity and cooperation is the most powerful weapon.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- India-Afghanistan relations and return of Taliban after deal with the US.
Context
The recently negotiated peace deal between the United States and the Taliban is unlikely to bring peace to Afghanistan, is geopolitically disadvantageous for India, and has serious implications for our national security.
Power dynamics of the US-Taliban deal
- An honourable exit for India: The terms of the deal, the manner in which it was negotiated as well as the geopolitical context in which it was stitched up indicate that it was more about providing an honourable exit route for the U.S.
- Violence after concluding the deal: Within 24 hours of the much-publicised deal, violence and major disagreements about the deal began erupting in Afghanistan.
- Why there are the prospects of instability in Afghanistan: Given that the Taliban negotiated from a position of strength, the Trump administration from weakness and little political will, and that the Ashraf Ghani administration in Afghanistan was by and large a clueless bystander in all of this, means that the country is perhaps on the verge of yet another long-drawn-out and internecine battle.
The changed Taliban
- Taliban of the 1990s: When the Taliban came to power in the mid-1990s in Kabul, it had few backers in the world.
- Nor was it seen as a useful commodity by the great powers or the states in the region, except for Pakistan, Saudi Arabia, and the United Arab Emirates.
- United pushback from the rest of the world: The international community was almost united in offering a normative pushback against the violent outfit.
- As a result, the Taliban was at best reluctantly tolerated until it messed up towards the end of its regime in Kabul.
- The pressure of Northern Alliance: The Northern Alliance, supported by countries such as Russia and India, kept up its military pressure against the Taliban while it was in power.
- How today’s Taliban is different from the past: The situation today, at least for the moment, is perhaps the exact opposite of what was the case then.
- Lessons learned to deal with the international system: The Taliban today is also more worldly-wise and might have learned, during its exile, to deal with the international system and play the game of balance of power.
- Not necessarily the puppet: More so, it may not necessarily be a puppet of the Pakistani deep state once it returns to power.
International acceptance of the Taliban
- Lending the legitimacy to Taliban: Given the war fatigue and the geopolitical stakes in Afghanistan, most of the key players in the region and otherwise have been in negotiations with the Taliban one way or another, and for one reason or another, lending the terror group certain legitimacy in the process.
- Why countries want good relations with the Taliban: Anyone desirous of a stake in Afghanistan or does not want its domestic turmoil to spill over into their country would want to keep the Taliban in good humour.
- Suitable withdrawal of the US: There is another reason why the Taliban has many suitors — because of the U.S. withdrawal by and large suits everyone, be it China, Pakistan, Iran, or Russia.
- The US bigger challenge: Suddenly, the Taliban appears to have been forgiven for its sordid past and unforgivable sins because for most of these countries, the U.S. is the bigger challenge than the Taliban.
Why India’s strategy is diplomatically flawed?
- Only state at losing end: The only state that seems to be on the losing end, unfortunately, of this unfolding game of chess and patience in Afghanistan is India.
- Why the earlier Taliban was anti-India? The earlier Taliban regime was anti-India, it was also because India had militarily supported the Northern Alliance that kept up the military pressure against the Taliban.
- Today’s Taliban does not share the same animus for India.
- Need for Change in India’s approach: India, could have rejigged its approach to the Taliban this time around. However, it put all its eggs in the Ashraf Ghani basket, even on the eve of the signing of the peace deal in Doha.
- Not a diplomatic strategy by India: India also, for most intents and objectives, adopted a puritanical approach to the Taliban.
- There are 2 reason India is neither reaching out to the Taliban nor exploiting the fissures within it-
- Because it did not want to irk the elected government in Kabul and-
- It adopts a moralistic approach to dealing with extremist groups in general — not a smart diplomatic strategy.
- Self-defeating position: This moralistic attitude, also a diplomatically lazy one, I would say, that be it Pakistan or Afghanistan, India would only talk to the legitimate government in that country, is a self-defeating position.
- The world is not that perfect, nor state all that uniform, created in the shape and image of the Westphalian forefather.
- Smart statecraft, therefore, is dealing with what you have and making the best of it.
What would be the result of India’s strategy?
- Impact on relations with Afghanistan: India’s relations with Afghanistan will take a hit in the immediate aftermath of the deal.
- Limited ability to influence the outcomes: With China, India’s strategic adversary, deeply involved in the geopolitics and geo-economics of the region, including in Afghanistan, India’s traditional ability to influence the region’s political and security outcomes will be severely limited.
- This will be further exacerbated by the withdrawal of the U.S., India’s closest friend, from the region.
- India’s relation with the other players in the region: Other regional actors in Afghanistan are also less friendly towards India than ever before: Iran feels let down by India given how the latter has behaved towards it at the behest of the Americans.
- Relation with Russia: For Russia, India is only one of the many friends in the region — the exclusivity of Russia-India relations is a thing of the past — and Pakistan would consider targeting India a fair game.
- Counter Strategy: Unless New Delhi carefully envisages a counter-strategy, these factors will increasingly push India into a geopolitical tough spot in the region.
- Need to focus on the region: India should worry us that our political class is focused on domestic politics while the region is becoming ever more uncertain and evidently unfavourable to us.
Taliban and Kashmir Angle of the deal
- Negligible physical impact but the possibility of psychological impact: While the direct physical impact of the Taliban’s return to power in Afghanistan on Kashmir will be negligible, this will not be without serious implications for the unfolding situation in Kashmir’s restive regions.
- Psychological impact: The most important impact is going to be psychological.
- Interpretation of the event: Disenchanted Kashmiri youngsters, and there are a lot of them, will interpret the events in Afghanistan as follows: “If the mighty superpower USA could be defeated by the Taliban in Afghanistan with help from the Pakistan army, defeating Indian forces in Kashmir won’t be impossible after all.”
- This enthusiasm is completely misplaced, but that is not the point.
- That the Kashmiri youth might pick up guns drawing inspiration from the situation in Afghanistan is indeed the point.
- Increase in Pakistan’s utility: The U.S.-Taliban deal cannot survive without Pakistan’s assistance towards ensuring its success, and the U.S. and its allies recognise that. Such recognition of Pakistan’s utility provides the country with ability, as and when it wishes to, to up the ante in Kashmir.
- The geopolitical significance of Pok and Aksai Chin claim: India’s official statement which describes Afghanistan as a “contiguous neighbour” — meaning that India considers Pakistan-occupied Kashmir (PoK) a part of its sovereign territory — will make Pakistan and China sit up and take notice.
- Claim making reconciliation more difficult: India also made a similar claim about Aksai Chin in the wake of its August decision on Kashmir. Erstwhile rhetorical claims on PoK and Aksai Chin have suddenly assumed a lot more geopolitical significance today making conciliatory approaches to conflict resolution ever more difficult.
Conclusion
Given that a new Taliban-led dispensation in Afghanistan will be far more accepted by the international community than the last time around also means increased acceptability for such regimes in general, either out of necessity or as a function of geopolitical calculations. That the Taliban mass-murdered its opponents into statehood in the 21st century and that this might provide potential inspiration to other outfits in the region and outside should indeed worry us.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- How should India use the windfall from the fall in oil.
Context
Amid the gathering global crisis, its time India minds its own house.
Panic and dislocation in Global markets
- Panic at the level of the 2008 crisis: Global markets haven’t witnessed such panic and dislocation since the global financial crisis of 2008.
- Global equity markets have collapsed, the US’s 10-year bond is at its lowest level ever, and crude prices underwent their largest single-day fall in 30 years.
- Interaction of three global shocks: The market mayhem is the upshot of three global shocks interacting with each other.
What are the three global shocks?
- Negative demand shock due to Coronavirus: A negative demand shock around the world. As the coronavirus proliferates globally, households and businesses are understandably becoming risk-averse, and the consequent “social distancing” is expected to exert significant demand destruction around the world.
- Negative supply shock emanating from China: The widespread industrial closures in China on the back of the COVID-19 outbreak will impact imports and supply chains in other countries, and thereby constitute an adverse supply shock for the rest of the world.
- The magnitude of the shock: The 20-point drop in manufacturing output in the February PMI and the 17 per cent contraction in Chinese exports across January and February, suggests that the shock was large and immediate.
- Supply shock likely to fade: That said, with the virus, gradually being contained in China, this supply shock is likely to fade even as the demand shock in the rest of the world widens and deepens.
- Positive oil supply shock: The failure of oil producers to agree on production cuts has led to a price war with production increases on the anvil.
- Cumulatively, crude pieces are down almost 50 per cent — about $30/barrel — since January.
- A positive supply shock, which even adjusting for the concentrated stress in the oil sector, is growth-additive for the world and particularly for India.
- India specific shock: There is a fourth India-specific force at play. The resolution and reconstruction of YES Bank was inevitable, but, at least temporarily, it is likely to result in a “flight to quality” in India’s financial sector, with resources moving from the financial periphery to the core.
- Banks and NBFC may face difficulty in mobilising resources: To the extent that the periphery — smaller private banks and non-bank financial companies — will find it harder to mobilise resources, financial sector risk aversion could rise again.
Implications for India’s macroeconomic stability
- Significant negative impact due to export: India is a much more open economy than is widely believed with exports constituting almost 20 per cent of GDP. Therefore, the impact of the demand destruction around the world will not be trivial.
- 40 bps decrease in the growth: If global growth is marked down by 100 basis points in 2020, which increasingly appears to be the case, we estimate that this would shave off about 40 bps from India’s growth through the export channel alone.
- The cumulative drag to growth from exports and tourism would be a meaningful 60-70 bps.
- Positive impact due to oil price shock: The near $30/barrel decline since January constitutes a large positive terms of trade shock for India — equivalent to about 1.3 per cent of GDP even accounting for reduced remittances from the Middle East.
- Meaningful mitigant: If oil prices remain at this level for long, it would constitute a meaningful mitigant to India’s macro headwinds, boosting activity, dampening prices, creating fiscal space and reducing external imbalances.
- Offsetting the negative impact of trade and tourism: Every $10 reduction in crude prices, boosts growths by about 20-25 bps.
- Therefore, the $30 decline in crude, if it holds, should boost growth by about 60-70 bps, thereby largely offsetting the negative hit to growth from external trade and tourism.
- Space for monetary easing: Furthermore, crude at $35-40, along with the global demand destruction is expected to generate large disinflationary forces, opening up space for monetary easing.
- CAD would disappear: Finally, India’s current account deficit would virtually disappear, for the first time since 2003-04.
The growth offset conditioned on coronavirus spread
- The assumption in the offset: The above-mentioned growth offset, however, assumes that the coronavirus does not spread within India.
- If India witnessed a rapid domestic proliferation, heightened risk aversion by economic agents could meaningfully hurt domestic demand.
- A thought experiment on the impact on the economy: Discretionary services constitute about 35 per cent of GDP and have been growing at 8 per cent a year.
- If that growth rate were to halve, that alone would deduct 140 bps from growth, and swamp any growth tailwinds from lower oil prices.
- Furthermore, a “sudden stop” of demand to certain sectors may necessitate fiscal/liquidity support to ensure these don’t magnify into more disruptive credit events for the financial sector.
- The best antidote to prolonged growth hit: The best antidote would be to aggressively contain the virus domestically, as authorities appear to be doing.
- The experience from other countries suggests aggressive containment early in the process (isolation, quarantines, contract tracings, cancelled gatherings) reduces the growth rate of the virus from exponential to linear.
- Macroeconomic outlook: The key to India’s macro outlook is whether the crude price decline can sustain and whether India can avoid a sharp domestic proliferation of COVID-19.
Way forward
- Pass the oil windfall to the public: Given current fiscal pressures, it’s tempting to advocate that the public sector appropriate much of the windfall. But with consumption under such pressure, there’s a strong case to pass this on to households.
- A sharp cut in domestic fuel prices will boost household purchasing power and aggregate demand thereby creating contemporaneous counter-cyclical pressures.
- Stick to the asset sale plan: While the turbulence in equity markets could understandably delay the government’s asset sale programme, it should not be allowed to derail it, given the criticality of asset sales to this year’s fiscal math.
- Absorbing all the oil windfall through higher taxes as a substitute for asset sales would be a suboptimal mix.
- Continue with the reforms: The salutary effects of falling crude prices — which would boost India’s macros relative to other emerging markets — should not mask the imperative to continue with reforms, particularly recognising and resolving any further financial sector stress proactively.
Conclusion
Global markets are witnessing their most acute volatility since 2008. All we can do is mind our own house amidst the gathering global storm.
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Note4Students
From UPSC perspective, the following things are important :
Mains level: Paper 3-Measures to revive the Indian economoy.
Context
The root cause of the present malaise in our economy is the “death of demand”.
How demand matters for growth?
- The relation between demand and growth: Growth in any economy depends on the growth in demand, both for investment as well as consumer goods.
- How slackened demand leads to a vicious cycle: If demand slackens, then the installed capacity will not be fully utilised, the fresh investment will not take place, employment will slacken and the economy will get caught in a vicious cycle, as we are experiencing today.
What needs to be done to break the vicious cycle?
- What sequence to follow in reviving demand? The basic challenge, therefore, is to revive demand in the economy in a sequence where the revival takes place first in the investment goods sector, automatically followed by a boost in demand for consumer goods through enhanced employment opportunities.
- Past precedents: This is the prescription we had followed in the Atal Bihari Vajpayee government when we were faced with the East Asian crisis and the post-Pokhran global economic sanctions soon after the government assumed office in March 1998.
Demand in India
- No dearth of demand in India: In a developing country like India, there is no dearth of “good” demand.
- We still have to provide so many goods and services to our people in order to improve their “quality of life”.
- Need to create new infrastructure: Simultaneously, we have to create new infrastructure and improve the existing ones to reduce the transaction cost in our economy and make it more competitive.
- How infrastructure creation lead to the creation of demand: The emphasis on the construction of roads of all kinds — rural, state and national highways, the new telecom policy, the investment in railways, the emphasis on housing construction and development of the real estate, the improvement in rural infrastructure and reform in the agricultural sector were all meant to lead to the creation of demand in the economy.
- Creation of the virtuous cycle: The creation of demand should be in such a way that the demand for investment goods picks up first and faster, which creates the virtuous cycle of full capacity utilisation.
- Demand for consumer goods: Demand for investment goods is followed by fresh investment for new capacity creation, larger employment opportunities of various kinds — unskilled, skilled and highly skilled — which reached money into the pockets of people leading to a surge in demand for consumer goods.
How the government should deal with the situation
- Deal with the demand side instead of supply-side: All commentators are agreed now that instead of tackling the demand side government is dealing with the supply side.
- Tax relief to corporates: For instance, if, instead of wasting a precious amount of Rs 1,45,000 crore on tax relief to a limited number of corporates the government had spent that money on rural infrastructure and agriculture and a part of it on railways and highways, it would have led to the creation of demand both for investment goods as well as consumer goods.
- Issue of sticking to the fiscal deficit target: There is also the issue of resources. The government claims that it has stuck to the fiscal deficit targets.
- But the provisions of Fiscal Responsibility and Budget Management (FRBM) Act have been treated in a cavalier manner by all subsequent governments.
- What was the basic purpose of the act? The basic purpose of the act was to eliminate the revenue deficit completely within a short period of time and live with a limited fiscal deficit.
- The original FRBM Act, therefore, mandated that revenue deficit should be eliminated completely and the rest of the fiscal deficit should be limited to one per cent of GDP.
- In special circumstances like today, the fiscal deficit should be allowed to go up to even two per cent of the GDP, which will mean an amount of Rs four lakh crore.
Figures of the latest budget and need for the reforms
- Fiscal deficit figures: The government has taken credit in the Budget for the fact that it has successfully restricted total fiscal deficit for this fiscal to 3.8 per cent and for next fiscal at 3.5 per cent of the GDP.
- The issue involved in fiscal deficit figures: The revenue deficit for the current fiscal is 2.4 per cent of the GDP and for the next fiscal it is 2.7 per cent. In other words, minus the revenue deficit the fiscal deficit is only 1.4 per cent of GDP for this year and for the next year, it is 1.7 per se.
- Need for managing the expenditure: So, the real villain of the piece is revenue deficit and not fiscal deficit per se.
- Need for the reforms: It is clearly the government’s responsibility to manage its expenditure and carry out reforms in it, including austerity in expenditure.
- How will the reforms help? Controlled fiscal deficit will make more money available in the market for private sector investment and help RBI in reducing interest rates — things which will have an overall benign influence on the economy.
Conclusion
A lot of other things apart from austerity majors will have to be done, no doubt, like preventing companies, especially banks from failing, to further strengthen the growth impulses but in the present situation, the key is government spending and in the desired sequence.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Dominance of China in international trade and its implications for national security.
Context
Although the slowdown in Chinese manufacturing has disrupted the supply chains of many goods, the impact on the drug industry has helped highlight the national security implications of China’s dominance over the pharmaceutical industry.
Implications of the coronavirus disruption in China
- Global dependence on China in focus: As the coronavirus spreads far and wide, the global dependence on China for drugs and medical supplies has come into sharp focus.
- The argument for domestic production of medicine: In both the US and Europe, the shortage of essential drugs to treat the victims of the virus is strengthening the arguments for restoring some domestic production of pharmaceuticals.
- National security implications: Although the slowdown in Chinese manufacturing has disrupted the supply chains of many goods, the impact on the drug industry has helped highlight the national security implications of China’s dominance over the pharmaceutical industry.
China’s dominance in pharmaceutical production
- Two factors that contributed to China rise:
- Active state support from Beijing and-
- Western drug companies eager to shift production to cheaper destinations has facilitated China’s emergence as the most important global source for pharmaceutical products and medical devices.
- Global dependence on China for drugs: America and Europe are said to import nearly 80 per cent of their antibiotics from China.
- India’s dependence for API: India is also an important supplier of generic drugs to the Western world, but it is itself dependent on massive imports of active pharmaceutical ingredients (APIs) from China.
- Impact on India: The reduction in supplies from China after the virus breakout has been accentuated by the recent decision of Government of India to limit the export of common drugs like paracetamol.
- How the US is responding to dominance? Well before the current crisis, there had been warnings in the US about the national security risks from the massive reliance on external sources for basic medicines.
- Weaponising the dominance: Late last year, the US-China Security Review Commission, established by the US Congress, pointed to the prospects of China weaponising its dominance over pharmaceutical production and its massive consequences for healthcare in the US.
- Government support in China: The report also pointed out that the Chinese government promotes and protects the nation’s pharmaceutical companies to the disadvantage of foreign competitors and that leaves other nations little leverage with China.
- Need to limit the exposure to China in other sectors: While the current international focus is on the supply chains in the pharmaceutical sector, there has been growing recognition of the need to limit the expansive exposure to China in many different sectors.
National security argument of the dominance
- National security dimension of trade war: Trump’s case for bringing manufacturing back to America — by challenging the traditional framework of international trade — was not just economic.
- It also had a strong national security argument — that the US cannot rely on China for servicing its national security needs in a range of sectors from digital components and drugs.
- What supporters of the globalisation said? Supporters of economic globalisation had countered these arguments by saying that tight interdependence will reduce the incentives for taking unilateral advantage by nations.
- China using trade dominance into leverage: The critics have pointed to the fact that China was turning its role as the “world’s factory” into powerful leverage.
- Why did the West start regarding China as a challenge? The Chinese decision to stop rare earth exports to Japan during 2010 in relation to a minor political dispute had led many to put up red flags.
- Since then, China’s greater political assertiveness and challenge to Western dominance in critical areas have strengthened the case in the West to regard China as a challenge if not an outright threat.
- De-coupling gaining traction: As the bipartisan political consensus in the US and Europe in favour of a strong economic partnership with China began to break down in recent years, the case for de-coupling has gained much traction.
How using economic leverage for strategic gains undergone changes?
- Use of economic leverage and stockpiling: The history of statecraft suggests that it was quite common for states to use economic leverage for strategic gains.
- Use of strategy during the cold war: Through the Cold War, both America and Russia sought to corner strategic resources around the world. They also adopted policies for stockpiling special materials for use during conflicts. Sustaining a strategic petroleum reserve, for example, was a major priority for the US during the Cold War.
- Changes due to globalisation: The importance of hoarding resources at home and denying it to one’s adversaries seemed to diminish amidst great power harmony and economic globalisation that flourished after the Soviet Union collapsed.
- Recent challenges due to weakening of globalisation: The erosion of that moment in the last few years has set up new tensions between the competing imperatives on Western governments.
- Capital vs. Security issue: While the logic of security compels the state to limit strategic economic exposure, the logic of capital demands policies that reduce costs of production and increase the margins of profit.
- This tension has been at the heart of the recent Western debates on the China question.
Conclusion
While the world finds ways to deal with the Chinese dominance in the other sector, meanwhile, in the health sector, large continental entities like the US, Europe and India are likely to insure against over-reliance on a single source for life-saving drugs. They are likely to find ways to shorten the supply chains, expand domestic production and explore coordination among like-minded nations.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Significance of quarterly GDP estimates and revision.
Context
As the third-quarter GDP was marginally higher than the second-quarter figure of 4.5% many concluded that the economic slowdown witnessed during the last six quarters has “bottomed out”. Has it?
What closer examination of data reveal?
- Estimates revised upwards: A closer reading reveals that the latest data release has revised the estimates of the first two quarters of the current year (2019-2020) upwards to 5.6% and 5.1%, from the earlier figures of 5% and 4.5%, respectively.
- What the revision mean? The upward revisions have, perhaps unwittingly, changed the interpretation of the current year’s Q3 estimate: the slowdown has continued, not bottomed out; hence, there is no economic revival in sight as of now.
Competing views of the performance
- The question therefore is why did the current year’s Q1 and Q2 GDP estimates get revised upwards?
- The answer is this was simply because the corresponding figures for the previous year (2018-2019) got revised downwards.
- The question over the revision process: Many viewed the revision of last year’s estimates as evidence of lack of credibility of the NSO’s revision process.
- Questions over the veracity of data: Such doubts are well taken, given the long-standing debate and unresolved disputes on the veracity of GDP figures put out since 2015, when the statistical office released the new series of National Accounts with 2011-2012 as base year.
Why the GDP estimates undergo revisions?
- Lags in data: As there are lags and unanticipated delays in obtaining the primary data, the GDP estimates undergo several revisions everywhere (except in China).
- GDP is a statistical construct, prepared using many bits of quantitative information on an economy’s production, consumption and incomes.
- How frequently is data revised? GDP estimates are revised five times in India over nearly three years.
- The initial two rounds, the advanced estimates, are prepared mainly using high-frequency proxy indicators followed by three rounds based on data obtained from various sectors.
Quarterly GDP estimates and issues with it
- Since 1999, quarterly GDP estimates are being prepared, as per the International Monetary Fund (IMF)’s data dissemination standards.
- Subpar quality: Their quality is subpar as the primary data needed quarterly are mostly lacking.
- Why quality is subpar? Nearly one-half of India’s GDP originates in the unorganised sector (including agriculture), whose output is not easily amenable to direct estimation every quarter, given the informal nature of production and employment.
- Hence, the estimates are obtained as ratios, proportions and projections of the annual GDP estimates.
- Quarterly estimates are extrapolations: In general terms, quarterly estimates of GDP are extrapolations of annual series of GDP. The estimates of GVA by industry are compiled by extrapolating value of output or value-added with relevant indicators.
Way forward
- Little ground to question the present revisions: There were considerable variations at the sectoral estimates after the revision, which probably contained more noise than information. For now, there is little ground to question the revised estimates based on the publicly available information.
- Slowdown not bottomed out: If we accept the latest data, it is clear, though in an alarming way, that there has been an undeniable decline in the GDP growth rate over seven consecutive quarters, from 7.1% in Q1 of 2018-2019 to 4.7% in Q3 of 2019-2020.
- Considering that physical indicators of production, such as the official index of infrastructure output, or monthly automotive sales, continue to show an unambiguous deceleration, the economic slowdown has apparently not bottomed-out.
- More seriously, the quarterly GDP deceleration comes over and above the annual GDP growth slowdown for four years now: from 8.3% in 2016-17 to 5% in 2019-20 (as per the second advance estimate).
- Limited primary information: India’s quarterly GDP estimates have limited primary information in them. Their revisions are largely extrapolations and projections of the annual figures. Hence, one should be cautious in reading too much into the specific numbers.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Revision and estimates of GDP data.
Context
The latest GDP data witnessed significant revisions that have gone largely unnoticed.
The GDP data revision and its criticism
- Revisions an act of due diligence: In the last few years there has been a lot of noise regarding the data revisions.
- The need for closer examination: While part of revision requires closer examination, we must be fair to our statistical system as such revisions are, in large part, due diligence and happen globally.
- Schedule of NSO estimates
- First estimate: The NSO releases the first estimates of any fiscal year in January.
- Revises the January’s first estimates in February.
- And then again in May.
- Simultaneous revision in February: Simultaneously, it revises the previous year estimates in February, alongside the February data release.
- Suspicion of statistically protecting the 5% growth: The primary criticism, with the current year’s fiscal data, is that the revisions in February for 2019-20 and the 4th revision in 2018-19 are almost identical, implying that the sanctity of 5 per cent growth was statistically protected.
Examining the criticism purely on the data
- Precedence of 1st and 2nd quarter revision: There is precedence to the first and second quarter revisions for the current financial year that happen in February.
- For example, while in the current fiscal, the cumulative downward revision was close to Rs 30,000 crore.
- In FY19, there was even a greater upward revision of roughly Rs 86,000 crore in February.
- Is there precedence of such large first-time revisions? Yes, there has been since 2014-15. In 2018-19, the first-time data was revised by a sharp Rs 1.43 lakh crore, while in 2017-18, it was revised by an even larger Rs 1.69 lakh crore.
- Revision in the same direction: The simultaneous revisions are mostly in the same direction, though different in magnitude, and hence it is unfair to say that the 2018-19 data was revised downwards to protect the 2019-20 numbers.
What was the problem?
- Uncertainty: The problem has been that the global and domestic uncertainties in 2017-18 and 2018-19 have been so swift that it has been virtually impossible to predict the outcome initially.
- While in 2017-18, the final estimates were progressively higher.
- In 2018-19, while the interim estimates were higher, they were drastically scaled-down later as the impact of the NBFC crisis began to unfold.
- The US example: The US Fed had also missed the possibility of the US economy bouncing back in 2018 on the back of tax cuts when in 2015 it had projected the economy to expand by only 2 per cent, only to change it to 3 per cent in 2018 (almost at par with scale of revisions in India).
Why such unconditional biases arise?
- Asymmetric loss function: It is common for such unconditional bias to arise due to the fact that the statistical reporting agency produces releases according to an asymmetric loss function.
- For example, there may be a preference for an optimistic/pessimistic release in the first stage, followed by a more pessimistic/optimistic one in the later stage.
- Cost factor: Intuitively, one might argue that the cost of a downward readjustment of the preliminary data is higher than the cost of an upward adjustment.
- This asymmetric loss function is not so relevant at the reporting stage but at the forecasting stage.
- Interpreting the data revision: A statistical reporting agency like the NSO simply does not have all the data at hand and has to forecast the values of the yet to be collecting data.
- It is at that moment that the asymmetric loss function comes into play.
- So, we must be careful about interpreting data revisions by the NSO by attributing ulterior motives as we more often tend to do.
India lagging in the use of data analysis
- Unlike countries across the world, India is still significantly lagging in its use of data analysis.
- Methodologies based on thin surveys: Some of the current methodologies of data collection is based mostly on thin surveys.
- Not supported by the data in public domain: It is also not supported by data available in the public domain that are more comprehensive, less biased and real-time in nature, based on digital footprints.
- The end result is that we end up publishing survey results that are misleading.
Way forward
- Development of big data and AI bases ecosystem: We must develop an ecosystem that is high quality, timely and accessible.
- Big data and artificial intelligence are key elements in such a process.
- Big data helps acquire real-time information at a granular level and makes data more accessible, scalable and fine-tuned.
- Use of payment data: The use of payments data can also help track economic activity, as is being done in Italy.
- Different aggregates of the payment system in Italy, jointly with other indicators, are usually adopted in GDP forecasting and can provide additional information content.
Conclusion
To be fair to both the RBI and the NSO, the volatility of oil prices and structural changes in the economy make the forecasting of inflation and GDP a difficult job indeed. However, we should supplement our existing measurement practices with “big data” to make our statistical system more comprehensive and robust.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Changing India-Iran relations.
Context
The CAA and violence in Delhi have started to take its toll on India’s secular foreign policy.
The US and other’s reaction to the situation in India
- Trump visit to India: President Trump referred to India as a democracy which was peaceful and tolerant. He lauded freedom, rule of law, liberty and protection of human dignity, adding graphically that where India had the holy Ganges, it also had the Golden Temple and Jama Masjid.
- Assurance to the critics at home: He thereby cleverly reassured critics at home, especially in the US Congress, that he was not ignoring the values the two great democracies shared.
- However, as the situation in Delhi spun into violence the next day, in an untutored media interaction at the US ambassador’s residence, he ducked questions about the CAA or Delhi riots, nonchalantly remarking it was “up to India” to deal with it.
- This may have brought comfort to the Indian government but the world at large differed.
- Response from the other countries: Delhi had already exchanged angry words with Malaysia, Turkey and even Indonesia over their varied critique of India’s handling of its Muslim minority when Iran joined the issue.
Iran’s response to violence in India
- Condemnation by foreign ministers: Iranian Foreign Minister Javad Zarif condemned the “wave of organised violence against Indian Muslims”, adding that “Iran has been a friend of India”.
- India’s foreign ministry summoned the Iranian ambassador to protest the inappropriateness of the minister’s remark.
- The reaction by the Iranian Supreme Leader: Soon after, Supreme Leader Ali Khamenei found the time, in the middle of the COVID-19 outbreak, to excoriate the Indian government.
- Adding insult to injury, he appended #IndianMuslimsInDanger.
- No reaction on China problems: A facile response, can be that Iran is being hypocritical as it has not expressed remorse over the Chinese repression of Uyghurs.
- The difference in India’s importance to China: China is a veto-wielding member of the UN Security Council, which also sustains the Iranian economy despite US sanctions. On the other hand, India has a Shia population second only to that of Iran.
Relations with Iran
- Two consulates in India: There are two Iranian consulates in India in Hyderabad and Mumbai. Iran seeks the third one in Lucknow.
- Qom also hosts many Shia students, particularly from the Kargil region.
- Historic links between the two countries: After Humanyun’s exile in Iran (1530-40) before recovering the Indian throne, the Persian language and culture fired the cultural renaissance at the Mughal court.
- Religio-cultural heritage importance: India is important for Iran for its religio-cultural heritage, unlike China, which is needed for transactional and strategic reasons.
- Two interrelated questions flow from this reasoning:
- 1. What is Iran’s importance for India and the trajectory of India-Iran relations over the last two decades?
- 2. And why is Iran adopting this sharp tone over what the Indian government argues is an internal matter?
- Convergence in the relations: The closest India-Iran strategic convergence began in the 1990s, particularly after Kabul fell to the Taliban in 1996. These ties blossomed under reformist Iranian President Mohammad Khatami and Indian Prime Minister Atal Bihari Vajpayee.
- Tehran Declaration: In 2001, the two signed the Teheran Declaration. Khatami in his opening remarks said that Iran always admired India’s secular credentials and Vajpayee had maintained that tradition.
- In 2003, Khatami was the chief guest at India’s Republic Day and a New Delhi Declaration was issued.
- Deterioration in relations and impact of India-US relation: The relationship began to slip as Iran’s clandestine nuclear programme and assistance from Pakistan’s rogue scientist A Q Khan was uncovered in mid-2003.
- Impact of India-US closeness: Concomitantly, India was drawing closer to the US and negotiating a nuclear cooperation agreement.
- The US used the nuclear issue to cause a cleavage as Indian and Iranian interests began seriously diverging.
- Taliban factor: In any case, the Taliban had been ejected from Afghanistan and US troops literally surrounded Iran, having in 2003 overthrown Saddam Hussein. Geo-strategy trumped diplomacy.
The US-Iran relation cycle
- The nuclear deal with Iran: Iran-US relations also went through a cycle, with President Barack Obama recalibrating US policy towards the Gulf and West Asia.
- Countering ISIS: Calculating that without Iran, ISIS could not be countered, the US in 2015 endorsed the nuclear deal that P-5 and Germany negotiated to end the nuclear stand-off.
- Missing warmth of the 1990s: Although India-Iran relations after that returned to near normal as most US sanctions were lifted, the warmth of the 1990s was missing.
- Iran was now beginning to extend its influence and role across Iraq and West Asia.
- Maximum Pressure strategy of the US: President Donald Trump in 2016 reversed US policy and since then “maximum pressure” has been applied on Iran via tightened sanctions.
- India’s engagement with Saudi Arabia and UAE: PM Modi also moved more forthrightly to engage Saudi Arabia and the UAE.
- The fallout of the US strategy reversal: A fallout of the US policy reversal has been an exacerbation of not only the Shia-Sunni split but a Sunni-Sunni split as Qatar and Turkey are with Iran.
Changing polity and increasing influence in the neighbourhood
- Conservatives elected to power: In Iran’s parliamentary election on February 28, extremely conservative members have been elected, the moderates having been vetoed by the Guardians Council earlier.
- Turnout was a low 43 per cent, due partly to fear of the coronavirus.
- Increasing influence in the neighbourhood: Iran is even more isolated, though determined to resist US demands, due to communications being curtailed due to the virus.
- Relations with the Taliban: It has good working relations with the Taliban and converging interests to see that US troops exit the region.
- The friendly government in Baghdad: Iran is battling to ensure a friendly government in Baghdad, despite the killing of Major General Qasem Soleimani, by keeping militias aligned to it in play.
Conclusion
- Perception of India: Khamenei’s tweet reflects the perception that India is in the US-Saudi-Emirati corner and of little use as long as Trump is president.
- Growing closeness Abu Dhabi, Riyadh and Ahmedabad would have led Iran to this conclusion.
- Leveraging India’s dependence: In the Islamic world, Iran by publicly defending Indian Muslims embarrasses the silent Saudis.
- It also calculates that India needs access to Afghanistan through Chabahar to assist the Ghani government or influence developments there.
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