9 PM Daily Current Affairs Brief – January 3rd, 2023

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GS PAPER - 2

The case against- state control of Hindu temples

Source– The post is based on the article “The case against state control of Hindu temples” published in The Hindu on 3rd January 2023.

Syllabus: GS2- Significant provisions of Indian constitution.

Relevance– Issues related to secularism in India

News– The article explains the issue of state governments managing the affairs of Hindu religious endowments.

What are the constitutional provisions for state regulating secular activities associated with religious practices?

Article 25(2)(b) empowers the state to provide for social welfare and reform or the throwing open of Hindu religious institutions” to “all classes and sections of Hindus”. Hence, the issue of regulating secular aspects of religious practice is distinct from providing access to worship.

What are the judicial precedents for state management of temples?

In the Shirur Mutt judgement (1954) case, Supreme Court impugned many provisions of the Madras Hindu Religious and Charitable Endowments Act, 1951. It termed these provisions as “extremely drastic” in character. Even the Advocate General of Madras stated that he “could not support the legality of these provisions”.

The legislature of the erstwhile Madras State enacted in 1954 an amendment Act for removing the defects pointed out by the Supreme Court. Again, the Act was struck down by Madras High Court.

The Orissa Hindu Religious Endowments Act, 1939 was struck down by the Supreme Court twice in 1954 and 1956.

What are issues with the state management of temples?

In the guise of administering Hindu religious endowments, the states are interfering in religious affairs. This is more prevalent in Tamil Nadu where temples cannot even conduct pujas as the state has depleted their income.

As per the HR&CE policy note of 2012-13 of Tamil Nadu, Hindu temples own land covering 29 crore sq. ft in area. Its estimated value would be almost ₹10 lakh crore. But the income realised by the Tamil Nadu HR&CE Department is ₹120 crore per year.

The state is silencing temple activists by initiating arbitrary criminal action against them.

The Tamil Nadu HR&CE Department does not even have records of its own executive notifications justifying its management of certain temples.

What is the way forward?

A long line of judicial precedents emphasise that secularism means the state cannot mix with religion. Nothing justifies a state official directing a religious functionary for conducting worship. The purpose should be to involve the community, which has been excluded by the state. The participation of different stakeholders and the building of consensus among them will determine who will take over temples.

Towards reducing India’s prison footprint

Source: The post is based on the article “Towards reducing India’s prison footprint” published in The Hindu on 3rd January 2023.

Syllabus: GS 2 – Governance

Relevance: measures needed to prevent overcrowding of prisons

News: Lieutenant-Governor of Delhi in June last year directed the Delhi Development Authority (DDA) to allocate land to Delhi’s prison department to construct a district prison complex in Narela to prevent overcrowding.

How is the district prison complex in Delhi being built up?

The prison is to be constructed in two phases, the first for high-risk offenders and the second for undertrials.

In phase 1, a high-security jail is to be built in the complex with a capacity to lodge 250 high-risk prisoners.

High walls are being constructed between cells to prevent prisoners from viewing others, and interacting with each other, as well as building office spaces between cells to facilitate surveillance.

The Delhi prison administration is creating solitary confinement which can have a severe harmful effect on prisoners’ mental health.

Therefore, L-G’s claim to decongest Delhi’s prison complexes by setting up prisons in Narela is not appreciable and not a proper way of preventing overcrowding.

What are the reasons behind overcrowding of prisons?

One of the reasons behind it is that India has not done enough to truly prevent crime. Dalits and Adivasis are over-represented in Indian prisons.

As per a report, social, systemic, legal, and political barriers are the reason behind this. Laws such as the Habitual Offenders Act and Beggary Laws allow the police to target Dalit and Adivasis for reported crimes.

Furthermore, prisons in India are still governed by the colonial law Prisons Act, 1894. It treats prisoners as sub-par citizens, and provides for strict punishment rather than rehabilitation.

What can be the way ahead?

President Murmu said that rather than building more prisons to prevent overcrowding we must adopt measures like releasing unwell or old inmates, reducing penalties, allowing bail at affordable costs, etc.

India is a progressing country, so its approach to crime should be preventive rather than reactive.

Therefore, the L-G should work with the Delhi government to channel public funds towards public goods such as housing, education, and employment, so that crimes could be prevented.

When degrees lose their worth

Source– The post is based on the article “When degrees lose their worth” published in The Hindu on 3rd January 2023.

Syllabus: GS2- Issues related to development and management of education

Relevance– Higher education

News– The article explains the phenomena of increasing emphasis on gaining more degrees and certificates.

What is the reason behind the increasing proliferation of degrees in our educational system?

A vast and varied market of qualifications has grown since the mid-1990s. Its growth feeds on itself. If a greater variety of qualifications are on offer, their demand grows faster. A young candidate enrolled in one course wants to enrol in other courses. Permission for dual degree admission has further boosted the urge.

The driving force of this urge is located both within and outside the system of education. Internally, the system encourages students to gather additional qualifications by defining course content and its aims narrowly. It is known as specialisation. This phenomenon is a response to the understanding of skills as distinct from knowledge.

The external driving force is the economy. Economic growth has not resulted in expansion of satisfying employment. The fear of joblessness fuels the urge to gain new eligibility. The volatility of the job market also implies that no job can last for long. Hence, candidates want to become eligible for as many types of jobs as possible.

Why has the experiment of delinking  degrees from jobs in 1980 has not been successful?

It was believed that delinking degrees from jobs will reduce the pressure on institutions of higher learning. If jobs were delinked from formal qualification, it would discourage the young from accumulating certificates and degrees.

But, the pressure to enrol in one course or another remained high. Correspondence courses proliferated. Later, the Internet also enabled the self-learning market. It has boosted self-employment to some extent. But, the lure of formal jobs has not diminished.

In fact, it has maintained remarkably high growth in the coaching market. Competitive exams now attract countless youths.

How the emphasis on degrees and qualification has impacted our educational system?

It has led to lowering of standards in the field of higher education. When a course does not give expected benefits, students go for a higher level of the same course.

Public institutions of higher education have suffered due to it. These are unable to maintain standards while being forced to accommodate an increased number of students. It has resulted in the mass exodus to foreign systems and expensive private institutions. Students from deprived strata can’t avail of these options.

It has led to a fall in standards of teaching and also in the expected diligence of students. Digital technology has made its own contribution to the noticeable changes in student behaviour.

A plethora of reforms introduced may not succeed in resolving the basic issues and tendencies. There is a considerable gap between the discourse of reform and the reality of our higher education system.

The New Year looks decidedly gloomy in India’s political neighbourhood

Source: The post is based on the article “The New Year looks decidedly gloomy in India’s political neighbourhood” published in the Business Standard on 3rd January 2023.

Syllabus: GS 2 – India and its neighbourhood- relations.

Relevance: About challenges in India’s political neighbourhood.

News: Three key Indian neighbourhood countries with which India has economic ties — Sri Lanka, Bangladesh and Nepal — are facing risks that appear to be worsening.

What are the risks associated with India’s political neighbourhood?

Sri Lanka: Its economic crisis needs International Monetary Fund (IMF) loans – a combination of the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF).

But for that, Sri Lanka will have to reach a deal with its bilateral creditors, principally, India, Japan and China that the terms of their loans do not work at cross purposes with the IMF loan.

Bangladesh: It also having economic trouble. The collapse of global trade, on which the economy is acutely dependent, and high oil prices have hit the economy hard. There is a “sharp widening of the current account deficit, the rapid decline of foreign exchange reserves, rising inflation and slowing growth” in Bangladesh.

Due to these, the country has just signed a 42-month arrangement to secure a $3.2-billion IMF loan under ECF and EFF, with another $1.3 billion under the climate-linked Resilience and Sustainability Facility (RSF).

Nepal: The general elections had led to no clear verdict. Recently, the country finally got a new government in place with a left-wing orientation. The previous government’s repair work was made necessary by the IMF loan. The current inflation rate of 8.08%.

Pakistan: Standard & Poor recently reduced the sovereign rating to CCC-plus. This puts it deep in junk grade.

The supply shock-led crisis in South Asia highlights the policy missteps of different governments. The growth of South Asia now depends on how the countries implement the IMF support programmes.

GS PAPER - 3

It’s time to consider a wealth tax that may lessen Indian inequality

Source– The post is based on the article It’s time to consider a wealth tax that may lessen Indian inequality” published in the mint on 3rd January 2023.

Syllabus: GS3- Indian economy and mobilisation of resources

Relevance– Issues related to fiscal policy

News– The article explains the case of levying wealth tax in India .

Why is there a need to introduce wealth tax in India?

There has been massive accumulation of wealth in a few hands. It remains completely untaxed and unavailable for public allocation.

Wealth is largely dependent on inheritance and opportunities. It comes with the advantages associated with belonging to a privileged class and caste.

According to the World Inequality Database of 2022, India’s top 10% population owns 65% of the country ‘s wealth while, bottom 10% owns only 6%. An Oxfam report highlighted how India’s richest doubled their wealth during the pandemic.

One argument in support of wealth accumulation is that it could lead to investment. But this is not true in the case of India. Government lowered corporate tax significantly from 30% to 22% in 2019-20. But, it has not generated much private investment.

Investment has not created employment opportunities for youth. The unemployment rate in the 15-24 age group during May-July 2022 was 28.3%. In post-covid recovery phase, economic growth has largely been jobless.

What is wealth tax and its prevalence in India?

Wealth tax is a direct tax. It can take several forms such as property tax, inheritance or gift tax and capital gains tax. Capital gains tax exists in India but applies only to transactions. Hence, it has a very limited base.

India scrapped its estate duty in 1985 and has no inheritance tax. The receipt of gifts is subjected to income tax but it is subjected to various exemptions.

At present, India does not have any wealth tax that is tax levied on an entire property.

What is the way forward?

India needs a shift in its fiscal policy. It needs to adopt measures that create employment opportunities and drive demand for products made by small and medium producers.

Public investment is needed to boost the capabilities of small players across various sectors like agriculture and manufacturing. It is also required for essential public services to enhance the capabilities of youth.  One potential source of revenue to fund such investments is wealth tax

A number of Latin American countries have introduced annual wealth tax on wealth gains each year. This is the right time for the country to introduce a progressive wealth tax along with other fiscal steps that can reduce the growing inequalities.

Being pragmatic about energy sources

Source: The post is based on the article “Being pragmatic about energy sources” published in Business Standard on 3rd January 2023.

Syllabus: GS 3 – Environment

Relevance: concerns associated with adoption of clean energy.

News: The Russia-Ukraine war has again made countries dependent on fossil fuels for energy generation which has impacted the adoption of clean energy.

What is needed towards adoption of clean energy?

There is a need for proper storage technology for renewables and without it solar and wind capacities will need gas-powered plants for energy generation.

There are announcements made about giga-storage factories that can power the world but we are still several years away from such energy storage technologies.

What are the reasons behind delay in storage technology?

First, laboratory experiments for bringing up storage technology that can power large numbers of homes, factories and offices require time, capital and engineering expertise.

Second, better battery capacities for storage requires an increase in the mining activities and mineral supply. For example, solar panels and wind turbines need minerals. Some varieties are easily available but there are many minerals that are relatively rare.

As per the expert, billions of tones of minerals will need to be mined over the next few decades to ensure that ambitious clean energy goals of developed countries are met.

However, the problem with mining is that it is not clean, causes ecological damage and requires a large amount of energy from thermal-fueled power plants.

What are other concerns with the adoption of green hydrogen?

Green hydrogen is produced by the process of electrolyzing water using renewable energy sources such as solar or wind power. It is considered among the cleanest of fuels.

However, green hydrogen costs too much to be a replacement for natural gas.

Furthermore, there are leakage problems associated with hydrogen. Hydrogen is highly inflammable and requires special containers and pipes to transport safely. Still, some of the gas leaks into the atmosphere causing environmental damage.

Therefore, all energy sources have negatives and the government must keep this in mind that fossil fuel will be needed for the energy generations in the coming decades.

‘Demonetisation arose from the Centre …it should have enacted a law’

Source– The post is based on the article “Demonetisation arose from the Centre …it should have enacted a law” published in The Indian Express on 3rd January 2023.

Syllabus: GS3- Indian economy and mobilisation of resources

Relevance– Issues related to banking and monetary policy

News– The article explains the issue of legality of demonetisation by the central government in 2016.

What are the legal provisions for demonetisation initiated by RBI?

According to sub-section (1) of Section 26 of the RBI Act, 1934, every bank note shall be legal tender at any place in India and shall be guaranteed by the central government. This provision is subject to sub-section (2) of Section 26 of the Act.

Sub-section (2) of Section 26 of the Act applies only when a proposal for demonetisation is initiated by the RBI. It should be a recommendation being made to the central government. The recommendation can be in respect of any series of bank notes of any denomination

The word “any” will mean a specified series or a particular series of bank notes. Similarly, “any” denomination will mean any particular or specified denomination of bank notes.

If the word “any” is interpreted to mean “all series of bank notes” of “all denominations”, it would give the central board of the bank unguided and unlimited powers. It would be arbitrary and  unconstitutional.

On receiving the said recommendation made by the central board of the bank under sub-section (2) of Section 26 of the Act, the central government may accept or reject the said recommendation.

If the central government accepts the recommendation, it may issue a notification in the Gazette of India. It should specify the date from which the bank notes shall cease to be legal tender.

What are the legal provisions for demonetisation initiated by the central government?

The provisions of the Act do not bar the central government from initiating demonetisation. It could do so by using the powers under Entry 36 of List I of the Seventh Schedule of the Constitution. However, it has to be done only by an ordinance or legislation.

The central government cannot demonetise bank notes by issuance of a gazette notification under sub-section (2) of Section 26 of the Act.

When the central government proposes demonetisation of any bank note, it must seek the opinion of the central board of the bank. The bank is the sole authority to regulate circulation of bank notes and secure monetary stability.

The opinion of the central board of the bank should be independent after a meaningful discussion by the central board of the bank. If the central bank gives negative opinion, the central government may still go ahead with demonetisation after weighing the pros and cons.

What are arguments against the legality of demonetisation initiated by the central government in 2016?

The proposal for demonetisation in 2016 came from the central government. Therefore, it could not be given effect by way of a notification under Section 26 of the Act.

The decision making process did not include independent advice by the central board of the bank. The central bank acted on behalf of the central government.

Therefore, notification dated November 8, 2016 for demonetisation is unlawful.

Status of Non-Performing Assets (NPAs) – Explained, pointwise

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Introduction

In the recently released Financial Stability Report (FSR), the RBI has noted that the Gross Non-performing Assets (GNPA) ratio has declined to a 7-year low of 5% in September 2022. It is expected to further improve to 4.9% by September 2023. However, the Report also notes that NPA ratio may worsen to 5.8-7.8% if there are external macroeconomic shocks. Thus, although the NPA Crisis appears to have subsided, the banking sector is still vulnerable amidst geopolitical and economic uncertainties. The Government and the RBI had undertaken several initiatives that helped mitigate the challenge posed by NPAs. However, both need to be cautious in their approach and proactively take corrective steps should the NPAs rise in future.

What are Non-Performing Assets (NPAs)?

A Non-performing Asset (NPA) is a loan or advance for which the principal or interest payment has remained overdue for a period of 90 days.

Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.

Substandard Assets: Assets which has remained NPA for a period less than or equal to 12 months.

Doubtful Assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.

Loss Assets: According to the RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”

What is the current status of NPAs in India?

According to the Reserve Bank of India’s (RBI’s) Financial Stability Report the Gross non-performing assets (GNPA) ratio, has declined to 5% in September 2022. The ratio of Net non-performing assets (NPAs) to net advances ratio has fallen to 1.3% in September 2022 – the lowest in 10 years.

The NPAs had risen from 3.8% in 2014 to 11.4% in 2018. However, since then the NPAs have shown a declining trend. The decline has been achieved on the back of decrease in slippages, increase in write-offs, and pick up in credit growth.

In December 2022, the Government told the Rajya Sabha that loans written off by scheduled commercial banks (SCBs) during the last 5 financial years totalled INR 10.1 lakh crore. Of this, 1.32 lakh crore has been recovered. As a percentage of write-offs, this comes to be about 13%.

 

Despite the fall in the NPAs recently, the proportion is still high compared to other economies.

Status of NPAs Global Comparison UPSC

Source: The Times of India

What were the reasons for NPA Crisis?

Global Financial Crisis: The RBI Report on Trend and Progress of Banking in India (RTP) had noted that while the Indian banking system had largely withstood the pressures of the crisis, it remained vulnerable to the slowdown in global economic growth and the collapse of global trade following the crisis. The firms with exposure to global slowdown contributed to the NPAs.

Twin Balance Sheet Problems: In the aftermath of slowdown in the Indian economy beginning 2011  both the banking sector and the corporate sector come under severe financial stress. The proportion of non-performing loans (NPAs) in gross loans (GAs) went from about 2% in 2008 to over 11% in 2018.

Forbearance Policies: Between 2010-15, banks resorted to restructuring of loans in many cases to postpone recognition of non-performance, (’extend and pretend’ approach). As a result, until 2016 the restructured assets constituted more than 50% of the stressed assets of all scheduled commercial banks masking the actual extent of NPA crisis.

Stalled Judicial & Legislative Procedures: Many development projects were stalled due to prolonged judicial litigations. This had a particularly bad impact on sectors like mining, power, and steel. In addition, companies encountered difficulties in acquiring land, which resulted in the indefinite postponement of many projects and stalled investments

Other Factors: According to the RBI, aggressive lending practices, wilful defaults, loan frauds, diversion of funds and corruption also contributed to NPAs. Lack of information about creditworthiness about debtors also resulted in poor loan decisions. Poor recovery mechanisms also contributed to rise in NPAs.

What steps were taken to address the NPA Crisis?
RBI

The RBI undertook several measures to remedy the NPA, including the Prompt Corrective Action (PCA) framework in 2002 (which was reviewed in 2017 based on the recommendations of the working group of the Financial Stability and Development Council ), Schemes for debt restructuring (like the Scheme for Sustainable Structuring of Stressed Assets (S4A)), Asset Quality Review, etc. These efforts culminated in a 12 February 2018 circular by the RBI that granted banks the power to initiate insolvency proceedings and set a timeline of 180 days to formulate plans for a resolution.

Government

4R’s Strategy: Government has implemented a comprehensive 4R’s strategy, consisting of Recognition of NPAs transparently, Resolution and Recovery of value from stressed accounts, Recapitalising of PSBs, and Reforms in PSBs and the wider financial ecosystem for a responsible and clean system.

A National Asset Reconstruction Company (NARCL) was announced in the Union Budget for 2021-2022 to resolve stressed loans amounting to about INR 2 lakh crore in phases.

Indradhanush plan: The plan envisaged infusion of capital in PSBs by the Government. Capital infusion is aimed at supplementing the achievement of regulatory capital norms by PSBs through their own efforts and, in addition, based on performance and potential, augmenting their growth capital.

Insolvency and Bankruptcy Code, 2016: It is a step towards settling the legal position with respect to financial failures and insolvency. It provides an easy exit with a painless mechanism in cases of insolvency of individuals as well as companies.

Read More: Issues in the IBC Resolution Process and Possible Solutions – Explained, pointwise
Schemes for Settlement of NPAs

Lok Adalats: In order to address cases of non-performing assets (NPA) with balances of up to INR 20 lakhs of rupees, the Lok Adalats have been established. They take full responsibility for ensuring a speedy recovery . The Lok Adalats are typically not very harsh on those who have defaulted on their loans. Additionally, they are less expensive and more straightforward methods of resolving disputes related to loans.

NCLT and the National Company Law Appellate Tribunal (NCALT): NCLT has replaced the Board of Industrial and Finance Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) that is under IBC. This had been done as the BIFR had failed to meet its stated objectives. Under the IBC, not only the financial creditors but also the operational creditor can file an application for the purpose to liquidate before the NCLT. The IBC also very well stipulates the complete procedure of resolution, including the litigation that is to be completed within a passage of 330 days.

What should be done going ahead?

First, The government needs to recognise how its decisions independent of the banking sector can adversely impact NPAs in certain sectors and address the impact of those decisions to check the crisis. For example, in the power sector, mandated renewable purchase obligations (RPOs) for state power utilities, forcing them to prioritise renewable sources, has affected the performance of non-renewable projects.

Second, Ensuring time-bound evaluation process to assess the viability of projects can help shield banks from ministry decisions that could give rise to NPAs as a secondary effect.

Third, The government also needs to ensure a rapid resolution of recognised NPAs. The passage of the Insolvency and Bankruptcy Code (IBC) in 2016 was a welcome first step, but the government must now ensure there are no delays in the timeframe outlined by the law.

Fourth, The government also needs to seriously consider the Nayak Committee’s recommendations reviewing the governance of boards of banks.

Fifth, While the government has created the Banks Board Bureau, deeper reforms such as setting up of a state-owned Bank Investment Company under the Companies Act for PSBs, or fully moving the selection of bank chairpersons to the Banks Board Bureau, have not yet been implemented. These should be undertaken on priority.

Syllabus: GS III, Indian Economy

Source: Indian Express, Business Standard, MoneyControl, The Hindu

Popularize the e-rupee even at the cost of UPI

Source: The post is based on the article “Popularize the e-rupee even at the cost of UPI” published in the Livemint on 3rd January 2023.

Syllabus: GS 3 – Indian Economy and issues relating to planning, mobilization, of resources.

Relevance: About the promoting e-rupee and concerns associated with the Unified Payments Interface (UPI).

News: Recently, the supreme court upheld the demonetization done by the government in 2016. The government plans to improve the rupee digitisation. But, India’s cash intensity remains roughly on the same incline as it was earlier.

About the success of Unified Payments Interface (UPI)

The UPI has been a spectacular success since its 2016 launch. It is designed for instant transfers between bank accounts done via mobile phones.

According to the National Payments Corporation of India (NPCI), UPI operator, UPI processed more than 74 billion transactions in 2022. This is up 90% over 2021. It is worth almost ₹126 trillion, a 76% leap from 2021.

With 381 banks in the loop, net-linked handsets everywhere and UPI adoption now so wide.

Must read: UPI and Digital Payments in India – Explained, pointwise
What are the concerns associated with the UPI?

The government levies no user fee for UPI transactions. Public funds are used in strengthening UPI and funding bank transfers done by UPI. The government justifies that it’s a “digital public good with immense convenience for the public and productivity gains for the economy.”

Why India should promote RBI’s retail e-rupee instead of UPI?

This is because a) The digital rupee will better serve the cause of economic stability than an over-reliance on banks that square off transfers among themselves, b) With increasing UPI Payments, the public money spent for strengthening it will also increase. But this is not the case with the e-rupee, c) The mass usage of the e-rupee would involve the circulation of money that’s a direct liability of the central bank. On the other hand, UPI relies more on money in bank accounts.

Must read: e-Rupee: Here’s a Quixplained on India’s first official digital currency

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