9 PM Daily Current Affairs Brief – March 13th, 2023

Mains Oriented Articles

GS PAPER - 1

In politics and bureaucracy, women are severely under-represented

Source- The post is based on the article “In politics and bureaucracy, women are severely under-represented” published in “The Indian Express” on 13th March 2023.

Syllabus: GS1- Social empowerment. GS2- Vulnerable sections of the population

Relevance– Issues related to women empowerment

News– Despite economic growth, women’s participation in India’s economy, polity and society has not grown much.

What are statistics related to representation of women in the legislature?

As per data by the Inter-Parliamentary Union women make up 14.44% of the Lok Sabha in India. As per the latest report of the ECI, women represent 10.5% of all Members of Parliament as of October 2021.

For all the state assemblies, female MLAs’ representation stands at an average of 9%. India’s ranking in this regard has fallen over the last few years.

It is currently behind Pakistan, Bangladesh and Nepal. The data for May 2022 showed that women’s representation in Pakistan was 20%, in Bangladesh 21%, and in Nepal was 34%. Since Independence, women’s representation in Lok Sabha has not even increased by 10%

What is the status of women in bureaucracy in India?

The representation of Indian women in bureaucracy is also lacking. as per Indian Administrative Services data and the central government’s employment census of 2011, less than 11% of its total employees were women. In 2020, this reached 13%.

In fact, out of a total of 11,569 IAS officers entering service between 1951 and 2020, only 1,527 were women. Further, only 14% of Secretaries in the IAS were women in 2022. There are only three women chief secretaries across Indian states and union territories.

India has never had a woman cabinet secretary. There have been no women Secretaries of Home, Finance, Defence and Personnel, either.

As per UPSC, in 2019, 1,77,611 women appeared for the UPSC examination, and 1,534 women qualified. In comparison, 3,90,671 male candidates appeared for the exam and 10,311 qualified.

Women candidates are more likely to seek voluntary retirement from service, compared to men. Structural impediments to women’s empowerment make it difficult for them to be a part of the services.

Service conditions involving postings in distant cadres, patriarchal society and balancing family commitments along with the requirements of this job are social factors responsible for women opting out of the civil services.

Furthermore, there is a general perception that women should be preferred for “soft” ministries like Social Welfare, Culture, Women and Child Development.

What is the economic status of women in India?

Only 20.37% of MSME owners are women. 10% of start-ups are founded by females. 23.3% of women are in the labour force.

Further, the measurement of the female labour force is difficult. Most of the available statistics on India’s female labour rate do not include the unpaid work done by females.

Reimagining the urban­ – rural dichotomy

Source- The post is based on the article “Reimagining the urban­rural dichotomy” published in “The Hindu” on 13th March 2023.

Syllabus: GS1- Urbanisation and remedies. GS2- Government policies and interventions

Relevance– Changing from of urbanisation

News– The rural urban continuum or urban rural continuum has drawn wide attention in recent years.

What is the urban-rural continuum?

It is an intermediate settlement formation that lies between rural and urban areas. Here, rural and urban functions coexist without distinguishable boundaries.

Such formations evolve due to interactions of a complex set of geographical, cultural, economic and historical processes.

What is the status of urban-rural continuum in India?

Kerala is well known for the rural­-urban continuum in the coastal plain. Geographical factors and affirmative public policy promoting distributive justice and decentralisation have increased rural­-urban linkages.

In recent years, the rural-­urban continuum has developed in various parts of the country. The urban industrial interaction fields in India are spreading by linking rural areas and small towns around megacities and urban corridors.

What are the reasons behind the phenomena of urban-rural continuum?

In 30 years, technology and economic globalisationhave increased the mobility of resources and people and enhanced inter-and intra-country connectivity.

The extension of transport and communication systems,improved access to energy, increased affordability of private and public transport and penetration of economic networks into remote areas promote a rural­-urban continuum.

Rural hinterlands are connected to multiple urban centres. The movement of goods, people, information and finance between sites of production and consumption has strengthened linkages between production and labour markets.

What are impacts associated with urban-rural continuum?

As the pull factors grow, push factors driving populations out from both rural areas and urban areas are also intensifying.

In the process, a mixed economy zone of primary, secondary and tertiary sectors has evolved.

The rural-­urban continuum areas also witness changing ecosystems. Agriculturally productive lands are being given for other uses. Food security zones are being reconfigured.

Areas for pollutant filtering are declining. There is an increase in waste dump, enhanced disaster risk, and elevated vulnerability.

The access of local people to water, food, fuel, fodder and fibre from ecosystems is reducing. Intermediary market institutions are emerging to provide these goods. It has significant implications for the local people.

There is also an escalation of the market value of land. It further marginalizes them.

Why is it important to recognize urban-rural continuum?

Social, economic development and environmental issues cannot be addressedwithout acknowledging the rural­-urban continuum.

Acknowledging the rural­-urban continuum will help identify challenges for improving both urban and rural governance and opportunities for enhanced access to employment, services, institutional resources and environmental management.

A 2021 World Bank Policy Research Working Paper advocated adopting the notion of urban catchment areas delineated along an urban rural continuum.

Identification of such areas would help understand urban rural interconnections. It is important for making policy decisions across development sectors and for addressing issues related to environment and natural resources management.

A 2008 report of the Study Team on rural-urban continuum was based on studies in eight countries around the world including India.

It emphasised understanding the changing relationship between ecosystems and livelihoods under diversified economic systems across the rural-urban continuum.

What is the way forward to ensure the proper growth of the urban-rural continuum?

The institutional connections between rural and urban areas operate at different levels forvarious development sectors.

The key challenge of decision making is to build rural­-urban partnership. To achieve this, asystems approach is recommended. Here, the city and the surroundings form a city region.

A perspective plan is prepared for this city region by integrating rural and urban plans within a common frame.

It is important that the rural urban linkages are better mapped.Satellite based settlement data and its integration with Census data may be useful for it.

GS PAPER - 2

India-US economic partnership needs more energy

Source: The post is based on thearticle “India-US economic partnership needs more energy” published in Business Standard on 13^thMarch 2023.

Syllabus: GS 2 –International Relations

Relevance: India-US bilateral relations

News:India-US Commercial Dialogue was held recently in which Union Commerce Minister Piyush Goyal met his US counterpart. The discussions were held on various issues.

What were discussions made in the India-US Commercial Dialogue?

Mid-year review: Both sides agreed for a mid-year review of outstanding issues by their officials.

Supply-chain resilience: They both agreed to cooperate in supply-chain resilience by decoupling from China-centred production networks.

The other areas on which discussions made were –iCET, green and digital economies and IPEF.

However, problems like tax policy in India and end-use restriction along with other restrictions in the US were not discussed at the commercial dialogue.

The India-US Commercial Dialogue show that both nations are moving towards a strong partnership. However, concerns still remain.

What are the concerns with the bilateral trade between India and the US?

The attitudes in both countries on trade have reversed in the past decade.

For example, the Indian government is focusing on signing FTAs while the US has closed itself off from further trade negotiations and continues to hold the World Trade Organization and the multilateral system.

Furthermore, there have been no discussions on market access which the US provides for its partners.

US companies are also not as interested in the sectors like job-intensive, industrial, or infrastructure-related, that are of most interest to the Indian side.

Even in the case of iCET, the question remains whether the iCET can be leveraged in such a way that both countries benefit from integrating their hi-tech sectors.

However, despite these concerns, the US plays an important role in improving India’s economy. Therefore, regular discussions at policy level should be held. This will help in taking economic relations forward.

In politics and bureaucracy, women are severely under-represented

Source- The post is based on the article “In politics and bureaucracy, women are severely under-represented” published in “The Indian Express” on 13th March 2023.

Syllabus: GS1- Social empowerment. GS2- Vulnerable sections of the population

Relevance– Issues related to women empowerment

News– Despite economic growth, women’s participation in India’s economy, polity and society has not grown much.

What are statistics related to representation of women in the legislature?

As per data by the Inter-Parliamentary Union women make up 14.44% of the Lok Sabha in India. As per the latest report of the ECI, women represent 10.5% of all Members of Parliament as of October 2021.

For all the state assemblies, female MLAs’ representation stands at an average of 9%. India’s ranking in this regard has fallen over the last few years.

It is currently behind Pakistan, Bangladesh and Nepal. The data for May 2022 showed that women’s representation in Pakistan was 20%, in Bangladesh 21%, and in Nepal was 34%. Since Independence, women’s representation in Lok Sabha has not even increased by 10%

What is the status of women in bureaucracy in India?

The representation of Indian women in bureaucracy is also lacking. as per Indian Administrative Services data and the central government’s employment census of 2011, less than 11% of its total employees were women. In 2020, this reached 13%.

In fact, out of a total of 11,569 IAS officers entering service between 1951 and 2020, only 1,527 were women. Further, only 14% of Secretaries in the IAS were women in 2022. There are only three women chief secretaries across Indian states and union territories.

India has never had a woman cabinet secretary. There have been no women Secretaries of Home, Finance, Defence and Personnel, either.

As per UPSC, in 2019, 1,77,611 women appeared for the UPSC examination, and 1,534 women qualified. In comparison, 3,90,671 male candidates appeared for the exam and 10,311 qualified.

Women candidates are more likely to seek voluntary retirement from service, compared to men. Structural impediments to women’s empowerment make it difficult for them to be a part of the services.

Service conditions involving postings in distant cadres, patriarchal society and balancing family commitments along with the requirements of this job are social factors responsible for women opting out of the civil services.

Furthermore, there is a general perception that women should be preferred for “soft” ministries like Social Welfare, Culture, Women and Child Development.

What is the economic status of women in India?

Only 20.37% of MSME owners are women. 10% of start-ups are founded by females. 23.3% of women are in the labour force.

Further, the measurement of the female labour force is difficult. Most of the available statistics on India’s female labour rate do not include the unpaid work done by females.

Reimagining the urban­ – rural dichotomy

Source- The post is based on the article “Reimagining the urban­rural dichotomy” published in “The Hindu” on 13th March 2023.

Syllabus: GS1- Urbanisation and remedies. GS2- Government policies and interventions

Relevance– Changing from of urbanisation

News– The rural urban continuum or urban rural continuum has drawn wide attention in recent years.

What is the urban-rural continuum?

It is an intermediate settlement formation that lies between rural and urban areas. Here, rural and urban functions coexist without distinguishable boundaries.

Such formations evolve due to interactions of a complex set of geographical, cultural, economic and historical processes.

What is the status of urban-rural continuum in India?

Kerala is well known for the rural­-urban continuum in the coastal plain. Geographical factors and affirmative public policy promoting distributive justice and decentralisation have increased rural­-urban linkages.

In recent years, the rural-­urban continuum has developed in various parts of the country. The urban industrial interaction fields in India are spreading by linking rural areas and small towns around megacities and urban corridors.

What are the reasons behind the phenomena of urban-rural continuum?

In 30 years, technology and economic globalisationhave increased the mobility of resources and people and enhanced inter-and intra-country connectivity.

The extension of transport and communication systems,improved access to energy, increased affordability of private and public transport and penetration of economic networks into remote areas promote a rural­-urban continuum.

Rural hinterlands are connected to multiple urban centres. The movement of goods, people, information and finance between sites of production and consumption has strengthened linkages between production and labour markets.

What are impacts associated with urban-rural continuum?

As the pull factors grow, push factors driving populations out from both rural areas and urban areas are also intensifying.

In the process, a mixed economy zone of primary, secondary and tertiary sectors has evolved.

The rural-­urban continuum areas also witness changing ecosystems. Agriculturally productive lands are being given for other uses. Food security zones are being reconfigured.

Areas for pollutant filtering are declining. There is an increase in waste dump, enhanced disaster risk, and elevated vulnerability.

The access of local people to water, food, fuel, fodder and fibre from ecosystems is reducing. Intermediary market institutions are emerging to provide these goods. It has significant implications for the local people.

There is also an escalation of the market value of land. It further marginalizes them.

Why is it important to recognize urban-rural continuum?

Social, economic development and environmental issues cannot be addressedwithout acknowledging the rural­-urban continuum.

Acknowledging the rural­-urban continuum will help identify challenges for improving both urban and rural governance and opportunities for enhanced access to employment, services, institutional resources and environmental management.

A 2021 World Bank Policy Research Working Paper advocated adopting the notion of urban catchment areas delineated along an urban rural continuum.

Identification of such areas would help understand urban rural interconnections. It is important for making policy decisions across development sectors and for addressing issues related to environment and natural resources management.

A 2008 report of the Study Team on rural-urban continuum was based on studies in eight countries around the world including India.

It emphasised understanding the changing relationship between ecosystems and livelihoods under diversified economic systems across the rural-urban continuum.

What is the way forward to ensure the proper growth of the urban-rural continuum?

The institutional connections between rural and urban areas operate at different levels forvarious development sectors.

The key challenge of decision making is to build rural­-urban partnership. To achieve this, asystems approach is recommended. Here, the city and the surroundings form a city region.

A perspective plan is prepared for this city region by integrating rural and urban plans within a common frame.

It is important that the rural urban linkages are better mapped.Satellite based settlement data and its integration with Census data may be useful for it.

Safe harbour at risk: On the impact of the proposed Digital India Act, 2023

Source: This post is created based on the article “Safe harbour at risk: On the impact of the proposed Digital India Act, 2023”, published in The Hindu on 13^th March 2023.

Syllabus Topic – GS paper 2 – Government policies and interventions for development in various sector

News: The proposed Digital India Act, 2023 is set to become the replacement of the obsolete IT Act, 2000.

Removal of the protection to digital intermediaries in the form of safe harbour clause, is one of the debates that is ongoing.

What steps are taken earlier to remove protection for intermediaries?

The government has increased the compliance burden on Internet intermediaries by IT Rules 2021 and its later amendments.

IT rules 2021 placed obligations on SMIs to ensure an open, safe and trusted internet. It provided users of social media and OTT platforms with a mechanism for redressal and timely resolution of their grievance. For this matter a Grievance Redressal Officer (GRO) to be appointed, who should be a resident in India. Appeals were filed against the rules.

In Oct 2022 amendment to IT rules 2021 provided for government-appointed committees. It will adjudicate on an individual user’s appeals against moderation decisions of these intermediaries.

In January 2023, the IT Ministry proposed an amendment on the take down of social media/news content that has been marked as “fake” or“false” by the Press Information Bureau or any other government agency.

What are the concerns associated with digital India Act?

Requirements on intermediaries may become needlessly difficult and punitive.

Safe harbour provisions, in particular Section 230 of the U.S. Communications Decency Act, 1996, has helped in development of internet. It should be taken into consideration. Section 230 of the U.S. Communications Decency Act, 1996, that explicitly provided immunity to online services with respect to user-generated content.

The China hand in Saudi-Iran diplomacy

Source: This post is created based on the article “The China hand in Saudi-Iran diplomacy”, published in Indian Express on 13^th March 2023.

Syllabus Topic: GS Paper 2, Effect of policies and politics of developed and developing countries on India’s interests

News: Recently, the Saudi Arabia and Iran entered a deal, which was brokered by China.

Both countries re-established their relations, seven years after breaking off ties.

Under this deal, Iran and Saudi Arabia will reopen their embassies, revive a 2001 security pact, and a 1998 agreement to build economic, commercial, scientific, cultural and sports ties. China is also a signatory to the deal.

Why both countries have tilted towards China?

Saudi Arabia: In 2019, Houthi rebels, backed by Iran, made the drone attacks on its oil facilities in 2019. However, US led by Trump declined to help Saudis. Similarly, Biden administration also signalled decreasing interest in the region.

Iran: Trump pulled out of the Iran nuclear deal and reimposed sanctions on Iran. Furthermore, US carried out the targeted killing of the Iranian Revolutionary Guard chief Qassem Soleimani.

Significance and implications of this deal

First, this agreement may resolve the ongoing conflicts between 2 countries in Yemen, Syria and Lebanon.

Second, it establishes China’s dominance in the region, which was a US turf, until now.

Third, it may rebuild the China’s image as an international peacebuilder, from the earlier image of a territorial aggressor and a loan shark.

Fourth, China has been trying to improve relations with both countries for a long time. In 2021, it signed a strategic cooperation pact with Iran. It has been in contact with crown prince Mohammed Bin Salman, when US was reluctant to maintain its relationship.

What are its implications for India?

First, it makes China, an important geopolitical player in the Persian Gulf, where India has been continuously strengthening its ties.

Second, India has also been strengthening its relations with US. Now with US weakening in the region, it won’t be able to help India.

Third,I2U2 (Israel-India-UAE-US) or “quad of the middle east” may render dysfunctional with the isolation of UAE and Israel.

GS PAPER - 3

Care, Common Sense – Demands for govt jobs for extended family members of martyrs must be resisted

Source: The post is based on the article “Care, Common Sense – Demands for govt jobs for extended family members of martyrs must be resisted” published in The Times of India on 13th March 2023.

Syllabus: GS – 3 – employment.

Relevance: About expanding the dependents for the compassionate jobs.

News: Recently, the widows of Pulwama martyrs in Rajasthan protested demanding jobs not just for their children but also relatives. The local politicians have politicised the issue and accused the state government of failing to fulfil its promises.

The Rajasthan government rejects the accusation as it has already provided benefits to the families of Pulwama martyrs as per the state’s own scheme. The state government has a provision for ensuring a government job for martyrs’ minor children once they reach adulthood.

What is a compassionate job, and what is the procedure for compassionate employment?

Read here: Compassionate job not a vested right, says SC

The scheme for compassionate appointment under the central government has updated last year. Accordingly, the rules define a dependant family member as a spouse or son or daughter – including an adopted son or daughter- or the dependant sibling in case the martyr was unmarried.

Why expanding the dependents for compassionate job is not correct?

More demands: Expanding the definition of dependants will create Pandora’s box of demands. The state governments could be flooded with job demands from many families.

Not a solution to unemployment: The unemployment situation in the country made a view that securing a government job is the only path to employment and financial security. For instance, in 2020, the Punjab government made exemptions to allot government jobs to the married siblings of three unmarried Galwan martyrs.

The government has to create awareness that government jobs are not a panacea for the unemployment problem.

Remove the value cap on exports by courier for an SME trade boom

Source: The post is based on thearticle “Remove the value cap on exports by courier for an SME trade boom”published in Mint on 13^thMarch 2023.

Syllabus: GS 3 –Indian Economy

Relevance: concerns with export sector in India

News: The International Monetary Fund (IMF) has predicted that India will be the world’s fourth largest economy by 2027 with a GDP of about $5.53 trillion.

The article highlights the measures required in the export sector to reach this target.

What are some measures taken by India to support growth and trade?

Measures taken by India are – a) GST, b) production-linked incentive program, c) PM Gati Shakti National Master Plan for Multi-modal Connectivity and the National Logistics Policy of 2022, d) various trade agreements, e) onboarding small and medium enterprises (SMEs) to digital platforms.

These are some of the steps taken by India to increase its export and its integration in global value chains.

However, despite these efforts challenges still exist with India’s export sector.

What are the challenges associated with exports?

India’s share in global exports is less than 2% and the country is struggling to meet export targets of $1 trillion of goods and services each by 2030.

This is because of certain restrictions faced by SME exporters. SME exporters lack integration in global value chains, and they also face barriers while using express delivery services.

What are the problems with SMEs in using express delivery services?

The express delivery sector is regulated by the Courier Imports and Exports (Electronics Clearance) Regulation, 2010. This law makes India the only country with a value limit of ₹5 lakh on exports of goods through courier/express mode.

Therefore, high-value shipments are exported through the general cargo mode which causes delays.

This adversely impacts the ability of SMEs in high-value sectors like gems and jewelry, handicrafts, electronics and auto component goods to use express delivery services (EDS) at reasonable cost.

Even though there have been significant changes in India’s express delivery industry over the 25 years, the value restriction continues.

What can be the way ahead?

First, there is an urgent need to review the 2010 Courier Imports and Exports (Electronics Clearance) Regulation and align it with the demands of modernization and with upgraded infrastructure and global best practices.

Second, Indian exporters compete with exporters from countries like Malaysia, Vietnam, China or Thailand in global markets. Therefore, the limit should be removed, and Indian exporters should be provided a level playing field with other countries.

Third, the upcoming Foreign Trade Policy should examine the adverse implication of value limits on exports through the courier mode and push for their removal.

Adultery as misconduct and judicial musings

Source- The post is based on the article “Adultery as misconduct and judicial musings” published in “The Hindu” on 13th March 2023.

Syllabus: GS-2, Indian Constitution – Fundamental RIghts

Relevance– Issues related to fundamental rights in India

News– Recently, the Union government sought clarification from the Court saying that any adulterous acts should be governed by the relevant sections of the Army Act, the Air Force Act and the Navy Act. They are special legislations by virtue of Article 33 of the Constitution.

What are the provisions of Article 33?

Parliament has powers to restrict or abrogate the fundamental rights of certain categories of persons, including members of the armed forces to ensure the proper discharge oftheir duties and the maintenance of discipline among them.

What was the stand of SC on the clarifications sought by the government?

The Court said that it was not concerned with the effect and operation of therelevant provisions of special acts of armed forces.

Court did not approve of adultery. It found adultery as a moral and civil wrong and a ground for securing dissolution of marriage.

What is the stand of SC on adultery?

The Supreme Court of India decriminalised adultery in Joseph Shine versus Union of India.

It held Section 497 of the Indian Penal Code along with Section 198 of the Criminal Procedure Code to be unconstitutional. These provisions were violative of Articles 14, 15 and 21 of the Constitution of India.

What are various judgments related to adultery by government employees?

The Rajasthan High Court, in Mahesh Chand Sharma versus State of Rajasthan and Others (2019) set aside the departmental proceedings against the inspector in the Rajasthan Police. He had illicit relations with one woman constable.

The High Court held that no employer can be allowed to do moral policing on its employee’s personal choices and selections cannot be a subject matter of departmental proceedings under the Service Conduct Rules.

Gujarat High Court in Maheshbhai Bhurjibhai Damor versus State of Gujarat and 3 others case of 2022, set aside the dismissal order of an armed police constable. There were allegations that he had developed illicit relations with a widow, and it amounted to misconduct.

The Court held that in order to prove misconduct, allegations must have some correlation with the duties to be performed by the government servant.

What is the way forward to deal with the issue of adultery by personnel of the armed forces?

An example may be drawn with the conduct of an army personnel who consumes alcohol. Unless the drinking habits affect the discharge of his duties or discipline of the force, no departmental action is initiated.

Article 33 of the Constitution empowers Parliament to restrict the fundamental rights of the members of the armed forces. But there is a caveat. This can be used to ensure the proper discharge of their duties and the maintenance of discipline among them.

The same principle will also apply to members of the forces charged with the maintenance of public order, i.e., the police personnel of all States and Union Territories

It can be inferred in all relevant judgments related to adultery that if the conduct interferes with the honest discharge of duties; then it may be considered as unbecoming of a government servant. The legislative intent of Article 33 of the Constitution is also similar.

Therefore, the right to privacy available to the members of the armed forces cannot be taken away under the guise of special legislation. It should have some correlation with their duties.

The rise of the ESG regulations

Source- The post is based on the article “The rise of the ESG regulations” published in “The Hindu” on 13th March 2023.

Syllabus: GS3- Indian economy

Relevance– Issues related to corporates

News– Regulators and corporations around the world have embraced the idea that businesses should be measured by their environmental impact, commitment to social issues and the soundness of their corporate governance.

What is the main driver behind this development?

It is the realisation that environmental, social and governance (ESG) considerations need to be included by investors in a company’s risk profile in order to accurately assess the enterprise.

How ESG differs from CSR?

Corporate Social Responsibility policy in India mandates corporations to engage in initiatives that contribute to the welfare of society. This mandate has been codified into law.

The list of qualifying CSR activities is intentionally broad. It ranges from supporting the protection of historically important sites to promoting safe drinking water.

ESG regulations, on the other hand,differ in process and impact. The U.K. Modern Slavery Act, for example, requires companies to publish the efforts they have taken to identify and analyse the risks of human trafficking, child labour and debt bondage.

How is ESG evolving in India?

India has long had a number of laws and bodies regarding environmental, social and governance issues.

It includes the Environment Protection Act of 1986, quasi­judicial organisations such as the NGT.Also, a range of labour codes and laws governing employee engagement and corporate governance practices.

New initiatives in India go further. It establishes guidelines that emphasise monitoring, quantification, and disclosure, like ESG requirements found in other parts of the world.

SEBI substantially revised the annual Business Responsibility and Sustainability Report (BRSR) required by the 1,000 largest listed companies in India.

As per SEBI, it is aligned with evolving global standards. It places considerable emphasis on quantifiable metrics to allow companies to engage meaningfully with stakeholders and to enhance investor decision making.

Disclosures range from greenhouse gas emissions to the company’s gender and social diversity.

Further legislations regarding ESG are likely to come, given the increased emphasis by the Indian government on ESG issues.

It can be seen in India’s more active role in global climate forums as well as in specific policy developments.Such as the announcement in January by the Reserve Bank of India that it would be auctioning ₹80 billion in green bonds.

What are the implications for Indian companies?

Compliance with ESG regulations both originating in India and elsewhere around the world have significantly different challenges than India’s CSR regulations.

Compliance by Indian companies with the ESG regulations of the U.S., the U.K., the European Union and elsewhere will be critical.If India is to take full advantage of the growing decouplingfrom China and play a more prominent role in global supply chains.

As Indian companies look to expand their ESG risk management, thorough due diligence will play a key role.

It includes looking at company records, interviewing former employees and making discreet visits to observe operations to ensure that they are complying withinternational ESG standards.

Companies that wish to maximise their opportunities in the global economy need to embrace these new requirements and adjust them accordingly.

Silicon Valley Bank crisis: Reasons and Impacts - Explained, pointwise

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Introduction 

Recently, the California-based Silicon Valley Bank (SVB), a cornerstone of the US technology and startup industries, has failed. This marks the biggest bank failure since the 2008 financial crisis. The Silicon Valley Bank crisis has resulted in the subsequent seizure of SVB assets by regulators has generated a global wave of risk aversion, particularly among start-ups, including Indian startups. 

About the Silicon Valley Bank Crisis

• After the pandemic in 2021, the US Federal bank adopted the easy money policy and pump huge money into the market. During this period SVB deposits also increased.  
• Subsequently, SVB decided to heavily invest in the bond market, where bonds had been issued at lower interest rates.   
• After a period of record low-interest rates during the pandemic, central banks around the world, led by the US Federal Reserve, started raising key rates aggressively to tackle inflation. This has dampened investor sentiments and also hit the businesses of tech and start-up-focused lenders like SVB. 
• This is because investors do not like to take risks when the money available to them becomes expensive due to higher interest rates. As a result of the higher interest rates, investors in technology start-ups became reluctant to take risks. 
• As higher interest rates led to a funding crunch for technology start-ups, SVB’s clients started pulling out their money to meet their liquidity needs. 
• Under this pressure to meet customer withdrawals, SVB sold a $21 billion portfolio consisting mostly of US Treasuries at a huge loss of $1.8 billion. 
• Moody’s immediately downgraded the bank’s credit rating to Baa1 negative outlook from A3. 
• This was followed by further losses to SVB. To fill this loss, SVB announced it would sell $2.25 billion in common equity and preferred convertible stock. This sudden announcement triggered concerns about its balance sheet and its shares plummeted 60%. 
• SVB also failed to find alternative sources. Hence, it ended up being shut down by regulators, following which it was handed over to the FDIC.
• The FDIC has added that it would seek to sell SVB’s assets, adding that future dividend payments may be made to uninsured depositors. 

What is the reason behind Silicon Valley Bank Crisis? 

Aggressive raising interest rates: 

• Global borrowing costs have risen at the fastest pace in decades over the last year as the Federal Reserve lifted U.S. rates by 450 basis points from near zero, while the European Central Bank hiked the eurozone by 300 bps. 
• Due to this, the value of existing bonds that were issued at lower interest rates has fallen. Banks, which bought these bonds are sitting on steep unrealised losses.  
• Another facet of the rising interest rates was the decline in funding for startups as the venture capital ecosystem don’t want to take risk. 

Heavy investment in long-term government bonds: SVB’s invest heavily in US government bonds. A spike in interest rates has led to a sell-off in bonds, leaving banks exposed to potential losses on the securities they hold. 

A downturn in technology stocks: Silicon Valley Bank was hit hard by the downturn in technology stocks over the past year. 

“Run on the bank”: The bank failed after depositors — mostly technology workers and venture capital-backed companies — began withdrawing their money in panic, creating a “run on the bank”. 

Soft Regulations: In 2018, regulations were loosened for regional banks like SVB – among other things, it reduced the amount of potential loss reserves mandated for these banks.  

What will be the potential impact of the Silicon Valley Bank Crisis on the World Economy? 

Impacts on small businesses: According to a petition to the US government, around 10,000 small businesses with accounts in Silicon Valley Bank may be unable to pay their employees in the next 30 days, and approximately 1 lakh jobs are anticipated to be affected as a result of the collapse. 

Impact the technology industry: It will immediately impact the US technology industry and US competitiveness worldwide and ultimately set back US competitiveness by a decade or more. 

Can trigger a run on the bank: Its collapse has already instilled fear among founders and management teams to look for safer havens for their remaining cash, which can trigger a bank run on every other smaller bank. 

Vulnerability to the rising cost of money: The SVB crisis spread concern about hidden risks in the banking sector and its vulnerability to the rising cost of money. 

What will be the potential impact of the SVB Crisis on India? 

According to some experts, India is unlikely to be affected by any contagion effects. This is because: 

• Indian banks have minimal exposure to US lenders. 
• In its 2022 Financial Stability Report (FSR), the Reserve Bank of India (RBI) said that macro-level stress tests for credit risk showed that domestic banks would be able to comply with minimum capital requirements even under severe-stress scenarios.  
• Improved capital-to-risk-weighted-assets ratio (CRAR): The system-level CRAR in 2023, under baseline, medium and severe stress scenarios, is projected at 14.9%, 14% and 13.1%, respectively, the RBI said. 

Note: The minimum regulatory requirement for CRAR for scheduled commercial banks is 9%. Adding on a counter-cyclical buffer, the requirement is 11.50%. 

• Improvement in NPA: Banks have stepped up efforts to clean up asset quality and their profitability has also improved. Further, gross NPAs were at a seven-year low of 5% as of September 2022. 
• The increase in the 10-year yield has been less than the policy rate hikes by the RBI. 
• Banks have sharply reduced the modified duration of their bond portfolios over the last six years, according to the latest RBI data. 

Note: Modified duration refers to the change in the value of a bond when interest rates change. The higher the modified duration of the bond portfolio, the more the risk of incurring losses when bond yields rise. 

Benefits for the Indian economy from the SVB crisis:

• Boom for emerging markets: A fall in US bond yields typically improves the appeal of higher-yielding fixed-income assets in emerging markets. 
• Bring corporates back to India: Falling US dollar rates coupled with SVB Crisis might bring back big corporates in India, who had shifted to overseas lending due to depreciation in Indian National Rupee (INR) against the US dollar.” 

Impacts on Indian start-ups:

• Most of the named Indian startups got money from SVB, they are not depositors. SVB either lent them money (as venture debt) or invested in them in the form of equity. It realised its profits via a sale or got repaid by the companies, depending on the structure. Therefore, there is no impact on the start-ups themselves.  
• However, some start-ups with deposits in SVB are impacted. For example, among its most notable funding was an investment of a total of $1.7 million in One97 Communications, the parent company of Paytm. Other start-ups that had received funding from SVB include Bluestone and Carwale. 

What should be done to prevent big bank failures? 

Maintain constant vigil: All the stakeholders, including bank boards, auditors and the regulator have to maintain constant vigil, given the high stakes for safety and stability. 

Indian banks should keep capital as measured under the current Basel regime (international standards set by bank regulators).

Ensure Cooperation and coordination: Cooperation and coordination among all central banks will be helpful in bringing transparency and accountability and also help in minimising the spillover effect of bank failure. 

Ensure proper selection: The selection of the board of directors has to be prudent. The auditors’ selection has to be done with care. 

Board members of banks usually spend most of their meeting time on governance issues, business updates, and “problem children.” They should focus instead on the businesses that use the most capital. 

Strict actions from central banks: The central bank has to continuously monitor the lending institutions on various parameters including fit and proper. While supervising the banks, the Central bank should not avoid any loopholes in the management and should take strict action against them.  

Sources: Live Mint (Article 1 and Article 2), Economic Times (Article 1 and Article 2), The Hindu, Business Standard, and Times of India.

Syllabus: GS – 3: Economic development – Effects of liberalization on the economy.

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