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9 PM Daily NEWS Brief

9 PM Daily Brief – 16th December 2015

A brief of newspaper articles for the day bearing
to Civil Services preparation


[1]. WTO chief calls for a Paris-style deal

What has happened?

In the light of recent Paris deal, the director of WTO Robert Azevedo has said that nations meeting at the Nairobi ministerial should try and reach a similar kind of agreement to liberalise world trade to lift millions out of poverty.

1st ministerial meeting of WTO in Africa

The Nairobi ministerial is the 1st meeting of the World Trade Organisation on the African soil. The global trade body is celebrating its 20th anniversary in the backdrop of an economic slowdown being witnessed throughout the world.

Can an agreement like Paris happen at Nairobi?

Well, at the outset it seems difficult that a Paris style deal would be possible simply because, the necessity and the will to reach at an agreement is not at the same level as in the case of Paris summit. Climate change has made the world aware of its complacent behaviour and its imminent effects if it doesn’t rectify its ways. This alarming realization led to an ambitious, though some would differ, deal.

In case of WTO, developed and developing nations are clearly on the opposite sides of the fence.

India, leading the developing countries bloc want developed countries to reduce its trade distorting subsidies while on the other hand side, developed world want the Doha round of talks to be concluded and on the top of that introduce a host of new issues to the agenda.

Both sides, if dig in their heels, unlike Paris we may not see an agreement at all, let alone an ambitious one.

[2]. Finance panel: No negative impact on the social sector expenditure

What is Finance commission?

The Finance Commission of India came into existence in 1951. It was established under Article 280 of the Indian Constitution by the President of India. It was formed to define the financial relations between the centre and the state. The Finance Commission Act of 1951 states the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission. As per the Constitution, the commission is appointed every five years and consists of a chairman and four other members.

What has happened?

Chairperson of the 14th Finance commission Y.V Reddy while delivering a talk on the 14th Finance Commission and its implications for the State finances with special focus on social sector expenditure,’ hosted by Centre for Economic and Social Studies, on 15th Dec 15 said despite the recent phenomenon of spending through the Centrally-sponsored schemes in social sector, the States’ share has remained significantly high.

Why he said so?

Apprehensions are being expressed wrt the recent recommendations of the 14th Finance commission wherein devolution of more tax revenue to states (from 32% to 42%) has been talked about thereby fearing a reduced expenditure on social sector schemes. So, the chairperson was allaying these fears.

Recommendations of 14th Finance commission

1). The 14th Finance Commission is of the view that tax devolution should be the primary route for transfer of resources to the States.

2). In understanding the States’ needs, it has ignored the Plan and non-Plan distinctions

3) According to the Commission, the increased devolution of the divisible pool of taxes is a “compositional shift in transfers’’ – from grants to tax devolution

4). In recommending an horizontal distribution, it has used broad parameters – population (1971), changes in population since then, income distance, forest cover and area, among others.

5). It has recommended distribution of grants to States for local bodies using 2011 population data with weight of 90 per cent and area with weight of 10 per cent

6). Grants to States are divided into two

7). One, grant to duly constituted gram panchayats

Two, grant to duly constituted municipal bodies

8). And, it has divided grants into two parts

9). A basic grant, and a performance one for gram panchayats and municipal bodies

10). The ration of basic to performance grant is 90:10 for panchayats; and 80:20 for municipalities

11). The total grant recommended is Rs. 2,87,436 crore for a five-year period. Out of which, the grant to panchayats is Rs.2,00,292 crore. And, the reminder goes to municipalities

12). The Commission has significantly departed from previous commission vis-à-vis recommendation of the principles governing grants-in-aid to the States by the Centre

13). It has chosen to take the entire revenue expenditure for this purpose. Hence, it has decided to take into account a state’s entire revenue expenditure needs without making a distinction between plan and non-plan expenditure

14). The Commission is of the view that sharing pattern in respect to various Centrally-sponsored schemes need to change. It wants the States to share a greater fiscal responsibility for the implementation of such schemes.


The proposed effort to restructure CSS (Centrally sponsored schemes) in line with the 14th Finance Commission’s recommendations is a unique opportunity to address some of the imbalances that exist in the system. With States bearing a larger share of these schemes, the Union will need to be more flexible and allow States to design and implement schemes according to their needs and priorities


[3]. India business card for SAARC trade

 What is SAARC?

The South Asian Association for Regional Cooperation (SAARC) is an economic and geopolitical organisation of eight countries that are primarily located in South Asia or the Indian subcontinent. The SAARC Secretariat is based in Kathmandu, Nepal. The combined economy of SAARC is the 3rd largest in the world in the terms of GDP (PPP) after the United States and China and 5th largest in the terms of nominal GDP. SAARC nations comprise 3% of the world’s area and contain 21% (around 1.7 billion) of the world’s total population and around 9.12% of Global economy as of 2015.


What has happened?

India is all set to launch ‘India Business Card’ for the business community in SAARC countries. In the light of renewed ties wrt Pakistan, the final hurdle has been cleared. The next SAARC summit is in Pakistan in 2016 and PM wants to fulfil the announcements that he made during SAARC’s Nepal summit. The India Business Card will have a special logo and will be only given to businessmen of high repute. It is being done with an aim of ease of business and gels with the ‘Make in India’ policy of the government

Renewal of ties b/w India & Pakistan

In the past two weeks, India and Pakistan have had two meetings at the level of National Security Adviser (NSA) and foreign ministers.

6th Dec 2015: NSA level talks were held in Bangkok where host of issues including peace and security, terrorism and Jammu and Kashmir. NSA-level talks were scheduled earlier in 2015 when the two Prime Ministers had met for a bilateral summit in Russia’s Ufa on the sidelines of a convention but the meeting fell through at the last minute over a proposed meeting between Pakistan’s then Security Advisor Sartaj Aziz and the Kashmiri separatists.

Eased restrictions on businessmen

Earlier in July, India relaxed business visa norms for Pakistan, which is valid for three years now, up from one year earlier, and businessmen would be able to visit up to 15 places. Intelligence agencies had expressed apprehension over easing visa restrictions on businessmen from Pakistan, but the government prevailed over their concerns saying it was required to bring in normality in the region.

[4]. Farmers urge centre to implement Forest rights act (FRA)

What has happened?

Hundreds of landless farmers, agricultural workers and labourers from across 20 States assembled at Jantar Mantar on 15th Dec 15 under a joint platform ‘Bhumi Adhikar Andolan’ (Land Rights Movement) and observed December 15 (Forest Rights Day) as ‘Chetavni Divas’ — day of challenge and warning. They were demanding the implementation of Forest Rights Act

Protesting against,

  1. FRA has not been implemented in its true spirit
  2. The NDA government has introduced two dangerous moves by declaring a cut-off date for claiming of rights and also to involve corporate in plantation activities in degraded forest area. Both these steps were against the rules and provisions of the FRA and would endanger the rights of communities.
  3. Attempts being made to dilute the Environment Law (Amendment) Bill, 2015. Social activists allege that, Environment impact assessment and public hearing form the only basis for communities to participate in the development process and now this very right is being taken away from them
  4. The comprehensive report of high level committee (HLC) on the status of Adivasis submitted in 2014 says that the implementation of these Acts have been weak despite the promising provisions


What is FRA?

The Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 is a result of the protracted struggle by the marginal and tribal communities of our country to assert their rights over the forestland over which they were traditionally dependent. This Act is crucial to the rights of millions of tribals and other forest dwellers in different parts of our country as it provides for the restitution of deprived forest rights across India, including both individual rights to cultivated land in forestland and community rights over common property resources. The notification of Rules for the implementation of the Forest Rights Act, 2006 on 1st Jan 2008, has finally paved the way to undo the ‘historic injustice’ done to the tribals and other forest dwellers.

The livelihood of perhaps 100 million poorest of the poor (The Indian Forest Rights Act 2006: Commoning Enclosures) stands to improve if implementation can succeed. The Act is significant as it provides scope and historic opportunity of integrating conservation and livelihood rights of the people.

Significance of the act

The Act recognises and secures the,

  1. Community rights or rights over common property resources of the communities in addition to their individual rights,
  2. Rights in and over disputed land
  3. Rights of settlement and conversion of all forest villages, old habituation, unsurveyed villages, and other villages in the forest range to revenue villages.
  4. Right to protect, regenerate or conserve or manage any community forest resource which communities have been traditionally protecting and conserving for traditional use
  5. Right to intellectual property and traditional knowledge related to biodiversity and cultural diversity
  6. Rights to displaced communities
  7. Rights over developmental activities


Why are these rights necessary?

What are called “forests” in Indian law often have nothing to do with actual forests. Under the Indian Forest Act, areas were often declared to be “government forests” without recording who lived in these areas, what land they were using, what uses they made of the forest and so on.82% of Madhya forest blocks and 40% of Orissa’s reserved forests were never surveyed; similarly 60% of India’s national parks have till today (sometimes after 25 years, as in Sariska) not completed their process of enquiry and settlement of rights. As the Tiger Task Force of the Government of India put it, “in the name of conservation, what has been carried out is a completely illegal and an unconstitutional land acquisition programme”

Because of this situation, millions of people are subject to harassment, evictions, etc, on the pretext of being encroachers in their own homes. Torture, bonded labour, extortion of money and sexual assault are all extremely common. In the latest national eviction drive from 2002 onwards, more than 3, 00, 000 families were driven into destitution and starvation. In Madhya Pradesh alone, more than 125 villages have been burned to the ground.

The situation is so bad that the then Commissioner for Scheduled Castes and Scheduled Tribes, in his 29th Report, said that “The criminalisation of the entire communities in the tribal areas is the darkest blot on the liberal tradition of our country.”

Must read:

A counterview to FRA:


[5]. Human development: A work in progress

Context: Author states, in the light of recently released Human development Report by UNDP, about the rising inequality in India and how it is hampering development.

What HDI involves?

HDI, as it is defined today, involves three parameters that directly increase human capabilities,

  1. A long and healthy life
  2. Knowledge
  3. A decent standard of living


The new Human Development Report (HDR) explores in detail one fundamental factor which increases or decreases human capability—work.

The report differentiates between productive useful work like house-care or sending remittances, to work like bonded labour which has negative repercussions.

Difference between a work and job

The report takes special care to differentiate work from jobs. While work is not necessarily always rewarded, a job is work done for a predetermined payment. The report points out that it is this monetary distinction between work and job that has led to growing inequality in the sphere of income.

Two groups whose potential is not fully utilized

  1. Women: HDI is lower for women than men in all regions
  2. Youth


India needs to address the three parameters of human development separately—and simultaneously,

  1. Malnutrition: India needs to address this problem as a long and healthy life is not possible without proper nutrition
  2. Knowledge: in terms of knowledge, India needs to ensure access and quality through effective implementation of schemes such as Digital India and Skill India.
  3. Improving wage equality: India has been lauded for its work guarantee schemes but they are in no way sufficient. India must reform its rigid labour laws, address problem of child labour and forced labour and bring about wage equality


[6]. India must protect its Agricultural support

What has happened?

WTO’s 10th ministerial is ongoing at Nairobi from Dec 15-18. Author says that the draft text released proposes no solution to India’s concerns regarding food security

Author says that it is no surprise that daft offers to no solution to India’s problems as developed countries were never serious in finding any permanent solution and nor did developing countries have pressed enough for a solution

Author says,

  1. Bali ministerial: At Bali ministerial a ‘peace clause’ was agreed upon by the developed nations under which exemption from penal action for violation of WTO commitments was given. If a developing country gives agricultural subsidies in excess of 10% of its agri-GDP, no member will challenge this until 2017, when WTO would look for a permanent solution to address their food security concerns.

The peace clause means that until 2017 there would not be a permanent solution to the problems of developing countries including India. Moreover, Peace clause came with variety of conditions like,

(a). Submission of data on food procurement, stock-holding, distribution and subsidies (including their computation), etc.

(b). It also needed establishing that subsidies are not ‘trade distorting

This means that even before 2017 a member can challenge developing country like India for not following the conditions associated with the clause

So, India from the start has insisted on finding a permanent solution before 2017 after which penal actions would be present.

  1. At 2014 December WTO General Council meeting India secure the permanent extension of peace clause until a solution is found but even then the associated conditions were not dropped. Developed countries do not want a permanent solution and want the continuation of the peace clause with conditions.


So, what strategy India should follow?

  1. We need to engage with the US and the EU on rules of the game and a good solution will emerge from only there.


Under the Agreement on Agriculture (AoA), developing countries can give agricultural subsidies or aggregate measurement support (AMS) up to 10% of the value of agricultural production. AMS has two components viz.,

  1. product-specific’, or the excess of price paid to farmers over international price, or ERP (external reference price) multiplied by quantum of produce
  2. non-product specific’, i.e., money spent on schemes to supply inputs viz., fertilizers, seed, irrigation, electricity at subsidized rates.


Mistake Indian analysts did,

  1. Calculation of ERP as per 1986-88: For computing ‘product-specific’ support, they allowed ERP to be frozen at the level of 1986-88. With this, comparing current MSP with ERP of 3 decades before inevitably results in artificially-inflated subsidy. For instance, at present, wheat MSP, at $226 per tonne (Rs1,450/quintal), is $96 higher than the ERP (1986-88), $130 per tonne.
  2. Inclusion of purchases from resource poor farmers under productspecific subsidy category: MSP paid to farmers is substantially above the ERP and if a permanent solution is not found then India would be penalised for giving MSP in excess of ERP as according to WTO it distorts trade balance by encouraging farmers to produce more.


What should India do at Nairobi ministerial?

Scenario 1

India should confront developed countries with both anomalies and get AoA amended to

  1. update ERP to current level
  2. Exclude purchases from resource-poor farmers for computing product-specific subsidies

Scenario 2

  1. If developed countries do not agree to these conditions then India should try and get the conditions associated with the peace clause removed until a permanent solution is found.
  2. India should not allow developed countries to include the new issues like government procurement, competition policy, link between trade and climate, currency and global value chain, TRIPs, etc to be included in the Doha Development Agenda (DDA) as these were never a part of it to start with.


[7].Universal health coverage: Hurdles and solutions

What is it about?

With reference to the SDG goal of providing Universal health care the article discusses the achievements of Thailand in the health sector.

What has happened?

SDG has set much higher and more ambitious health-related goals.

The main challenge amongst MDG off-track countries is the failure to provide and sustain financial access to quality services by communities, especially the poor.

Especially the poor are not able to access them due to price barriers even in the government health services.

Universal Health Coverage:-

Universal health coverage (UHC) requires a significant increase in government investment in strengthening primary healthcare—the close-to-client service which can result in equitable access.

It also needs political commitment and effective implementations.

Lessons from Thailand:-

It has achieved UHC by 2002.

Firstly the government invested heavily in health delivery systems.

Extensive geographical coverage of health services resulted in universal access to maternal and child health services, disease control and treatment of chronic non-communicable diseases.

Further people were covered by three health insurance schemes, ensuring them access to a comprehensive package of health services. The Universal Coverage Scheme (UCS)

Three design elements essential are—extension of access to services, cost containment and strategic purchasing.

Financing reform also must go hand in hand with ensuring physical access to services


[1]. In China, India and Pak differ on terror

 What has happened?

At the ongoing Shanghai Co-operation Organisation (SCO)heads of government meeting at Zhenghzhou, differences on the fundamentals of countering international terrorism and China’s ‘Belt and Road’ connectivity initiative, came into the open between India & Pak.


Representing India, Gen VK singh, India’s External Affairs minister said that Indian policy of non-engagement with the radical groups is now being acknowledged even in China. He was talking amidst the backdrop of supposed dialogue between a faction of supposedly de-radicalised Taliban and the Afghan government, within a framework of talks that includes China, Pakistan and the U.S. Diplomatic sources.

  1. INSTC: He stressed on establishing new networks of physical and digital connectivity that extends from Russia’s northern regions to the shores of Indian Ocean adding that International North South Transportation Corridor was an important step in that direction
  2. India is not against OBOR. However, India is against what is also called the Gwadar to Kashgar economic corridor because it passes through the Pakistan-occupied Kashmir
  3. SCO countries can take advantage of India’s growing economy while India can benefit in the realm of energy security from SCO.


Pakistani PM Nawaz Sharif supported the Chinese OBOR (One Belt One Road) initiative. He said that Pakistan is determined to make the China-Pakistan Economic Corridor Project- joint venture between Pak and China under the OBOR- a resounding success.

Opinion & Editorial

[1]. A climate more congenial to India

Context: Author in this article debates the question as to whether Paris deal was good or bad for India

What did India give and what it gained from the Paris deal?

Securing our energy future

The major point for India in the climate negotiations has been the constant stress on the principle of Common but Differentiated Responsibilities. India has always maintained that developing countries should not be placed on the same footing as the developed world in terms of emission reductions and the need to address them.

India has, millions of people still reeling under poverty and to take them out of this state would requires energy expenditure and any excess limits on it would only a significant pressure on the Indian economy to transform without the raw material so readily available at home like coal.

Developed and developing countries’ distinction

Developed countries wanted the list of developing countries under the CBDR to be diluted or to be fluid meaning the CBDR should be applied to key selective areas. India agreed to this.

For example, in the core mitigation area, the Agreement states that developed countries should take the lead with economy-wide emission reduction targets, while developing countries should aspire to do so over time, recognising that they will need to grow their emissions.

This means that the expectations from developing countries wrt emission reduction and mitigation are to be seen vis-s-vis the financial support they get from the developed countries.

The temperature rise is now to be limited to 1.5oC instead of 2oC. Well this might seem good in principle but for India this might mean that the periodic review can force it to revise its pledges to more ambitious levels.

National Pledges

Paris pact is toothless as it does not bind countries to reduce emission limits, has no mechanisms to enforce actions and therefore will have little impact, in which case India has little to gain.

Author says, that international agreements only amplify the domestic political discourse which motivates the governments to take action regarding such issues. In this respect, the key element of the Paris agreement is the national pledges and the periodic review which would encourage increasing the pledges over time. This mechanism will lead to more ambitious pledges and stimulate an environment wherein governments shift to low-emission options.

So, is this going to work?

As per author the answer lies in the national policy and the political process in each individual country
What India needs to do?

  1. We need to develop our ability to analyse other countries’ contributions so that the pressure on the developed nations can be sustained wrt pledges and its implementation.
  2. We need to shape our national process to examine our energy and climate future. Synergy needs to be developed between developmental processes and climate. Questions like how much coal we can use while limiting carbon emission as per national pledges also needs an answering



Author concludes by saying that India has much to gain considering the pact is not binding and gives the space for emissions to developing countries but he adds that India should also keep an eye on the developed nations and their follow up on the Paris pact

[2]. Panchayats should not be elitist

What has happened?

In the light of recent SC judgement upholding the Haryana law wherein candidates have been mandated to have essential educational qualifications in order to fight the panchayat election, author criticises the law and presents arguments as to why this should not have been done.

Rajbala vs State of Haryana (Dec 2015)

SC upheld the validity of the Haryana Panchayati Raj (Amendment) Act requiring that a matriculate alone can hold the post of Panchayat president or ward member.

Sec 175 of the Act provides for a number of disqualifications from contesting a Panchayat election,

  1. A person will be disentitled to contest the election if he faces a criminal case for which 10-year imprisonment is prescribed and a charge has been framed.
  2. If he has to pay arrears to a co-operative society or has not cleared electricity bills, then also he will be disqualified.
  3. If a person does not have a functional toilet, he will be barred from contesting the election.


Strange logic of exclusion

Reasoning of the SC: It said that if those seeking election to Panchayats have some basic education then they would be able to discharge their duties in a better way. It added that the objective of the law is connected to the Part IX of the constitution.

Part IX of the constitution is related to Panchayats. It was added to the Constitution by the 73rd Amendment, which came into force on 24 April 1993. Part IX contains article 243 and articles 243A to 243-O.

Arguments against the judgement

  1. Court should have looked into the fact that out of 96 lakh voters, 42 lakhs would be disqualified from contesting. In case of Scheduled Castes, 68 per cent women and 41 per cent men will be disqualified from contesting
  2. Educational qualifications not mentioned in the constitution itself: Author points to Article 171 wherein it is obligatory to be a graduate to select a proportion of members of the Legislative Council, but it is immaterial if the person elected is a graduate.


  1. Narayanaswami vs. G. Panneerselvam case (1972)

The Supreme Court ruled in the S. Narayanaswami vs. G. Panneerselvam case in 1972: “The concept of such representation does not carry with it, as a necessary consequence, the further notion that the representative must also possess the very qualifications of those he represents… it would be for the members of such a constituency themselves to decide whether a person who stands for election from their constituency possesses the right type of knowledge, experience, and wisdom which satisfy certain standards. It may well be that the Constitution makers, acting upon such a presumption, had intentionally left the educational qualifications of a candidate for election from the graduates constituency unspecified.

  1. Tamilnadu has been ruled 8 CMs who were not matriculates. Many functionaries, both at the Centre and in States, have not completed school.
  2. Logic of disqualification on the basis of non-payment of electricity bill arrears is also strange as per author. It should result in disconnection of power supply and not disqualification from contesting elections
  3. Lack of toilet: Author ridicules the logic of having a toilet as a mandatory condition for contesting elections when poor people do not have their own shelter. This is a clear case fo excluding poor from the electoral process. Moreover, It is a duty of the Municipalities under Article 243W to provide for public conveniences. In the case of Panchayats, no reference is made to public conveniences and Article 243G only provides for panchayats to take care of health and sanitation.


The law made by Haryana is really anti-poor, anti-Dalit and pro-rich and if enforced will create oligarchies. It is unfortunate that the Supreme Court should uphold these provisions and make Panchayats non-representative bodies.

[3]. Splendid decade, but miles to go

Context: Author congratulates India on its achievements as per HDI report released by UNDP and urges to build upon its current achievements to achieve even higher goals.

Author says, the last 10 years were a time of extraordinary human development in India.


  1. Fastest-ever decrease in the percentage of its population below the poverty line between 2009 and 2011. India’s Gross National Income more than doubled over the last 15 years, from $2,522 (PPP) to $5,497 between 2000 and 2014, putting it into middle income status
  2. This economic growth translated into better Human development outcomes as well. India’s Human Development Index value went from 0.462 to 0.609 between 2000 and 2014, a far higher increase than in the previous 15-year period. This was due to

(a). Improved economic growth

(b). Increase in life expectancy as a result of improved health care

  1. Author cites the India Health Report: Nutrition 2015 released by the Public Health Foundation of India as per which, Child under-nutrition has fallen rapidly between 2006 and 2014, as stunting rates for children under five declined from 48 per cent to 39 per cent, translating into 14 million fewer stunted children, and declines in wasting translated into seven million fewer wasted children

Negatives as per UNDP report

  1. When inequality is factored in, India loses nearly 30 per cent of its HDI values. If India’s women were their own country, they would be 30 ranks lower on the HDI than the country as a whole is now
  2. Women workforce participation rates are low in India. The report blames it on the high proportion (up to 39 per cent of GDP by one estimate) of unpaid care work that falls on women alone pushes them


What is wasting?

In medicine, wasting, also known as wasting syndrome, refers to the process by which a debilitating disease causes muscle and fat tissue to “waste” away. Wasting is sometimes referred to as “acute malnutrition” because it is believed that episodes of wasting have a short duration, in contrast to stunting, which is regarded as chronic malnutrition. According to the latest UN estimates, an estimated 52 million children under 5 years of age, or 8%, were wasted in 2011. The vast majority, about 70%, of the world’s wasted children live in Asia, most in South-Central Asia

Economic Digest

[1]. Stress tests for Indian banks

What is it about?

Uncertain about the NPA’s of public sector banks and the losing investor’s confidence the article discusses the need for conducting stress test by RBI.

What has happened?

Lack of concrete information about the bank’s NPAs investors are worried and our banks have underperformed in the broader market.


Global factors are stressing the sectors such as iron and steel and infrastructure

Slower-than anticipated macro recovery of the global economy.

Other new regulatory forbearance such as 5/25 refinancing and strategic debt restructuring (SDR) hasn’t helped either

Lack of information has further sown seeds of doubt and uncertainty within the investor community.

Banks will need to raise capital to be compliant with Basel III requirements for which investors will need a realistic picture.

What should be done?

RBI can  bring some certainty and rationality to the estimates.

One idea could be for the Reserve Bank of India (RBI) to conduct stress tests that are used by banking regulators around the world.

What is a stress test?

It is a systematic and public way to guide banks into shape and can be helpful in bringing stability to lending.

An analysis conducted under unfavorable economic scenarios which are designed to determine whether a bank has enough capital to withstand the impact of adverse developments.

These tests are meant to detect weak spots in the banking system at an early stage, so that preventive action can be taken by the banks and regulators.

It was done in US in the aftermath of 2009 crisis which in turn strengthened investor confidence.

European Central Bank also conducted capital assessments wherein each bank was analyzed across parameters. These parameters included its loans and securities portfolios, as well as any other off-balance sheet commitments and contingent liabilities/exposures.

Why stress test?

These tests help ascertain potential losses and the capacity of each bank to absorb it along with the additional capital required, which is the capital adequacy ratio (CAR).

It gives a complete picture of financial health to the investors.

In India:-

RBI does a fair bit of stress testing across various categories (such as private, public and foreign banks) and potentially stressed segments (such as iron and steel and infrastructure) in its financial stability report which is published biannually

But specific data pertaining to individual banks is not mentioned in the report.

This lack of stress test numbers at the individual bank level is creating needless speculation and uncertainty.

One may argue that the results may cause concern as some banks may get exposed and eventually have to be capitalized.

But having one number per bank will give a realistic, complete and transparent picture and will augur well for the system on the whole.

When seen in conjunction with other prominent steps being undertaken by the government like Indradhanush (aiming to bring more accountability and efficiency), among others, will provide the much-needed boost for the revival of banks

You need to know!

5/25 refinancing:-

Officially called the Flexible Structuring of Long Term Project Loans to Infrastructure and Core Sector Industries

It refers to the feature that the loan will be repaid over a maximum period of 25 years. However, the banks will have to refinance the loan every 5 year.

Refinance: – When a business or person revises a payment schedule for repaying debt. Replacing an older loan with a new loan offering better terms.

The extended debt repayment period under ‘5/25’ scheme will allow the borrowers in long-gestation projects to better manage their cashflows, which are usually slim and uncertain in the first few years of most projects.

For more:

Indradhanush:- It is a comprehensive framework for improving PSBs. This seven-step initiative which include appointments, board of bureau, capitalisation, de-stressing, empowerment, framework of accountability and governance reforms,

For more: –


The concept of Strategic Debt Restructuring (“SDR”) has been introduced by the Reserve Bank of India (the “RBI”) in the SDR Scheme (the “Scheme”) to help banks recover their loans by taking control of the distressed listed companies.

It will give lenders the right to convert their outstanding loans into a majority equity stake if the borrower fails to meet conditions stipulated under the restructuring package. Allowing loan conversion will now be a precondition for all debt restructuring deals.
For more:

[2]. Microfinance – How to Exclude Less

What is it about?

The article discusses how micro financing evolved and the way forward.

Lending to groups and not individuals:-

Initially it was thought that loans can transform dormant labour into entrepreneurs.

The Malegam Committee study by the RBI showed that 75% of the loans were spent for consumption by poor.

When microfinance first began, it was catering to people who had no identity which resulted in defaults of 40% and higher.

The innovation was the idea of group lending. Where identity was not verifiable, local peer pressure kicked in to ensure repayment and to mitigate risk.

It was the first step in inclusion.

Cost cutting in micro finance:-

Microfinance interest rates are much higher than the rates large corporations pay. That’s because the cost of delivery is much higher in this high-touch.

It has led to a scramble for process efficiencies that control costs: ways for loan officers to be faster and more effective at capturing information about the borrower, and back-end processes to turn around loan decisions more efficiently.

With costs of smart phones and tablets costs of delivery have fallen steadily, as have interest rates.

Challenges ahead:-

There’s the challenge of value – of how to direct capital more productively.

This requires a due diligence into the occupations and business activities of potential borrowers, none of which is recorded in any official way.

The industry must find more clever ways to take on this `dark data’.

Microfinance, it is not the end of the road but only the beginning.

[3].  There Is a Need to Tone Down Priority Sector Lending


The article analyses why NPAs are more in public sector banks than in private sector.


Private Banks have played smarter by diversifying into services and personal segments, where NPA propensity is lower.

Priority sector lending is not the ideal avenue for banks as it pops up higher NPAs given the vulnerability of the segments mainly was due to their vulnerability to adversities.

The small and new private banks, have to examine and explore the issues relating to priority sector lending with dexterity to ensure that their books remain clean from the start.

Within the non-priority sector, the NPAs in industry reflect to a large extent the risks involved in lending to the infra sector where the private banks have limited their exposures

How to tackle the issue?

A large part of this funding requirement has to shift to the corporate debt market

The PSBs would also need to probably pursue the strategies of the private banks in keeping NPAs lower and focus on services and personal loans segment.

The government on its part would also have to review the sanctity of the 40% level. While the weaker sections have to be supported, banks may not be the ideal medium as it weakens the genetic design of the system

[4]. Checks & Balances – Insolvency Made Easy


The article analyses the proposed bankruptcy law and how it empower the government to tackle the rising NPAs.

Bankruptcy law:-

This law is proposed on the basis of TK Vishwanathan committee recommendations.

It will end decades of gaming in the banking system by unscrupulous promoters and the endless obstacles imposed by the courts in the name of providing discretionary relief. Also, banks will have answer if they don’t go after defaulters.

This (bankruptcy) law will provide certainty to investors and lenders

It provides a timeline of 180 days -extendable by 90 days -to deal with applications for resolving cases of insolvency.

During this period, the management of the distressed firm or debtor could be placed in the hands of a resolution professional equipped to deal with such cases, who would be supervised by a proposed new regulator.

It also segregates the corporate and individual as well as partnership bankruptcies.

It has also proposed a debt recovery tribunal for the individuals and the National Company Law Tribunal to deal with the corporatechecks 1


What we need?

We need a system that could ensure that every case is dealt the way Satyam Computer Systems was treated: a sale of viable business to Mahindra even after a financial fraud.

Other issues:-

The World Bank’s “Doing Business“ranking, which uses insolvency resolution as a key parameter, has placed India at 137 out of 189 countries.

The political impasse in our legislature might delay the enactment of the act.

By: ForumIAS Editorial Team

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Newspaper Must Read Articles of the Day – 16 December 2015

Newspaper articles bearing relevance to Civil Services preparation 

The Hindu 


WTO chief calls for a Paris-style deal {International Trade – Paper III}

Finance panel: ‘no negative impact on social sector expenditure’ {Government Schemes & 14 FC – Paper II}

India Business Card for SAARC trade {Regional Groupings  – Paper II}

Farmers urge Centre to implement Forest Rights Act {Government Policies – Paper II}


In China, India and Pak. differ on terror {Regional Groupings  – Paper II}

Business & Economy

Opinion & Editorials

A climate more congenial to India {Environment – Paper II}

Panchayats must not be elitist {Local Bodies – Paper II}

Splendid decade, but miles to go {Poverty – Paper III}

Indian Express – Opinion & Editorials 

Paris triumph {Environment – Paper III}



Stress tests for Indian banks {Economy– Paper III}

Universal health coverage: Hurdles and solutions {Health  – Paper II}

Human development: a work in progress {Human developemnt – Paper III}

Economic Times / Financial Express

How to Exclude Less {Economy – Paper III}

INSOLVENCY MADE EASY {Indian Economy – Paper III}

There Is a Need to Tone Down Priority Sector Lending {Government Policies  – Paper II}

India must protect its agricultural support {International Trade – Paper III}

Services liberalisation in TPP {International Trade – Paper III}