9 PM Daily Brief -22 June 2016

Brief of newspaper articles for the day bearing
relevance to Civil Services preparation

What is 9 PM brief?

• GS PAPER 2
  1. Aadhaar to be linked with caste certificate {Bills and Laws}
  2. Coastal zone report relaxes curbs on constructions {Bills and Laws}
  3. Jews in Maharashtra get minority status {Bills and Laws }
• GS PAPER 3
  1. Made in India’ F-16s on radar, thanks to FDI {Security}
  2. Rural demand: How much can the monsoon help? {Economy}
  3. Opening our skies {Economy}
  4. Banking revival must be a priority {Economy}
  5. Governor and governance {Economy}

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GS PAPER 2

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[1]Aadhaar to be linked with caste certificate

The Hindu

Context

Centre has asked all the state governments to link the Aadhar card which with caste and domicile certificate which are to be issued to the school students.

Analysis

• States must ensure that these certificates are issued within 60 days to students who are studying in class V or class VIII. It depends on the state to choose either class V or class VIII.
• The principal or head of the school will be responsible for collecting the necessary documents from the students.
• SC/ST students will be given the caste/tribe certificate as well as the domicile certificate whereas others would be issued only a domicile certificate.
• This is a significant step as over the period of time the complaints pertaining to the delays in grant of scholarships to SC/ST students have increased.
• Also, to get the caste/domicile certificate from the state government officials has itself been a very harassing experience for the citizens.
• The main objectives of issuing caste and tribe certificate is to provide easy access to such students for reserved posts and services under the govt (state or centre), to make admissions in educational institutions more accessible etc.

Conclusion

Such steps might not necessarily sound big but they definitely go a long way in providing easy access to the necessities for backward sections and play a role in reforming their day to day lives.

[2]Coastal zone report relaxes curbs on constructions

The Hindu

Issue

• Analysis of a government report regarding construction on the coastal zones.

Key points of the report

• It has recommended changes to laws governing infrastructure development along India’s coast.
• The  most significant change is giving greater powers and responsibilities to coastal States to regulate development, maintain and conserve ecologically fragile zones and ensure that environment be protected without neglecting “basic requirements of growing population.”
• The committee also recommended that local town planning regulations be preferred over the existing Coastal Regulation Zone (CRZ) restrictions.

Analysis of the report by a think-tank

• The new Act proposes the devolution of powers to State and Union Territory governments along with local authorities for CRZ II (built up cities and towns), CRZ III (rural areas) and CRZ IV (12 nautical miles into the sea) areas.
• These are for activities not covered under the Environment Impact Assessment Notification, 2006.

[3] Jews in Maharashtra get minority status

The Hindu

Context

Maharashtra government has granted the minority status to Jews. Maharashtra State Minorities Commission Act, 2004 empowers the govt to declare a community as minority.

News

• This demand for the grant of minority status to Jews has been long pending. Also, since the Jews earlier than this were  counted among other religions , there exact number is not available with the govt.
• However, as per Indian Jewish Federation, this number stood at 2000-2500 in the state.
• Grant of minority status to Jews would mean that, the problems of this community can be better identified and the schemes to resolve these problems can be better charted and implemented.
• Also, now the Jews can avail the benefits of all the schemes meant for minorities.

Minority status in Maharashtra is no doubt beneficial for Jews but they have been demanding that the Union govt. Must accord them the minority status so that they can be considered as minority in all the states.

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GS PAPER 3

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[1]‘Made in India’ F-16s on radar, thanks to FDI

The Hindu

Context

The central government’s decision to allow upto 100% FDI in defence sector has already started showing results as American military manufacture Lockheed Martin is expected to soon start F-16 manufacturing in India.

Analysis

• The proposal for setting up F-16 assemble line was also discussed during PM Modi’s visit to USA.
• Since the negotiations over 36 Rafale fighters to be procured from France has been in limbo since long, this could be a great opportunity from India’s point of view.
• Also, Lockheed Martin is planning to shut down it’s F-16 manufacturing in USA. Therefore, talks are going on to invite Lockheed Martin to India.

Conclusion

If this happens, it will be a win for India on two fronts; Firstly, it will be a huge boost for the ambitious Make in India programme. Secondly, it will majorly boost the capabilities of Indian defence forces as they will be able to acquire a new fleet of fighter jets.

Note: For the latest development on FDIs refer our comprehensive article by Clicking here

 

[2]Rural demand: How much can the monsoon help?

Livemint

Context

An above average monsoon, although definitely increases the rural consumption and therefore, the overall GDP growth but it is not the monsoons alone which propel the rural consumption. So in the last two years if the rural consumption has suffered it is also due to the various other factors at play.

Analysis

• Over a period of time, the rural consumption has increased steadily and now forms more than half of India’s demand side GDP.
• Rural consumption expenditure grew by 16.7 % annually from 2007-8 to 2011-12 which was more than the urban consumption expenditure of the same period (15.6%)

However, this increased rural consumption is not only because of good monsoons. No doubts, that the positives sentiments related to monsoons help increase rural spending but there are other significant factors as well.

5 Factors which lead to increased rural consumption

1. High support prices that too for cereals has helped agriculture. Annual increase of 10% in support prices for wheat, paddy and coarse cereals and 15% in case of pulses has increased rural income and thus consumption.
2. With global increase in the prices of these commodity and also an increase in agriculture trade globally,has helped increase rural income and consumption.
3. Government spending in rural infrastructure such as roads, electricity etc has also increased which has resulted in better sale/production and has propelled rural income.
4. Due to a good increase in construction sector, real estates and infrastructure sector, the non-farm employment saw a boost which resulted in increased remittances back to the villages and hence the overall increase in rural income and consumption.
5. Spending on welfare schemes such as MGNREGA has also boosted rural income.

Is the present also as good?

In the present scenario, the 5 factors discussed above have seen a downturn.

1. MSPs have been decreased.
2. Agriculture exports have deteriorated due to global slowdown.
3. Due to fiscal consolidation, public spending has been reduced.
4. Sectors like construction and infrastructure are facing a slow down and will take time to recover.
5. Government spending on the welfare schemes has become extremely prudent and cautious.

So, in present scenario although good monsoon will help in recovery of the rural demand but that increase might be small since the other factors are not favourable.

[3]Opening our skies

The Hindu

Context

Centre has raised the FDI in aviation sector to 100% with automatic approval if the foreign ownership is up to 49% (if more than that , the approval of govt. will be needed). This move might not be as good as it seems to be.

Analysis

• This move will be more beneficial to those domestic carriers who want to raise capital or get into an alliance with the foreign airline rather than attracting the new carriers in the aviation industry.The reason for this is that the foreign airline players still have to follow the 49% ownership limit.

• Now one way to deal with this is that the foreign player can tie up with the investors and have a 49:51 joint venture but this mode also has its own problem. Securing the operator permit requires that the airline chairman and 2/3rd of its directors must be Indian citizens and substantial ownership and control should lie with Indian nationals.

Conclusion

To be a leader in FDI reforms, India should have made bigger reforms in the aviation sector especially related to the ownership norms and could have made it coherent with its open sky policy within and beyond the SAARC region.

[4]Banking revival must be a priority

The Hindu

Issue

• Revival of banking sector.

Problem of bad loans

• Currently, banking sector is weighed down by bad loans.
• The bulk of the bad loans is with public sector banks (PSBs).
• As bad loans mounted and banks had to make provisions for these, profits fell at PSBs or losses mounted.
• PSB performance suffered in comparison with private banks.
• In 2014, RBI setup PJ Nayak Committee to review the governance of Board of Banks.
• The committee submitted that the problem at PSBs was fundamentally one of governance.

 

Author’s take on Nayak Committee

• According to author, Nayak committee’s diagnosis that the government should not be an active investor was flawed.
• Governance of PSBs is not the most important reasons for the bad loan problem at PSBs over the past four years.

 

Domain of PSBs and private banks

• PSBs had lent to vital sectors, steel, aviation, mining, infrastructure, textiles, all of which came to be impacted by factors beyond the control of bankers.
• Steel has been exposed to heavy dumping by the Chinese; the telecom sector was impacted by the cancellation of 2G licensees; the power sector by the cancellation of coal blocks; and so on.
• Private banks had a relatively limited exposure to these sectors as they had chosen to focus on retail loans. That’s why they fared better.

 

Is India facing a banking crisis?

Not really, we are under stressed conditions.But the steps required to tackle banking crisis or a stressed situation are the same, which are:-

• Recognise and provide for bad loans.
• Change management where necessary.
• Infuse capital into banks so that fresh lending and growth happens.  

 

Mistakes done by the Indian State in following this protocol

 

Harsh stance of the RBI

• The RBI has been somewhat harsh in the norms it has imposed on bad loan recognition.
• Not all defaults are wilful or mala fide.
• There are situations where a project is stalled for reasons beyond the promoter’s control.
• In such situations, additional loans may be required to see the project through to completion.
• If loans in such cases are declared as non-performing assets, no further lending is possible, and the project is doomed.

 

Loan Write-off

• Loan write-offs are essential.
• Almost all bad loan resolution requires banks to write off some portion of the loan; otherwise the firm or the project is unviable.
• The RBI’s latest restructuring scheme allows banks to divide loans into ‘sustainable’ and ‘unsustainable’ portions and to write off a portion of the latter, should have come a bit earlier.

Banking Paralysis

• Top bankers are unwilling to take decisions on loan write-offs.
• They fear that they will invite action from the investigating agencies even after they have retired.
• Bankers should have bandwidth to take bold decisions for the better functioning of the banks.

Capital infusion

• The government has been niggardly in infusing capital into PSBs.
• The kind of amount that the government is infusing  may be enough to meet the minimum regulatory requirement of capital, but it does not suffice to promote loan growth.

Merger of SBI

• The government is rushing to merge SBI and its five associate banks.
• If a merger is intended, the benefits of the merger must be clearly articulated to investors and analysts.
• It is also strange that attempts at merger should focus on the strongest PSB when it ought to focus on the weakest banks.

Conclusion

• A revival of banking cannot happen by addressing issues specific to the sector alone, such as settlement of bad loans and bank recapitalisation.
• The answers to banks’ problems lie partly in the economy at large.
• Strong economic growth can take care of the bad loan problem.
• This requires greater public investment and a revival of private investment.
• But, the Public investment is constrained by self-imposed targets for fiscal consolidation and Private investment is held back at least in part by high real interest rates that flow from the RBI’s policy of inflation-targeting.
• So, the government and the incoming RBI governor need to sit together and revisit the present economic policy framework.

[5]Governor and governance

Indian Express

Issue

• Selection process of Reserve Bank of India (RBI) Governor.

Current practice

The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

• Appointed/nominated for a period of four years
• Constitution:
  • Official Directors
    • Full-time : Governor and not more than four Deputy Governors
  • Non-Official Directors
    • Nominated by Government: ten Directors from various fields and two government Official
    • Others: four Directors – one each from four local boards

Relation between government and RBI

• The governor as the head of the central bank is, and has to be, appointed by the executive organ of the government, namely the appointments committee of the cabinet.
• The central bank is the primary arm of the government to ensure good monetary and regulatory policies for the welfare of the people of the country.
• As such, the central bank cannot be fully independent of the government.
• In a developing country, and indeed in any country, there has to be healthy, collaborative and mutually respectful relationship between the government and the central bank governor.
• The latter has to take into account the priorities of the government and the former has to recognise the dharma of the central bank.

Suggestions by the author regarding the selection process of RBI Governor

Tenure

• Bank of England governor serves for a period of eight years.
• In the US, the the board of governors serve for 14 years.
• A survey of central banks the world over finds that if the term is fixed, it is often around five years.
• Having a period shorter than five years does not allow the governor sufficient time to implement his/her agenda.
• It is best to extend a five-year tenure to the governor and deputy governors.

Qualifications

• The governor should have sound background of economics, operational experience in public policy and a proven record of performance.
• The person should have impeccable integrity, reputation and stature befitting the position of the RBI governor.
• He/she should not hesitate to give his/her professional unbiased advice on monetary and financial matters in the interest of the economy.

Selection process

• If the incumbent is considered for reappointment, then the process should be completed in advance.
• And the government should made this decision on the basis of his/her performance.
• In a situation where the person is to be appointed afresh, the Financial Sector Legislative Reforms Commission suggests an expert panel that should be the same for all regulators.
• It should have two government representatives and three outside experts with the government representative as chair.

Conclusion

• The selection of the governor has to be as sacrosanct as the function of the office itself. It must add to the respect and credibility that a central bank must have for effective functioning.