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Front Page / NATIONAL
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Editorial/OPINION
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ECONOMY
- RBI relaxes cash withdrawal limits to spur deposits
- CRR diktat may arrest slide in interest rates’:
- AERA plan on tariffs unilateral: IATA:
- ‘Bitcoin adoption in India sees surge’:
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Indian Express
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Live Mint
- Making India a cashless economy:
- Forget growth to achieve growth:
- Payments banks in uncharted territory:
- A water war in Asia cannot be ruled out:
Click here to Download 9 PM Daily Brief PDF (29th November 2016)
Front Page / NATIONAL
SC seeks Centre’s stand on security clearance policy:
The Hindu
Context:
The Supreme Court on Monday sought the Centre’s response on a petition seeking clarity on the Security Clearance Policy.
Back ground:
• A petition filed by BJP Rajya Sabha MP Subramanian Swamy contended that there was no clear-cut security clearance policy for companies and individuals.
• Last year, the MHA refused to provide security clearance to Red FM as Kalanithi Maran and his brother and former telecom minister Dayanidhi Maran had faced charges of money laundering. Red FM then moved the Delhi High Court, which allowed it to participate in the phase III auctions.
• The high courts had refused to accept the reasons shown by the Home Ministry.
• The Union government then appealed against this order before the apex court, which dismissed the plea.
Why the Supreme Court needed an intervention?
• While the Madras High Court said conviction was necessary to deny security clearance, the Delhi High Court held that security clearance could be denied to a company only if the accused shareholder owned over 51 per cent stake.
• The Bombay High Court, while deciding another case, said it was the sole discretion of the government to deny security clearance to a company or individual.
What is said by the Supreme Court?
A Bench led by Chief Justice of India T.S. Thakur issued notice saying that the country could not afford to have such divergent opinions on national security issues, especially when it concerns matters vital to economic security and integrity.
Editorial/Opinion
Two-prong war in Iraq
Context:
Hilla blast has killed over 100 people, most of which are Iranian pilgrims. ISIS is said to be responsible for the blast.
Background:
Recently, Iraqi army had attacked Mosul, the stronghold of one of the most dreaded terrorist groups.
The recent blast in Hilla is said to be in revenge of the same.
Attack came nearly six weeks after Iraqi government troops, aided by Iran and the U.S., started a massive operation to retake Mosul.
What has happened?:
• Hilla town, where the blast has taken place, is located between Najaf and Karbala, two of Shia Islam’s holiest places.
• And it is the time when Shia Muslims around the world travel to Karbala to commemorate the martyrdom of Imam Hussein.
• This blast has made it clear that targets of ISIS are the Shias around the world.
• In the past too, when the bases of ISIS came under attack, the group had used terror to strike faraway civilian centres.
Implications of attack:
• This is a major security failure for the Iraqi government, that too despite many warnings.
• It is also important as the demonstration of capabilities of IS, which is fighting a conventional war against the government troops in Mosul while unleashing guerrilla attacks elsewhere.
Civilian casualties and its effects:
• According to the UN, around 20 per cent of the injured in Mosul are civilians, compared to the average 5 per cent in other recent anti-IS operations.
• Casualties are going to increase, once Iraqi troops enter the city.
• And IS has a history of exploiting Shia-Sunni sectarian tensions to its advantage.
Challenges facing Iraq in this battle
• Making real battleground advances in Mosul with minimum civilian casualties.
• Boosting its capability to fight potential terror strikes, in the last two major terror strikes alone, the IS has killed over 400 people in Iraq.
• In previous anti-IS battles, Iraqi troops were accused of targeting Sunni civilians.
• Thus, government has to guard against falling into the sectarian trap that the IS has set.
If Baghdad doesn’t win over the Sunnis living in its war-ravaged north and north-west, it will not get a grip on the cycle of terror.
ECONOMY
RBI relaxes cash withdrawal limits to spur deposits
Context:
Increase of the withdrawal limit for deposits made in current legal tender notes.
Background:
After the demonetization of Rs 500 and Rs 1000, a limit was put on the daily and weekly withdrawals from banks. Subsequently, the daily withdrawal limit was waived off and a weekly limit of Rs 24,000 was imposed on cash withdrawals from banks till December 30.
Why RBI relaxes cash withdrawal limits?
- The Reserve Bank of India announced that the current limit on cash withdrawals was disrupting the circulation of currency notes in the economy.
- RBI said that if deposits had been made in legal tender, then depositors could withdraw that amount over and above the current weekly limit.
- The move was aimed at allowing comfort to individuals who were hesitant to deposit legal tender following the withdrawal of high-value currency notes which came into effect from November 9.
Impact:
The move will encourage small businesses such as shopkeepers to deposit cash in legal tender which they can fully withdraw.
‘CRR diktat may arrest slide in interest rates’
Context
The central bank’s has decided to increase the Cash Reserve Ratio (CRR) to 100 per cent on deposits received between September 16 and November 11.
What is CRR
Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a country.
Current Situation
- Banks do not earn any interest on their CRR balances maintained with the RBI. If banks were able to keep the deposits and deploy them as per the existing allocation between credit and investments after providing for 4 per cent CRR, gross earnings would be Rs.25,205 crore and net earnings after adjusting for the cost of deposits would be around Rs.7,100 crore.
- This may be assumed to be the opportunity cost of these funds for a full year. Following the increase in CRR, shares of public sector banks such as SBI, Punjab National Bank, Union Bank of India, etc. have fallen.
Conclusion
All eyes are on the next bi-monthly policy review of RBI scheduled on December 6 and 7 and the expectation for a rate cut is growing since the demonetisation drive is seen as slowing economic growth. The loss to GDP will significantly widen the output gap, a perfect foil for cutting rates, in RBI’s words. Clearly, the banking sector is in challenging times.
AERA plan on tariffs unilateral: IATA
Context– Recently, National Civil Aviation Policy (NCAP) 2016 had specifically mentioned that AERA may adopt the hybrid-till model for determining tariff at airports developed by state governments, private sector or in public-private partnership (PPP) mode.
Issue
Airports Economic Regulatory Authority of India (AERA) has not been given any policy direction by center for switching to hybrid-till model of determining tariff at Airport Authority of India (AAI) airports.
Present situation
- Currently, AERA has a single-till model in place to determine aeronautical charges at 20 major airports across the country, including Kolkata and Chennai.
- Under the single-till model, both aeronautical and non-aeronautical revenues are taken into account to calculate passenger fee.
- But now, AERA wants to switch to the hybrid-till model under which 30 per cent of the airport operator’s non-aeronautical revenue would be used to subsidize airport costs in a bid to align its tariff determination model with the NCAP.
Criticisms
- Domestic airlines argued that the regulator was not bound by the NCAP to change its tariff policies unless a directive is issued by the civil aviation ministry.
- Hence, adoption of hybrid-till approach without any cogent reason or evidence in support, AERA has “failed to discharge its duty and function as a statutory regulator”.
‘Bitcoin adoption in India sees surge’
Context-
Unocoin, an Indian bitcoin start-up, has unveiled a new app for Apple’s mobile operating system iOS and Google’s Android platform. The company has also unveiled a point of sale app to enable physical stores to accept bitcoin as a mode of payment.
Features of App:-
• The app will allow consumers to buy, sell, send, receive and store bitcoins, all in one place, from any remote device.
• 24/7 access to real-time bitcoin market prices and instantaneous trading transactions.
Need for app
• As recently government has demonetized Rs. 500 and Rs. 1,000 notes, bitcoin adoption is rapidly increasing in India.
• More than 300 million Indians use their phones regularly for accessing the Internet.
• According to experts, demand for bitcoins will increase as there are more than one billion Indians using mobile phones.
• This trend is expected to go up by 56 per cent per year.
• It will be helpful for users in managing and accessing their digital currency portfolio.
Indian Express
The New Cultural Revolution
Context:
The long-term consequences of demonetization and gains include ushering in a behavioral change at all levels of society. It is a part of the grand “cultural revolution” that the Prime Minister is working on.
Back ground:
The demonetization of high-value currency notes announced on November 8 by Prime Minister was a watershed moment for the Indian economy.
Short-term objectives behind the demonetization of high-value currency:
- Cutting off money channels to terrorists and extremist elements.
- Weeding out counterfeit currency.
- Driving out black money.
What is the revolution all about?
- Breaking stereotypes that govern individual and institutional habits.
- Using of technology in day to day transaction.
Why it is essential?
Technology has a tremendous influence in human life. It impinges all walks of public and private life, from attending office on time, keeping working and living environments clean, accountability, transparency, technology adoption, innovation, etc.
Considering the advantages of technology, a least cash society needs to be our goal.
The major latent benefit highlighted by the recent demonetization is that it has driven home the point that all Indians should be prepared for a least cash ecosystem. This entails a major attitudinal change and a behavioral modification.
Trump, artificial intelligence and India
Context
The fusion of the cyber and the physical is transforming the global economic and security landscape. Delhi must begin to pay attention.
What is Artificial Intelligence?
Artificial intelligence (AI) is an area of Computer Science that emphasizes on the creation of intelligent machines that work and react like humans.
‘Fourth Industrial Revolution’
Two themes of Donald Trump’s deeply disruptive presidential campaign resonated with the American people.
- One was to put America to work again by bringing jobs back.
- The other was to make the US military the most powerful and feared in the world again. Both would involve dealing with new technologies like big data, artificial intelligence, robotics and bio-engineering — often described as constituting the “fourth industrial revolution”.
What does the Article say?
- The fusion of the cyber and the physical is indeed transforming the economic and security landscape in the world. Delhi, which has had little debate on the unfolding strategic implications of the fourth industrial revolution, must now begin to pay attention.
- Given the deep interconnections between India’s advanced technology sector and the United States, any steps that Trump might take will have huge consequences for India. To ease the pressure on the American working classes, Trump has promised to limit the in-sourcing of labor and outsourcing of work to cheaper locations like Mexico, China and India.
- The impact of free trade has been sharpened by the technological transformation that is killing manufacturing jobs at an unprecedented rate. The fourth industrial revolution, driven largely from the Silicon Valley, is poised to eliminate many white collar jobs.
Third Offset Strategy
1. Among the few specific things that Trump said about US national security were references to artificial intelligence (AI) in boosting America’s defense edge against rival powers, especially China.
2. The US defense establishment has focused on what it called the “Third Offset Strategy”. The idea is to leverage American competence in emerging technologies like machine intelligence to counter the advantages of mass and geography that China has in Asia.
Conclusion
As China’s growing military capabilities challenge the historic American primacy in Asia, America is betting on AI, autonomous weapons, and improved man-machine interface to contain Beijing’s strengths.
To turn India’s multiple initiatives – from demonetisation to digital India – into effective national strategy, India needs a more intensive and sustained conversation with technology hubs like Bengaluru that are generating new possibilities for India’s transformation.
Forgetting old friends
Context
India has abstained from voting on the resolution against the human rights violation by Israel in Gaza.
Background
UN resolution in 1947 led to the partition of Palestine and Israel was carved out of it.
Being a victim of partition, India voted against the November 29 resolution partitioning Palestine and creating the new state of Israel on Palestinian soil.
India was the only non-Arab, non-Muslim country to do so.
And grateful Palestine has stood rock-solid with us.
Change of India’s stand with Palestine
With the change in the government, India’s attitude towards Palestine has been changed.
India has abstained on two resolutions against Israel:-
- One in the UN Human Rights Commission dealing with Israeli violations of international humanitarian law in the Occupied Territories
- Another in the UN General Assembly six weeks ago
While a huge majority of the UN membership voted for the resolutions, India has shied away from taking a stand.
Why change in attitude
Present government has been fascinated with Israel due to following reasons:-
- Militaristic character of the Israel.
- Communal nature of government.
- Idea of Jewish homeland.
- Same ideas are being implanted in India, example of which is Citizenship Act, 1955.
- Majoritarian characteristics of the government
India’s past stand on Palestine
India was appointed to two UN committees that considered Palestine’s future at the termination of the British mandate after World War II.
While initially majority of members were against partitioning Palestine, later governments under the influence of US and Soviet Union agreed upon dividing Palestine.
Only India held out.
This stand was in consistency with the statement of Nehru, who explained that India did not believe partition to be any solution and urged that Palestine be jointly inhabited by Jews and Arabs.
This, he foretold, would facilitate a gradual dissolution of the communal divide between the Jewish and Arab inhabitants of Palestine.
Stand continued
- Except PV Narasimha Rao’s stand of according full diplomatic relations to Israel, India continued to be at the forefront of support to the Palestinian cause.
- Even, Vajpayee as PM rejected the Israeli request that India declare Hamas and Hizbollah “terrorist” organisations.
While, India must maintain good relations with Israel, it should not ignore the human rights violation by even its friendly countries. India has been a staunch advocate of protection of human rights and it must continue to do so.
Live Mint
Making India a cashless economy
Context
As recently Government of India performed demonetization, there has been a lot of discussion on whether the government can use the current situation to push India towards a cashless future.
Facts
India has one of the highest cash to gross domestic product ratios in the world, and lubricating economic activity with paper has costs. According to a 2014 study by Tufts University, The Cost Of Cash In India, cash operations cost the Reserve Bank of India (RBI) and commercial banks about Rs. 21,000 crore annually.
Pros of being a cashless economy
• A shift away from cash will make it more difficult for tax evaders to hide their income, a substantial benefit in a country that is fiscally constrained.
• Increase transparency – E.g. Direct Benefit Transfer implemented through PAHAL scheme of LPG Cylinder.
• Financial Inclusion – as RBI issued license to Small Banks and Payment Banks.
• Speedy and Simple Transactions – The recently launched Unified Payments Interface (UPI) by National Payments Corporation of India makes digital transactions as simple as sending a text message.
Hurdles to sustained cashless economy
• Large part of population of India is still outside the banking net because, according to a 2015 report by PricewaterhouseCoopers.
• India’s unbanked population is at 233 million.
• Even for people with access to banking, the ability to use their debit or credit card is limited because there are only about 1.46 million points of sale which accept payments through cards.
• About 90% of the workforce of India works in the unorganized sector. It will not be easy for the informal sector to become cashless, and this part of the economy is likely to be affected the most because of the ongoing currency swap.
• Merchants prefer not to keep records in order to avoid paying taxes and buyers find cash payments more convenient.
• Cashless transactions have gone up in recent times. However, a meaningful transition will depend on a number of things like awareness, technological developments and government intervention.
Factors on which material transition to cashless economy depends are as follows
• Poor network: Availability and quality of telecom network will play an important role. But, presently people face difficulties in making electronic payments even in metro cities.
• Service providers will have to constantly invest in technology in order to improve security and ease of transaction.
• Government has to incentivize cashless transactions and discourage cash payment.
Conclusion
The government will have to create conditions. However, it is not necessarily through creating cash shortages. India may not become a cashless economy in the foreseeable future, but it needs to reduce its unusually high dependence on cash to bring in much needed transparency and efficiency in the system.
Forget growth to achieve growth:
Context
India has extremely fragmented structure of production in India’s farms and factories. However, India can grow. Developing countries like India have tremendous potential and hence, the definition of an economic recession that applies to developed countries does not apply to developing countries.
Corporate India
Corporate India is still in the middle of a balance sheet crisis, especially acute in the infrastructure-related sectors.
Impact of balance sheet crisis in India
- On banking Sector: It has been paralyzing, with non-performing assets (NPAs) rising to alarming proportions. The problem of NPAs has peaked and thus, banks will take a long time to restore credit flow to the economy.
- On Corporate: The share of private sector capital formation in the gross domestic product (GDP) has been on a continuous decline.
Author further emphasizes that our effort is to identify and address concerns that keep India’s long-term growth potential on a leash. Economists call that trend growth rate.
Challenges to achieve the high growth (an average of 8% growth per annum)
- To elevate the share of manufacturing and industry in its economy,
- The forces of premature de-industrialization,
- Limitations of a services-led growth model,
- Plateauing of global trade,
- Secular stagnation in developed economies,
- Country’s savings rate is inadequate to facilitate infrastructure investment on a scale that a country of India’s size and population needs.
Strategy to overcome these challenges
- To target a long period of moderate growth by focusing on steady economy-wide physical, human, and institutional capital accumulation and opportunistically riding on emergent global tailwinds.
- India should stand to benefit from the low commodity prices, especially oil price, which looks likely to remain low for quite some time.
- India would also contribute to low inflation and macroeconomic stability.
- The slowdown in China presents India with a great opportunity to stand up as the foreign direct investment destination of choice.
- Some policy modifications required like reforms in school and higher education; urban governance; housing, land, credit, and labour markets; infrastructure contracting; delivery of social welfare services; and improving state capability and personnel management.
- India should whole-heartedly embrace the principle of under-promise and over-delivery.
- India should emphasize on use of bottom up approach for its fundamental reform.
- India should come up with some revolution that characterized China’s growth over the past three decades. But, these revolutions have to be facilitated by cooperative and competitive engagement of the Central government with the states and among the states.
Conclusion
If India worked on doing the right things, economic growth shall be the logical consequence.
Payments banks in uncharted territory
The starting of Airtel Payments Bank on 23 November has expedited the financial inclusion mission led by the Pradhan Mantri Jan-DhanYojana (PMJDY). The other Payments Banks to be launched in the coming days will give a significant leap in terms of accessibility and inclusion of banking services in unbanked areas.
Why Payment Banks are important?
With prior permission of the RBI, the following roles to be played by the payments banks except providing credit:
- Basic financial services (in the initial phase)
- Acts as a business correspondent for another bank
- Distributor of financial products such as mutual funds, insurance and pensions
- Conduct foreign exchange transactions
What edge does Payment Banks have over conventional banking?
- They are heavily dependent on technology and digital means to reduce costs of operations.
- Increase ease of transactions.
- Customers’ data sharing within same entities.
What are the probable challenges?
- Business models:
Being new and untested, the business models of these new banks are unclear, even to operators.
3 of the 11 approved candidates dropped out, and the remaining have been cautious with their plans in the absence of clarity on many operational fronts.
With the RBI issuing operational guidelines in October, only Airtel has started a pilot phase in one state, and there are as yet no details on the plans of the other seven.
- Financial Inclusion:
It is difficult to estimate the impact the new banks will have on reaching out to the financially excluded.
For this, RBI must initiate an independent survey that will monitor the financial behavior of those outside the formal system—such a survey will over time give a clear idea of the impact of new banks on the ground. The RBI should begin by tracking data on active agents and active accounts from all banks; payments banks will then be a part of this framework.
What can be the solution?
- The Payments Bank will have to be quick on their feet. Since this is a first-time model, there will be many queries to the regulator as well, and success will depend on how responsive the RBI is in resolving glitches that will arise as operations begin.
- While keeping an eye on the financial inclusion, RBI must ensure the protection of interests of the customers.
- While moving in uncharted territory, there is a lot riding on the new banks—efficient monitoring, supervision and nimble regulation can make all the difference in taking India to a new level of inclusion.
A water war in Asia cannot be ruled out
Context –
Tension over water is rising in Asia, the graveness of the competition due to transnationally shared water is no less than the issues like South China Sea.
Problem
• According to an MIT, while Asia has less per capita fresh water, it is already facing the water shortage.
• The shortage will continue to intensify and is expected to become severe by 2050.
• As the geopolitical discord is already high, competition over freshwater resources could emerge as a serious threat to long-term peace and stability in Asia.
• In this geopolitical competition in Asia, China is being seen as a main aggressor.
China’s competitive edge in water competition
China enjoys unmatched riparian dominance, with 110 transnational rivers and lakes flowing into 18 downstream countries. Most of these water resources are located in Tibetan plateau.
China has world’s most number of dams and its dam builders never hesitate in targeting these dams to control the flow of international rivers.
Dam building activities of China
• China’s 13th 5 year plan calls for a new wave of dam projects on the Tibetan plateau.
• For major hydroelectric projects in Tibet, China recently cut off the flow of a tributary of the Brahmaputra River.
• For creating artificial lakes China is planning to build dams on the other Brahmaputra tributaries.
• China has also built six mega-dams on the Mekong River, which flows into South East Asia.
• Despite the downstream impacts, China is planning other dams on Mekong.
Situation in Central Asia
While China appropriates a growing volume of water from the Illy river, Kazakhstan’s Lake Balkhash is now at risk of shrinking substantially, much like the Aral Sea.
Irtysh river water, which supplies drinking water to Kazakhstan’s capital Astana and feeds Russia’s Ob river, has been diverted by China.
Other problems created by China in Central Asia
China’s energy, manufacturing, and agricultural activities in sprawling Xinjiang have contaminated the waters of the region’s transnational rivers with hazardous chemicals and fertilizers.
Indus water treaty
The treaty is the world’s most generous water-sharing deal, reserving for Pakistan more than 80% of the waters of the six-river Indus system.
However, Pakistan has used this treaty to sustain its conflict with India.
Dam building by Laos
The landlocked Laos has just notified the 3rd controversial hydroelectric project, the 912-megawatt Pak Beng dam, to export hydropower to China, despite regional concerns.
It had already ignored regional concerns about the alteration of natural-flow patterns to push ahead with the Xayaburi and Don Sahong dam projects, previously.
Impacts
Regional impacts
• Regional competition is straining agriculture and fisheries.
• Damaging ecosystems, and
• Fostering dangerous distrust and discord across the region.
Global impacts
• Asian states, concerned about their capacity to grow enough food, have leased large tracts of farmland in Sub-Saharan Africa.
• It has triggered backlash in some areas.
• In 2009, when South Korea’s Daewoo Logistics Corporation negotiated a deal to lease as much as half of Madagascar’s arable land to produce cereals and palm oil, it toppled a democratically elected president there.
Way ahead
Asian countries need to clarify the region’s increasingly murky hydro politics. The key will be effective dispute-resolution mechanisms and agreement on more transparent water-sharing arrangements.
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