Brief of newspaper articles for the day bearing
relevance to Civil Services preparation
- GS PAPER 2
- Nepal recalls envoy, cancels President’s visit {Foreign Policy}
- GS PAPER 3
- Most death row convicts first-time offenders {Social issue}
- Carriers can choose regional route {Indian Economy}
- Income Tax Dept. can reveal taxpayers’ details {Indian Economy}
- Overseas investors continue to shun oil palm industry {Agriculture}
- Steel firms may get NIIF funding support {Indian Economy}
- Retail inflation is overstated {Indian Economy}
- Ignore the demagoguery {Indian Economy}
GS PAPER 2
[1] Nepal recalls envoy, cancels President’s visit
- The Nepal government on Friday recalled its envoy in India allegedly on the charge of “non-cooperation”
- It happened just after the country’s first women President Bidhya Bhandari cancelled her trip to India citing political instability in Nepal.
- Bhandari was scheduled to visit from May 9 as the state guest and also scheduled to participate in a ‘Shahi Snan’ in Ujjain’s Simhastha Kumbh on May 14.
- The decision was taken after a Cabinet meeting during which his role in the latest political crisis came under criticism.
GS PAPER 3
[1] Most death row convicts first-time offenders
Case Study
- “Death Penalty India Report” is a report on criminal offenders.
Key observations
- Most death row inmates in India are poor, uneducated and first-time offenders, says a new study.
- A total of 241 out of the 385 death row inmates in India were first-time offenders.
- The study found that around 60 percent of the prisoners did not complete secondary education and nearly 75 percent belonged to economically vulnerable sections.
- Education levels affect the extent to which the death row prisoners are able to understand details of the case filed against them; lack of which results in alienation from the system.
- Further, three-fourth of the prisoners sentenced to death belonged to backward classes and religious minorities.
- While this finding does not imply direct discrimination, it reflects structural concerns which disempowered the marginalised.
- The seriousness of death penalty charge forces the families to hire a private lawyer than rely on poor quality of free legal aid provided by the government.
- It deepens the economic vulnerability of the already poor families, it doesn’t ensure access to competent legal representation.
- The study found that 185 of the 191 prisoners who shared information didn’t have a lawyer during interrogation.
- Most of them claimed they had experienced custodial violence and were tortured in police custody.
[2] Carriers can choose regional route
Issue
- Reforms in the aviation sector to boost regional connectivity.
What is the plan?
- The civil aviation ministry has planned to give domestic carriers the choice of regional airports that they may find viable to fly to.
- Taking a cue from the ‘Swiss Challenge’ model, the airlines will submit their proposals for operating on any regional route they wish to fly, along with the proposed viability gap funding they would seek from the government.
- The airline’s proposal would be put in the public domain and other airlines will be allowed to reverse bid on the subsidy proposal.
- The airline seeking the least financial support to fly on the regional route will get the subsidy amount.
- On routes where a proposal comes from only one airline, the government will give the subsidy based on normative pricing, meaning it will calculate the subsidy amount based on various parameters.
- In the draft civil aviation policy, the government has proposed a cap of airfares at Rs.2,500 for an hour’s flight as part of its regional connectivity scheme.
- The airlines will recover the possible losses incurred on such routes by way of viability gap funding from the government.
What is Swiss challenge model?
- A Swiss challenge is a form of public procurement in some (usually lesser developed) jurisdictions which requires a public authority (usually an agency of government) which has received an unsolicited bid for a public project (such as a port, road or railway) or services to be provided to government, to publish the bid and invite third parties to match or exceed it.
- Under the Swiss challenge model, any bidder can offer to improve upon a project proposal submitted by another player.
- However, the project developer, who had originally submitted the plan, is given an opportunity to match the bid amount.
- To keep the ticket prices affordable, the Viability Gap Funding is also being looked at. It will be a variant of the Swiss challenge model.
- Here, airlines will not develop the airport infrastructure but only bid for subsidy to recover operational losses.
Demand-driven
- Airports should be demand driven.
- Regional airports need to be developed based on techno-commercial feasibility analysis considering the local economy, per capita incomes, growth projections, distance from nearby airports and the feedback from airlines.
Central subsidy
- The Centre will provide 80 per cent of the subsidy to airlines by setting up a regional connectivity fund (RCF).
[3] Income Tax Dept. can reveal taxpayers’ details
What happened?
- The Income Tax Department can reveal information related to taxpayers disclosing previously concealed income under the Budget’s Income Declaration Scheme, if it is deemed to be in public interest.
How this has been achieved?
- An amendment to this effect has been made in the Finance Bill of 2016 approved by the Lok Sabha.
Purpose of the amendment
- Tax experts have said that the amendment is aimed to allay any misconceptions that the government would keep such taxpayers’ details confidential under any circumstance.
Penal tax rate
- The Income Declaration Scheme offers people with undisclosed income to declare it by paying a penal tax rate of 45 per cent on such income.
- The final version of the Finance Bill okayed by the Lok Sabha has imported Section 138 of the Income Tax Act into the declaration scheme’s ambit.
[4] Overseas investors continue to shun oil palm industry
Issue The government’s allowed 100 per cent foreign direct investment (FDI) in oil palm plantations last year but has failed to draw even a single investor.
Analysis
- India spends huge amount on imports of edible oil every year.
- Attempts to increase the area under oilseeds in India have not been very successful, but demand has been rising perennially.
- Palm oil imports constitute nearly 75 per cent of the total edible oil imports. Palm is generally the cheapest commodity vegetable oil and also the cheapest oil to produce and refine globally.
- The Government of India has been trying, for many years now, to reduce its dependence on imported edible oils, by encouraging farmers to take up palm cultivation.
- In 1992, the Oil Palm Development Programme (OPDP) was launched in six Indian States.
- In 2004-05, the scheme was introduced in six more States, including north-east India — Mizoram, Tripura and Assam.
- This was followed by an “Oil Palm Area Expansion” (OPAE) programme in 2011-12. But palm cultivation in the country has not really gained traction.
- Indonesia and Malaysia are the two major palm oil producers globally, producing nearly 85 per cent of the global output.
- The best growing conditions for palm trees exist in a small band around the equator, limiting the number of places the crop can be successfully farmed. These regions coincide with the rainforest zones.
- More and more environmentalists are opposing the rapid expansion of palm plantations at the cost of rainforests in Indonesia and Malaysia. As a result, companies have been looking for other geographies to expand the plantation.
Constraints in Expansion
- First and foremost, lack of large land tracts is a major constraint. The industry wants the government to declare palm oil as a plantation crop to move it out of the Land Ceiling Act. The current policies of the Centre do not allow companies to either acquire or lease land beyond a specific acreage as defined by land ceiling norms. Thus, there is no scope for the corporate sector for large scale plantation of oil palm.
- A second limitation is the weather. Palm requires humid weather throughout the year. The harsh Indian summer impacts both crop development and yield. In hot summer months, the recommended irrigation is 300 litres per plant per day. This limits the regions where this crop can be grown.
- A third constraint is the lack of infrastructure. Close proximity between farms and processing mills is a must. The fresh fruit bunches should be processed within 24 hours of harvest to obtain good quality oil. A delay leads to build-up of free fatty acids.
- Last but not the least, there’s the lack of trained and experienced farmers who can successfully make money out of this crop.
More space
- In order to encourage its cultivation in the country as a part of its effort to reduce imports and ensure edible oil security, the government came out with a National Mission on Oilseeds and Oil Palm (NMOOP).
- NMOOP envisages bringing an additional 1.25 lakh hectares under oil palm cultivation through area expansion approach in the States including utilisation of wastelands. The States currently engaged in oil palm cultivation are Andhra Pradesh, Chhattisgarh, Goa, Gujarat, Maharashtra, Mizoram, Karnataka, Kerala, Odisha, Tamil Nadu, Arunachal Pradesh, Assam, Bihar, Manipur, Meghalaya, Nagaland, Sikkim, Tripura and West Bengal.
- Oil palm developers, however, say that the potential of this crop could be realised effectively if there is a separate oil palm development board, a separate import policy for palm oil and a separate budget for oil palm industry development besides relaxation of land ceiling norms.
[5] Steel firms may get NIIF funding support
Issue
Government is looking at creating a fund under India’s first sovereign wealth fund, NIIF, which will address capital requirements of domestic steel companies.
NIIF
- National Investment and Infrastructure Fund (NIIF) is a fund created by the Government of India for enhancing infrastructure financing in the country.
- NIIF, proposed to be set up as a Trust, would raise debt to invest in the equity of infrastructure finance companies such as Indian Rail Finance Corporation (IRFC) and National Housing Bank (NHB). The idea is that these infrastructure finance companies can then leverage this extra equity, manifold. In that sense, NIIF is a banker of the banker of the banker.
- Its creation was announced in the Union Budget 2015-16
- The objective of NIIF would be to maximize economic impact mainly through infrastructure development in commercially viable projects, both greenfield and brownfield, including stalled projects. It could also consider other nationally important projects, for example, in manufacturing, if commercially viable.
This is different from the National Investment Fund
- The cabinet Committee on Economic Affairs (CCEA) on 27th January, 2005 had approved the constitution of a National Investment Fund (NIF). The Purpose of the fund was to receive disinvestment proceeds of central public sector enterprises and to invest the same to generate earnings without depleting the corpus. The earnings of the Fund were to be used for selected Central social welfare Schemes. This fund was kept outside the consolidated fund of India.
Green field and Brown Field Investment?
- Green-field and brown-field investments are two different types of foreign direct investment, or FDI. Green-field investments occur when a parent company begins a new venture by constructing new facilities in a country outside of where the company is headquartered. Brown-field investments occur when a company or government purchases an existing facility to begin new production.
Green field
- There are several reasons why a company opts to build its own new facility rather than purchase or lease an existing one. The primary reason is that a new facility offers the maximum design flexibility and efficiency to meet the project’s needs. An existing facility forces the company to adjust based on the present design.
- Additionally, all capital equipment needs to be maintained. New facilities are typically much less costly to maintain than used facilities. If the company wants to advertise its new operation or attract employees, new facilities also tend to be more favorable.
Brown field
- The clear advantage of a brown-field investment strategy is that the building is already constructed. The costs of starting up may be greatly reduced. The time devoted to construction can be avoided as well.
Analysis
- Government is also working on operationalising National Infrastructure Fund, the sovereign fund, and that is envisaged as a mother fund and within that there will be specific sectoral funds.
- The Finance Ministry had signed an MoU with Abu Dhabi and Russian nano-technology company and is also having discussions with some funds with the UK for investments in NIIF.
- While the government will invest Rs.20,000 crore in NIIF, the remaining amount will come from private investors.
- If the existing national or municipal government requires licenses or approvals, the brown-field facility may already be “up to code.” In cases where the facility previously supported a similar production process, brown-field investments can be a real coup for the right company.
- Brown-field investments run the risk of leading to buyer’s remorse. It is rare that a company looking to engage in FDI finds a facility with the type of capital equipment and technology to suit its purposes completely. If the property is leased, there may be limitations on what kinds of improvements can be made.
Reasons that affect the competitiveness of Indian steel industries
High capital cost is one of the major reasons
Government is working on a two pronged strategy to deal with that
- i) Government is looking at developing long-term funding for sectors like steel.
- ii) RBI has brought our the 5/25 format, where there is a recognition that it cannot be expected from industries like steel to repay their loans in short spans of 5-7 years.
5/25 scheme
- The 5:25 scheme allows banks to extend loans for a longer period of time for infrastructure projects, typically 20-25 years, in a bid to match cash flow of these projects. It can refinance them every 5 or 7 years.
Major Challenges
The stressed assets are a major challenge. Lenders today are unable to get capital at lower costs as their credit ratings are impacted due to the stressed assets and it is being recognised that some of this stress is not coming because of mismanagement, a lot of stress is due to global factors that are beyond the control of individual firms.
The RBI, Department of Financial Services and the banks are working to see how government can help clean up the balance sheets so that banks can get capital at lower costs.
[6] Retail inflation is overstated
Context
- According to author, retail inflation in India is overestimated.
We are losing credibility
- Prominent Western experts have stated that Indian GDP growth is overstated, and maybe by as much as 250 basis points for 2015-16.
- That is, instead of being 7.6 per cent, it “likely” to be close to 5 per cent.
Real Picture
- Indian GDP is low, because deflator is underestimated, while the real indicator of inflation in the economy, the consumer price index (CPI), is rising at around 5 per cent, if it is correctly measured, it should be running at a 3.8 per cent.
What is wrong with the estimation?
- The CPI is based on price surveys conducted every month.
- There is no problem with the CPI data on prices but it has got the expenditure weights wrong.
- These weights are obtained from the National Sample Survey of Consumer Expenditures, 2011-12.
- Unfortunately, the NSS surveys have strangely and mysteriously been under-estimating the average per capita consumption for three decades now.
- To make the point of flawed weights clearer, consider the difference between consumption data as per NSS and National Accounts data
| Expenditure of a typical Indian Consumer on:- | NSS (% of total monthly expenditure) | NA (% of total monthly expenditure) |
| Food and beverages | 46 | 31.4 |
| Household goods and services | 3.7 | 6.3 |
| Transport and Communication | 8.6 | 16.8 |
| Financial services | 0 | 7.2 |
Missing the Picture
- Clearly, there is a large difference in the shares. More importantly, the CPI data also completely misses out on an increasingly significant part of each consumer’s life — the financial and insurance services (zero in CPI and 7.2 percent in NA).
- The GDP in India is (approximately) composed of 65 per cent consumption and 35 per cent investment.
- If one gets appropriate deflators for the two components, one can obtain an independent assessment of what deflator inflation looks like in India, and an estimate that does not erroneously use WPI prices for consumption expenditures (as pointed out by the RBI).
- By definition, one should use the consumption weights as in the NA.
Conclusion
- The difference in inflation estimates are not small.
- If the adjusted CPI estimates do reflect the underlying reality of consumer inflation, then the results have strong implications for the RBI policy (are Indian repo rates too high?) and the GDP growth (are we underestimating the GDP deflator inflation?)
[7] Ignore the demagoguery
Issue
The controversy surrounding App-based cabs and their pricing.
Analysis
- Exogenous factors such as the weather and the time of day, the instantaneous demand and supply of taxis vary with the price.
- The state fixes two parts of the taxi market.
- First, it limits supply by mandating a permit for operating a taxi, thereby making the supply of taxis very inelastic.
- Second, it fixes the price of the service.
- Given the exogenous factors, a price that equates demand and supply is called an equilibrium price. Unfortunately, this price is rarely the equilibrium price because changing exogenous factors move demand and supply, leading to a fluctuating equilibrium price.
- For instance, during peak commuting hours or severe weather conditions, demand usually exceeds supply at the mandated price. At off-peak times, the opposite is true. Both situations are inefficient as mutually beneficial trades remain unrealised.
Difficulty faced in such kind of trade
- First, the potential traders have to find each other .
- Second, even if the potential traders randomly bump into each other, haggling imposes a significant cost in terms of time and psychological distress.
- App-based cab services solve both problems.
Benefits of App based service
- The software matches, in real time and at low cost, customers and cabbies who are willing to trade at the specified price.
- As both parties accept the price, haggling is irrelevant.
- By replacing random physical matching and haggling with a virtual platform for precise real-time matching of traders and auction-based pricing, App-based cabs implement the mutually beneficial trades implied by demand-supply mismatches.
- The taxi market becomes more competitive as there is a larger number of suppliers across the quality spectrum.
- The ability of the supply-side of the market to respond flexibly to price signals makes the taxi supply far more elastic than under a rigid permit regime.
- There is a marked improvement in the quality of service relative to the neighbourhood taxi-stand benchmark. This should enable a switch away from private cars to public taxis, leading to lower congestion and pollution.
- Peak prices are much lower than those of traditional cabs.
Economics
While prices increase (as they should) when demand is greater than supply, they also fall (as they should) when supply is greater than demand. Thus Peak-time prices are higher than the mandated price. However, the mandated price is irrelevant at peak-times since every cabbie can and does charge a premium at such times.
What is the proper role of the state in this market?
- Not to ban flex-price cabs or regulate prices since this market is very competitive.
- Not only are bans and pricing fiats generally counter-productive, they are also ineffective if the targets of such coercive actions have the means and motives to subvert the state’s directives.
- So, the state should concentrate on its legitimate functions of implementing quality-of-service standards, and more generally, enforcing traffic laws.
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