A brief of newspaper articles for the day bearing
relevance to Civil Services preparation
. China’s yuan move rattles markets, Sensex plunges / Markets in free fall after China devalues yuan
China’s surprising move to peg the yuan at its lowest value against the U.S. dollar since 2011, triggered a selloff in global markets , bringing alive the fears of competitive devaluation among emerging economies.
Global shares tumbled for a sixth day
Oil prices slid to levels not seen since the early 2000s due to worries over weaker demand from China adding to a persistent drag on prices caused by oversupply and near-record output levels
Singapore’s dollar hit a six-year low, the South Korean won touched a four-month low, and the Malaysian ringgit slumped to a three-month trough.
WEAK CHINESE ECONOMY:-
A slowdown in China impacts commodity prices as the country is the biggest consumer of many commodities, including base metals.
Investors fear China’s economy is even weaker than had been imagined as the move to devalue will help exporters.
Geopolitical tensions stemming from Saudi-Iran tensions and North Korea’s nuclear test had already heightened the ‘risk off’ mood.
Resurfacing China risk was the extra psychological blow to the markets that led to the selloff in equities
The government sought to reassure the markets that the depreciation of the yuan is par for the course as it becomes increasingly market-linked following its induction as a reserve currency by the IMF.
India, officials stressed, has the inherent resilience to deal with such emerging challenges.
The China slowdown concerns have been going on for some time and it will only be a surprise if Indian market and currency do not react to it
A series of sudden currency depreciations that nations may resort to in tit-for-tat moves to gain an edge in international export markets. The act of currency devaluation or depreciation improves a nation’s export competitiveness because it lowers the cost of goods exported from that nation for overseas buyers.
. U.S. seeks Chinese help over N. Korea
The U.S. said it considered the latest nuclear explosion carried out by North Korea a matter of national security, and declared that it would stand steadfast in its alliance commitment to South Korea.
The U.S. is also exploring new sanctions and considering strengthening the existing sanctions against.
China’s response to the incident was considered encouraging by the Us government.
China remains a crucial player which can calm the situation though its influence in north Korea is diminishing.
Mr. Kim has made attempts to move away from a total dependence on China and it improved relations with Russia and even got India to receive its Foreign Minister in 2015 — the first time in 25 years.
The U.S. also said it was open to talking to North Korea in the Six Party format.
The talks started in 2003 but aborted in 2009, involved China, Japan, South Korea, North Korea, Russia, and the U.S.
US wants a dismantling the nuclear apparatus of North Korea, which has been unwilling to accept that.
To resume talks North Korea must be willing to accept the conditions.
CONTAINING CHINESE AGGRESSION IN SOUTH CHINA SEA:-
While the U.S. is seeking Chinese lead in disciplining North Korean adventurism, it also has to signal to its allies in Asia that it would stand up to Chinese manoeuvres in the South China Sea.
US has decided to explore how best to improve Vietnam’s maritime domain awareness and security capabilities following China’s test flight landings of civilian aircraft on Fiery Cross Reef in the South China Sea.
Opinions & Editorials
. In defence of intelligence/Across the Aisle: Price of procrastination
The articles discuss the plight of Intelligence agencies being blamed after terrorist attacks and also suggest institutional reforms to increase their efficiency.
NOT AN INTELLIGENCE FAILURE:
Many reports have established that in the pathankot attacks both the IB and the Punjab State intelligence had sent out clear communications down the line, five days ahead of the terrorist incursion, that there was a huge threat to installations on the border with Pakistan, and therefore the need for extreme preparedness.
The warning had not been taken seriously, either by the local police or the defence installations in the area. As a result, the terrorist group was able to smuggle themselves into the Pathankot airbase and launch a daring attack
This was certainly not an intelligence failure.
R.D. Pradhan committee appointed by the Maharashra State government after Mumbai attacks pointed out how several valuable inputs were given to the Mumbai Police highlighting the possibility of terrorists designing an attack on the city.
The Pradhan committee was highly critical of the lack of preparedness of the government and the police despite the availability of specific intelligence.
HOW MUCH INTELLIGENCE CAN DO?
Investing intelligence agencies with superhuman capacity and expecting it to give inputs to the last detail — such as exact time of the attack, and the exact spots targeted — seems ridiculous.
FAILING TO UNDERSTAND
Before twin tower attacks the belief was that aircraft were targets only for hijacking which proved to be wrong.
This was almost identical with the discovery, after Rajiv Gandhi’s assassination, that a ‘human bomb’ could be employed to assasinate VIPs.
In both cases, efforts were not lacking on the part of intelligence operatives. What was distressingly missing was the ultimate in intelligence: the exact mode, time and place of attack.
In the San Bernardino attacks the couple had Pakistani connections, but had merged so well into the local community that they could hardly have been expected to unleash a terror attack.
They revealed no aberrations or any activity that even remotely suggested that they were capable of such a dastardly act
Conspirators of the present day take every conceivable precaution to protect information.
Only if a message cannot be delivered by hand and through an absolutely reliable courier do terror outfits use other media.
With increasing judicial restraints on intelligence organisations, monitoring of telephones and electronic mail has become extremely complicated and hazardous, and is attended by an exposure that invites criminal action against public servants working in national interest.
LACK OF INSTITUTIONAL STRUCTURE:
The constitution of the National Counter Terrorism Centre (NCTC) is still pending.
The key pillars of counter-terrorism are intelligence, analysis, and single command and control.
RAW INFORMATION INTO ANALYSIS:
Honing information into intelligence is analysis and that is a specialist’s function. In the complex world of counter-terrorism, high-quality analysis requires a multidisciplinary approach bringing together the skills of the border guard and the computer technologist, the policeman and the professor (of chemistry or engineering or psychology), the spy and the scientist.
The third pillar is a single command and control to undertake counter-terrorist operations
SINGLE COMMAND AND CONTROL:
In the Pathankot attacks there was no sign of a “single command and control”.
The Defence Security Corps re-employs retired jawans who are not much better than armed gatekeepers. The Garud Force is a defensive arm of the air force to protect air force assets. The NSG is a target-specific counter-terrorist force, not a battlefield unit.
Yet, these were the units that were called in as the first responders. The one trained battle-ready counter-terrorist force, the army’s Special Forces, was nearby but not deployed to secure the sprawling base or the perimeter.
We need an institutional arrangement and the response to a terror attack must be an institutional response led, no doubt, by brilliant individuals.
In a federal system with as many police administrations as there are states and Union territories NCTC is inevitable.
We had already made a beginning with the Multi Agency Centre (MAC) within the Intelligence Bureau (IB) and in every state, and it required only two or three more courageous steps to constitute the NCTC.
The draft notification of NCTC was revised after taking into account the states’ concerns and sensibilities. The revised draft leaves room for any reluctant state to join the NCTC after an interval of time (as was done in the case of VAT)
The world cannot fight terrorism by merely upgrading intelligence capability. It needs a lot more imagination and also dedication to removing economic grievances in the less developed nations, where religious fanaticism has become the opium that suppresses the pain of corruption.
Till then Institutional reforms need to be in place.
. Ties That Need Remaking
The article discusses how the bilateral trade between India and Indonesia can be enhanced.
The links between India and Indonesia were built by traders who sailed with the monsoon winds. This led to a great cultural engagement between the two countries
The overall engagement between India and Indonesia — about $35bn at present, with a trade target of $25bn and FDI inflows expected to grow further — certainly looks robust.
An interesting feature of this bilateral trade is the dependence of Indonesia on commodities and the dependence of India on manufactured goods.
But neither country is in the top-five trading partner category of the other and, as such, this relationship needs greater nurturing so that its natural momentum can be enhanced
The main issue is that bilateral trade is largely on autopilot, with little guidance or support from governmental action on either side.
The linkage of trade to investment is largely confined to the coal sector
As B2B relationships emerge, one can expect more Indonesian companies to look favourably at the opportunities in India under the Make in India programme, which is now well- publicised in Indonesia.
WHAT NEEDS TO BE DONE?
REGULAR G2G CONTACT:-
More regular G2G contact by activating existing inter-governmental mechanisms like the trade ministers’ forum, the energy forum and the high-level task force on economic matters should be arranged on a priority basis.
The G2G initiatives must always have business components present in order to make them more comprehensive and more effective.
The economic forums in Indonesia view India as an important trading partner, they are still looking for ways and means to have a consistent and productive engagement with their Indian counterparts.
There is a need for greater engagement between the business people on both sides. This will also provide greater understanding and build confidence that, in turn, will generate ideas and opportunities for increasing business interaction
Indian and Indonesian CEOs rarely meet at the highest levels. Even the CEOs’ forum has not taken off because there’s little mutual interest among the CEOs nominated to the forum by both countries. This is essentially a manifestation of the lack of understanding at the highest B2B levels.
. The problem with smart cities
The article discusses the Problems of Special Purpose vehicles institutions in the Smart City Mission and how it can be managed by curtailing vested interests.
The Smart Cities mission aims to make Indian cities sustainable and competitive.
HESITATION TO SUBMIT PROPOSALS:
Apart from criticism on the quality of proposals and public participation, there were indications of a few cities hesitant to submit their proposals.
One of the main reasons for the apathy of urban local bodies of some cities pertains to the Special Purpose Vehicle (SPV), which is to be mandatorily constituted for the implementation of their respective Smart City Plans.
SPVs with private investments have been increasingly encouraged as an efficient mechanism for infrastructure projects. This should be ideally seen as an attractive option for urban local bodies struggling to meet investment requirement.
An SPV is a legal entity created for a specific purpose, which can theoretically be shut down after the specified purpose has been achieved.
The major advantage of an SPV is that it allows investors to limit their risks and maximize profits, and bypass cumbersome legal and regulatory issues.
A prominent example of this would be road construction, operations and maintenance. In certain other cases, like metro rail projects, the private-public partnership efficiencies are yet to be realized.
CONTROVERSIES OF SPV’s:
THREATENS DECENTRALISED GOVERNMENT:
One of the reasons for setting up SPVs in smart cities is to ensure objective and efficient decision making, independent of municipal councils, which are subject to local politics.
The Smart Cities Mission (SCM) guidelines mandate an equal share of equity contribution by the state government and urban local body, thereby making them the majority shareholders.
But urban local bodies are disturbed by the idea of an SPV bypassing the elected municipal council as proposed in the SCM guidelines. It threatens to chip away at the notion of decentralized and democratic decision making.
ABSENCE OF CLARITY:
Currently, according to the SCM guidelines, cities are required to create an SPV once they have been selected.
However, in the absence of clarity on specific projects and assured revenue streams, it would be very difficult for private companies to participate. This, combined with a lack of management control, may reduce the attractiveness of SPVs for private investors.
PUBLIC BENEFITS OF PROJECTS:
The SCM guidelines also stipulate that government funding can only be used for projects that have public benefit outcomes. The criteria to decide the degree of public benefit of projects is still not framed.
CONVERGENCE OF PROGRAMMES:
There are cities that are covered under more than one such flagship programme. For example, Varanasi is included under both SCM and the Heritage City Development and Augmentation Yojana (HRIDAY). The manner in which a smart city SPV interacts with the implementing agency for HRIDAY, and how two projects under the two separate programmes complement each other, is yet to be seen.
WHAT NEEDS TO BE DONE?
PROTECT THE DEMOCRATIC NATURE:
First step would be to build safeguards to protect the democratic nature of governance structures. A robust governance structure, which allows for sharing of power and financial resources between urban local bodies and the private sector stakeholders, would go a long way towards assuaging fears.
CLARITY IN RULES:
Government has to clarify the financial nature of SPVs and how the private sector can contribute effectively. The nature of the asset and price sensitivity of citizens towards that asset could be used as a factor in deciding issues of charging user-fee.
Critical issues of capacity and skill building for local bodies need to be addressed in parallel. Matters related to intellectual property rights, open standards and technology transfer should be enshrined at the highest level of government since it is difficult for individual urban local bodies to negotiate with private parties.
. Strengthen household saving data for effective policy-making
The article discusses that a clear picture of household savings in India is not available. In this context it analyses a recent study conducted to show the actual household savings and their relation to other factors.
Importance of Household savings:-
A consistently high rate of household savings not only enables a country to fund creation of public assets, but also facilitates overall debt financing.
An effective strategy would aim at not only optimising savings, but also at channelising available savings into productive and socially-desirable investments.
In India, direct estimates of total savings are simply not available on a regular basis.
Currently, savings estimates are derived indirectly from GDP using the residual method—i.e. deduction of share of public and corporate sector from the gross numbers.
However, this method doesn’t reveal anything about the changes in savings patterns that occur with rise in incomes of various socio-economic groups. For that matter, very little is known of changes in household expenditure in relation to changes in income
THE STUDY AND ITS FINDINGS:
The ICE 360° Survey 2014 clearly demonstrates that despite the constraints, it is not impossible to collect reliable data on income, expenditure and savings which are needed for a better understanding of the nation’s economic growth and for policy formulation.
The study shows that impact of education has also been felt on savings behaviour. Rising levels of mean savings and mean income were witnessed in households with improved education status.
The linkages between household savings and economic growth are obvious and the steady increase in dis-savings is a cause for concern.
. COP21, stranded carbon and India
The article discusses how only a percentage of the conventional reserves will be used if the countries have to stick with the 2 degree target of Paris climate deal. In that case the author discusses how India should go forward to make the best out of this scenario.
2 DEGREE TARGET:To keep the increase in global temperatures to well below 2°Celsius, with a hope to restrict global warming to 1.5°C.
NATIONALLY DETERMINED CONTRIBUTIONS: Most countries announced voluntary pledges to curb emissions (158 submissions covering 185 countries and 90 per cent of global emissions were announced). These submissions are a first step, with most countries having to announce further reductions in 2020 and continuing to increase the cuts every five years.
FUNDING –The developed countries will supposedly provide the poor nations with $100 billion a year till 2025, and then step up this funding.
WHAT DOES THIS MEAN?
To limit warming to 2°C, carbon dioxide emissions will have to be cut by 25 per cent more than the pledges already made. To limit global warming to 1.5°C, we will need additional cuts in emissions of 40 per cent by 2030.
To give a sense of the enormity of the task, the additional emissions cuts needed to restrict warming to 1.5°C imply a total phase-out of coal from the energy mix and replacing oil from all transport uses – and all this by 2030.
It is the concept that some of the proven reserves of fossil fuels will never be burnt and will remain stranded.
That is to stay within the 2°C target, we only have about 1,100 giga tonnes (gt) of carbon dioxide (CO2) that can still be emitted.
Current proven reserves of fossil fuels are about 812 billion tonnes of oil equivalent (oil, gas and coal). Just burning all these proven reserves (not counting contingent reserves or those yet to be discovered) would generate about 2,512 gt of CO2 equivalent emissions.
Thus no more than 40 per cent of the existing proven reserves of fossil fuels can ever be burnt. Probably even less, as some of the carbon budget will be taken by non- fossil fuel applications like agriculture.
WHAT INDIA NEEDS TO DO?
RAMP UP COAL PRODUCTIN:
First of all, we need to ramp up coal production as soon as possible, otherwise the bulk of our coal will never get burnt. There is probably a limited window of another 20-25 years for coal, beyond that it will be impossible to use.
CONTROLLING THE PETROL PRICE:
There is a possibility that we could see a race to produce as much oil as possible by OPEC members. This carbon race will be highly damaging to petroleum pricing and India needs a cautious approach.
HEADING AHEAD IN NATURAL GAS:
Natural gas will gain prominence as the only way to lower emissions in the short term and provide a low carbon bridge to renewables, electric vehicles (EVs) and energy storage systems till they gain economic viability.
We need to ensure long-term linkages for gas; it will be far more important than oil in the future. Locking in long-term contracts today when prices are low may be prudent.
SHIFT TO GREEN TECHNOLOGIES:
This shift will benefit lower carbon fuels like natural gas, and zero-carbon technologies like renewables, energy storage systems, batteries and electric vehicles.
We need to attain a technology position in these new fields. China already dominates solar, and South Korea leads in battery technology powering EVs and energy storage systems.
India has to use our likely leapfrogging and mass adoption of these new technologies to build a viable eco-system in these areas. We should encourage local players in both areas.
. Making labour laws modern
The government has embarked on biggest labour law overhaul since Independence by merging 44 extant laws into four codes aimed at ensuring the ‘ease’ of doing business, where India ranks at 130 (out of 189 economies) in the World Bank report, and moving towards reality in its stated objective of making India the global manufacturing hub.
The draft code on wages empowers the states to fix minimum wages and makes national minimum wages mandatory.
Employers with up to 300 workers would not require government permission for retrenchment, lay-off and closure.
This, according to experts, will facilitate ease of doing business without compromising on safety, health and social security of every worker.
Creating a labour union will become more difficult as 30% of workers will be required to sign for its creation (earlier it was 10%).
It also prohibits politicians from becoming union leaders in organised sector establishments. The proposed changes would make it tougher for employees to form unions or go on strike.
Amendments here will exempt companies employing less than 50 workers from the ambit of the Act (from the earlier limit of 20).
Without assured minimum wage, contract, health and pension benefits, overtime allowance, and safety and sanitation at workplace, economic progress cannot be achieved.
NEED FOR REFORMS:
The World Bank says India has one of the most rigid labour markets in the world.
Even economists cite current labour rules as the biggest constraint to Modi’s ‘Make in India’ dream to boost manufacturing and job creation.
Experts feel the government needs to push forward its several big-ticket labour reforms, else the economy would stagnate and investors may start looking at other countries.
Most trade unions are against several proposals in the code, saying they won’t allow reforms ‘at the cost of labour’.
The trade union last week demanded de-linking of labour law reforms from ‘ease of doing business’ considerations of the government and called for regularising contract labour employed with government agencies.
. Is India’s demographic dividend a myth?
The article analyses the sad state of demographic dividend in India by comparing it to other contemporaries.
On considering the indices of education and well-being – countries, like India, with rankings of about 130 or so on the UN’s human development index are least proffered as labour market.
India accounts for the largest number of children suffering from stunting and wasting – from chronic diarrhoea and malnourishment – in the world. .As many as 1.4 million die before they have turned five.
It also has very low levels of female participation in the workforce.
COMPARING WITH CHINA:
China is temperamentally and culturally much closer to the rapidly industrialising South Korea and Taiwan of the 1960s and 1970s than India is which is a serious drawback for us.
China is far better educated, with literacy rates in excess of 95 per cent and years in school approaching 12 years for recent cohorts of job-seekers
Another large entity with millions of under-educated and poorly fed youngster’s looks set to compete with Indians for jobs. By 2100, Africa will be home to 4.4 billion people, according to new data from the United Nations.
LEWIS TURNING POINT: that moment when factory owners see their returns fall because supplies of cheap labour have dried up.
LABOUR – SAVING: Using robots and other technologies to make up for labour shortage.
LABOUR – LINKING: The shift of jobs from the US to places like Gurgaon and Bengaluru.
THE WOMB LOTTERY:
It is the random process by which a child is born to a certain set of parents.
The randomness of one’s parentage can be likened to a lottery. Those who are born into wealthy families are said to have won the womb lotto
Sadly, for hundreds of millions in India, that inequality from their birth and the utterly inadequate schooling and health care they receive thereafter mean that the lottery is stacked against them
. Inflation and policy coherence
CURRENT GROWTH SCENARIO:
For the first two quarters of financial year,
Nominal gross domestic product (GDP) growth is estimated to be 7.4 per cent
Real gross domestic product (GDP) growth 7.2 percent
A worsening scenario,
Second quarter comparison between 2013 -14 and 2014-15 nominal growth has slowed down from 13.6% to 6%. Fall in real growth is just 1%.
What this scenario suggests;
A severe aggregate disinflation which would have brought down prices heavily from last year.
But we all know, Consumer Price Index (CPI) has been hovering above 4%, which signifies that Wholesale Price Index (WPI) has collapsed (declined by almost 8%).
HOW COME THE DIFFERENCE BETWEEN NOMINAL AND REAL GDP GROWTH IS VERY INSIGNIFICANT?
GDP deflator which is used to convert nominal to real GDP has 70% components present in WPI and 30 % that of CPI, which means it has also fallen by over 6.5% in the same period where WPI has collapsed by 8%. Hence, with very low value of GDP Deflator the difference is insignificant.
IS IT JUST STATISTICS OR THERE IS UNDERLYING WORRY?
Real GDP growth signifies increase in total output of goods and services while that of nominal GDP signifies the value of output (monetary value).
Nominal GDP is the index used by macroeconomist globally and has impact on producer outlook on confidence and profitability.
DOES THIS STATISTICS CAN LEAD TO POLICY IMPLICATIONS?
a) Fiscal deficits targets are set keeping in mind nominal GDP growth. With low nominal GDP growth the monetary increment which government was thinking won’t be available making it difficult for fiscal consolidation. If this situation continues, then the task of fiscal consolidation going forward will be much more difficult than has been the case historically.
b) Second, this brings into serious question the validity of the inflation targeting exercise as it is presently carried out. WPI and the GDP deflator both in negative territory, the cost of capital for investment is astronomically high. The average lending rate is around 11 per cent, and even priority sector loans incur interest rates above 10 per cent. This is a terrible situation for a growing economy to be in. The CPI hovering around 5% gives a comfortable rate of return for savers as well as not giving incentive to RBI to cut rates.
WHAT NEEDS TO BE DONE?
a) Method of GDP deflator calculation should be revisited and should be more aligned with CPI which is used by RBI for inflation targeting. This will bring back Nominal GDP low double digit zone bringing relief to macro fiscal instruments in the country. Playing with fiscal deficit targets should not be the way out here.
b) There is also a need for RBI to relook into its inflation targeting mechanism which has no technical justification but seems to be weighing on experiences of other countries. The inflation targeting of 4% needs to be achieved through interest rate policies being brought down which might take average lending rates close to 12%.
Though, a political decision collapse in nominal growth provides a case of urgency for reconsideration of macro fiscal policy and indicators in the country.
By: ForumIAS Editorial Team