9 PM Daily Current Affairs Brief – April 3 2017

[1]. Kathmandu test

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Live Mint

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[1]. Managing surplus liquidity

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Front Page / NATIONAL

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1. Counterfeiting of new notes worries agencies

Context

Officials want security features changed every 3-4 years. The new ₹2,000 and ₹500 notes have the same security features as the old ₹500 and ₹1,000 ones. This is a matter of concern.

How can government stop counterfeiting?

• Government plans to change security features of higher denomination banknotes of Rs 2,000 and Rs 500 every 3-4 years in accordance with global standards.
• Most of the developed countries change security features of their currency notes every 3-4 years and therefore, it is absolutely necessary for India to follow this policy.

Reasons

• The newly introduced notes have no additional security features and are similar to those in the old Rs 1,000 and Rs 500 notes
• At least 11 of the 17 security features in the new Rs 2,000 notes had been replicated.
• These includes the transparent area, watermark, Ashoka Pillar emblem, the letters ‘Rs 2000’ on the left, the guarantee clause with the Reserve Bank of India Governor’s signature and the denomination number in Devanagari on the front.

Conclusion

The change in design of Indian currency notes of higher denominations was long overdue. it is absolutely necessary for India to follow this policy.

2. Chenani-Nashri tunnel

Context:-

Prime Minister NarendraModi on Sunday inaugurated the country’s longest road tunnel that links Kashmir Valley with Jammu.

Features

• 9-km long ‘Chenani-Nashri Tunnel,’ is built at the cost of 2,500 crore
• Chenani-Nashri Tunnel is a single-tube bi-directional tunnel with a 9.35-metre carriageway and a vertical clearance of 5 metres.
• There is also a parallel escape tunnel, with ‘Cross Passages’ connecting to the main tunnel at intervals of 300 metres.
• It also has smart features such as an integrated traffic control system; surveillance, ventilation and broadcast systems; fire fighting system; and SOS call-boxes at every 150 metres

Benefits of tunnel:-

• The tunnel, bypassing snow-bound upper reaches, will reduce the journey time by two hours
• It will provide a safe, all-weather route to commuters travelling from Jammu and Udhampur to Ramban, Banihal and Srinagar
• The estimated value of daily fuel savings will be to the tune of 27 lakh
• The tunnel is equipped with world-class security systems, and is expected to boost tourism and economic activities in the State of Jammu and Kashmir

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Editorial/OPINION

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1.  Sharpen the focus on growth:

Context

If there has to be investment resurgence, it is necessary to create the climate which promotes this believe. It is necessary to focus upon increasing the economic growth.  If there has to be investment resurgence, it is necessary to create the climate which could promote this faith. The persistence of relatively low growth over a five-year period calls for a close examination.

Concern

Growth rate is determined by two factors — the investment rate and the efficiency in the use of capital.

Growth Rate

Growth rate is determined by two factors:

• Investment rate
• Efficiency in the use of capital

Growth rate is equal to the investment rate divided by the incremental capital-output ratio. The incremental capital-output ratio (ICOR) is the amount of capital required to produce one unit of output. The higher the ICOR, the less efficient we are in the use of capital.

Why did the investment rate fall? 

• One of the major reasons was Policy paralysis. Earlier it was the inability of the government to take policy decisions because of “coalition compulsions”.
• Once the growth rate starts to decline, it sets in motion a vicious cycle of decline in investment and lower growth.

Way Forward

When private investment is weak, the public investment could be raised. It is essential to increase private investment, and that too private corporate investment.

Things that need Attention

1. Reforms to simplify procedures speed up the delivery system and enlarge competition to be pursued vigorously.
2. All viable “stalled” projects to be brought for completion.
3. Financial bottlenecks to be cleared.
4. Twin balance sheet problem: If corporate balance sheets are weak, automatically the banks’ balance sheets also become weak.

Conclusion

If there needs to be investment resurgence, it is necessary to create the climate which promotes this faith. Undiluted attention to development is the need.

2. Digital push must be disability-inclusive

Issue: –

8-10% of India’s population lives with disabilities, making ICT accessible to the disabled is a must.

Need for providing accessibility to disabled people:-

Poor accessibility due to lack of focussed information and political will has led to social exclusion of people with disabilities

Incorporation of accessibility principles across all new developments will also complement the Accessible India Campaign.

Accessible India Campaign is a flagship campaign launched by the Prime Minister on World Disability Day which aims at:-

• Achieving universal accessibility for all citizens
• Creating an enabling and barrier-free environment.

Accessibility therefore forms the common thread weaving together the Accessible India Campaign, the Rights of Persons with Disabilities Act, the Smart Cities Mission and the Digital India campaign.

Government initiatives

India was one of the first countries to ratify the United Nations Convention on the Rights of Persons with Disabilities.

Rights of Persons with Disabilities Act, 2016

Following are the important features of the act:-

• Adherence to standards of accessibility for physical environment, transportation, information and communications
• Incorporation of Universal Design principles while designing new infrastructure, electronic and digital media, consumer goods and services
• Act sets timelines to ensure implementation of the above and punitive action in the event of non-compliance

Implications of exclusions of disabled from education, employment:-

• UN agencies put this cost at around 7% of national GDP.
• Disability is not an isolated issue. It is cross-cutting and can impact everyone irrespective of caste, gender, age and nationality.

Accessible services and business premises can:-

• Broaden the customer base,
• Increasing turnover
• And positively impacting the financial health and social brand of the company.

Accessibility for disabled people is a cross-cutting theme across all of these and care must be taken to ensure disability-inclusive development.

How to do it?

• Representation of persons with disabilities in all ministries and key missions, commissions and committees to advise and ensure inclusion in all policies, programmes and developments.
• The government’s procurement policy too must mandate accessibility as a key criterion.
• Adherence to the latest Web Content Accessibility Guidelines should be made mandatory while developing websites and mobile applications.

3. India must reaffirm its Paris pledge:

Context

This will make a difference to global climate outcomes in the context of U.S. recalcitrance under Trump.

What is the Clean Power Plan?

The Clean Power Plan will reduce carbon pollution from power plants, the nation’s largest source, while maintaining energy reliability and affordability.

U.S. and Clean Power Plan

• A centre-piece is a review of the U.S. Clean Power Plan, which aims at reducing greenhouse gas.
• This was a key element in President’s plan to meet climate pledge under the Paris Agreement.
• Even without the Clean Power Plan, the falling price of wind and solar energy, and availability of cheap gas could signal the end of coal in the U.S. But the same cannot be said for efforts to limit methane.

Implication for India

• India could use the U.S. retreat to stage one of its own. And, adopt an approach of benign neglect towards the Paris Agreement.
• India’s interests are best served by buttressing the Paris Agreement, using its mechanisms to hold to account the developed world, and maintaining its own pledges.
• India’s greenhouse gas limitation pledge is appropriately cautious and, in key areas such as renewable energy promotion, existing domestic policy targets are more ambitious than India’s Paris pledge.
• Approach is based on accelerating transition to renewable energy, which would bring gains in terms of energy security and air pollution.

Conclusion

India is in a position to think and act more clearly. It should do so by re-affirming its Paris pledge and placing its weight behind implementing the Paris Agreement.

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 Economy

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1. GAAR raises issue of taxman’s powers

Context

Arbitrary use of authority a big concern.

What is GAAR in simple terms?

• Tax Avoidance is an area of concern across the world.  The rules are framed in different countries to minimize such avoidance of tax.  Such rules in simple terms are known as  ” General Anti Avoidance Rules ”  or GAAR.   Thus GAAR is a set of general rules enacted so as to check the tax avoidance.
• GAAR usually consists of a set of broad rules which are based on general principles to check the potential avoidance of the tax in general.

Issue

• The concern is about the arbitrary usage of the powers that the officers might have under GAAR. Such rules create subjectivity.
• Under the rules, the tax authorities under GAAR can reclassify a transaction or the profits arising from it and make them taxable.

Clarification

GAAR will not be invoked in cases where investments are routed through tax treaties that have a sufficient limitation of benefit (LOB).

2. ‘Foreign ownership norms a barrier’

Context –

Office of the United States Trade Representative (USTR) has issued a report on foreign trade barriers that also includes India.

The annual report points to a list of trade irritants in 63 nations.

Barriers in trading with India

• Indian regulations on foreign ownership in e-commerce, banks, insurance
• India allows for 100% foreign direct investment in business-to-business (B2B) electronic commerce, but largely prohibits foreign investment in business-to-consumer (B2C) electronic commerce transactions.
• Foreign direct investment is allowed in a market-based electronic retailing model, but not in the inventory-based model

Equalization levy

• India’s tax (6% equalisation levy) on foreign online advertising platforms was not par with the international norms
• Levy hinders the goal of “equalising the playing field” between resident service providers and non-resident service providers

Requirements of storage of data

Indian requirements of storage of data within India:-

• Reduce productivity
• Dampen domestic investment
• And undermine the ability of information and communications technology

Hurdles in Insurance and banking sector

• Ownership restrictions in terms of insurance and banks, was a hurdle for foreign investors.
• Even after increasing the FDI limit in insurance to 49%, the regulatory requirement for the appointment of directors and other operational requirements are creating hurdles.
• Insurance Regulatory and Development Authority’s (IRDA) discussion paper that called for the compulsory public listing of life insurers.
• Foreign banks are required to submit their internal branch expansion plans on an annual basis
• Foreign banks also face restrictions on direct investment in Indian private banks

2012 National Data Sharing and Accessibility Policy:-

Policy requires that all data collected using public funds — including weather data — be stored within the borders of India

Department of Electronics and Information Technology (DEITY) guidelines requiring cloud computing service providers to store data within India to qualify for bidding for government procurements.

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Indian Express

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Kathmandu test

Context

India will need to find new, adroit strategies to maintain its strategic leverage in Nepal.

Introduction

Kathmandu lies at the heart of India’s most important geopolitical challenge, with China testing what has been Indian near-hegemony over the direction of Nepal’s external policy.

Ties to India

• Beijing is pressing Dahal to sign its One Belt One Road (OBOR) initiative, and opening the way for expanded railway links between the two countries.
• Dramatically enhanced transport ties between Nepal and China would discomfit New Delhi.
• New Delhi has sought to cement its own economic relationship with Nepal, mainly by expanding power trade and developing new gas pipelines that will feed much of the country.

Conclusion

India will need to find new, adroit strategies to maintain its strategic leverage.

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 Live Mint

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Managing surplus liquidity

Issue:-

Liquidity bulge in the banking system is creating problems.

Pre- demonetization

In early 2016, RBI adopted a liquidity neutral strategy.

The system was operating perfectly at a neutral to marginal surplus liquidity environment till the time of demonetization.

Steps taken to tackle the issue of high liquidity:-

• To address the urgent need for sterilization of the abnormal surge in liquidity, the market stabilization scheme (MSS) limit was hiked to Rs6 trillion.
• Under MSS, issuance of cash-management bills (CMBs) absorbed entire frictional liquidity, but elevated short-term rates.
• Besides putting pressure on government finances in the form of higher interest expense, this move substantially reduced demand for long-dated bonds.

Reduction in gap between repo and reverse repo from 100 to 50 basis points created downward rigidity on overnight rates.

Other challenges

Rupee appreciation

• Rupee appreciation due to incoming funds caused by BJP wins in states
• Checking such appreciating bias coupled with low credit growth has again resulted in surplus liquidity.
• Sterilizing this liquidity at an optimal cost poses a new challenge for the government as well as the central bank.

What should be done?

Creating favourable demand-supply balance for government bonds

• This can be done by creating a financial architecture through increasing the demand for bonds
• And simultaneously reducing the supply and reducing downward rigidity on operative overnight rates.
• For increasing the demand for bonds, we should have the necessary amendment in the RBI Act to make the conduct of reverse repo and term reverse repo operations completely non-collateralized.
• Putting cap on absorption of liquidity by the central bank

Introducing a special deposit facility(SDF)

• Uncollateralized restricted absorption by the central bank will pave the way for the government to suck out excess liquidity at lower cost through SDFs
• Collateral-free SDFs will justify an SDF rate-setting lower than the reverse repo rate.
• This move will ensure a lower supply of government bonds through less issuance of CMBs.

Benefits of SDFs:-

• The absorption of additional surplus liquidity at a lower rate through SDF will pull down the operative overnight rate.
• Second, higher SDF collections may help government reduce its short-term treasury bill borrowings
• Third, a lower operative overnight, short-term rate, lower supply and generation of additional demand will bring down the yield of long-dated government bond
• Fourth, lower cost of borrowing through sterilization will lower interest costs
• Fifth, if government channels its savings of financing cost into infrastructure spending, it will provide a crowding-in effect.
• Lastly, lower overall rate structure for government bonds will help debt-burdened companies replace existing high-cost debt with low-cost and fresh borrowing.

 

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