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9 PM Daily NEWS Brief

9 PM Daily Current Affairs Brief – May 23, 2017


Front Page / NATIONAL


  1. After 84 years, cobra lily blooms again
  2. Army set to get 11 Apache helicopters
  3. No room for India yet in NSG

Editorial/OPINION


  1. Hack it if you can
  2. An unequal burden

Economy


  1. RBI outlines action plan for resolving stressed loans
  2.  Smallest nation joins solar alliance

Live Mint


  1. Emerging frontiers for India-Russia ties
  2. Banking ordinance opens up Pandora’s box

 Front Page / NATIONAL


After 84 years, cobra lily blooms again

Context

  • The incredibly rare Arisaema translucens, more commonly remembered as the cobra lily, was recently rediscover-ed in the western Nilgiris after 84 years.

Conservation status

  • The Toda tribals of the Nilgiris could predict the early arrival of monsoons from the blooming of the cobra lily’s ‘translucens’.
  • Prized for their beauty around the world, cobra lilies are at even greater risk of extinction from the commercial trade in exotic plants.
  • Likely to have been quite common once, cobra lilies have vanished in the past decades along with the disappearance of the shola tree patches in which they were found.

Army set to get 11 Apache helicopters

Context

  • After several years of wrangling, the Army and the Indian Air Force (IAF) are likely to get the Apache multi-role attack helicopters from the U.S.

Background

  • The Army initially asked for 22 attack helicopters to be transferred to its custody, which was rejected by the Air Force.
  • The IAF has strongly opposed the creation of a separate mini-Air wing by the Army, which the former felt would reduce its role.
  • The Army has for long pitched for its own dedicated attack helicopter fleet integrated with its strike corps and has recently expressed the desire to have 39 Apaches. At present, India operates a mix of Russian Mi-25 and Mi-35 attack helicopters, which are with the IAF.
  • The Army has placed a firm order for 114 indigenously developed light combat helicopters (LCH), which is in an advanced stage of induction, and has also ordered Rudra helicopters, the weaponised variant of the advanced light helicopter (ALH).
  • The Air Force too ordered the Rudra and 65 LCHs.

Through defence deal with US

  • India will exercise the optional clause in the original deal signed with the U.S. in November 2015. Under a $3-billion deal, India has contracted 22 Apache attack helicopters and 15 Chinook heavy-lift helicopters through the Foreign Military Sales programme.

No room for India yet in NSG

Context

  • China on Monday said it would oppose India’s unilateral entry into the Nuclear Suppliers Group (NSG), pending the consensus on membership of nuclear weapon states which had not signed the Nuclear Non-proliferation Treaty (NPT).

Background

  • The 48-nation NSG is expected to hold its plenary in June in Bern, Switzerland, where the topic of New Delhi’s entry is expected to be discussed.
  • New Delhi had formally applied for NSG membership in May last year, but China has consistently blocked India’s bid, pointing to the need for devolving universally applicable membership criteria for all countries which have not signed the NPT, but had become nuclear weapon states.
  • The NSG controls the global exports of nuclear technology and material to ensure that atomic energy is used only for peaceful purposes.
  • India insists that the NSG was not a non-proliferation group but an “export control” mechanism.

 Editorial/OPINION


Hack it if you can

Context

  • The electronic voting machine has been under strong scrutiny ever since it was deployed in the 1990s.
  • The Indian EVM is a singular instrument with its dependence on standalone hardware-firmware-led machine components to register and tally votes — it is not reliant on computer software or networked components.
  • Questions have been therefore raised about the possibility of EVM-tampering either by the introduction of malicious code (trojans) that could override the logic embedded in the chip, replacing its chip, or manipulating the communication between the ballot and the control units through remote signals or equipment.

Steps taken by EC

  • The steps include time-stamping of key presses, dynamic coding in second-generation machines besides tamper-proofing and self-diagnostics in the third-generation machines that are now being deployed.
  • A strict administrative protocol involving first-level checks after manufacture, randomised deployment, sealed strong rooms for storage, and conduct of mock polls has been instituted.
  • The EC has pledged the universal deployment of voter verifiable paper audit trails beginning 2019.

Accusations made

  • The Aam Aadmi Party recently demonstrated what it claimed to be a possible hack of the EVM by the introduction of a trojan on to an EVM prototype; it said that, therefore, it was possible to manipulate all EVMs by the replacement of its motherboard (to accommodate a chip that carried a built-in trojan).
  • This critique does not stand scrutiny considering the EC’s technical and administrative safeguards that prevent trojans or the mass manipulation of EVMs.

An unequal burden

Context

  • Paris Climate Agreement (PA) was signed in December 2015 in an attempt to limit the release and the effects from greenhouse gases (GHGs) in the atmosphere after various countries developed and submitted Nationally Determined Contributions (NDCs).
  • The Conference of the Parties-22 (COP-22) in Marrakesh in November 2016 continued discussions on the implementation of the PA and specific aspects continue to be deliberated upon in interim meetings such as the recently concluded one in Bonn.

Issues

  • For about three-fourths of the 165 listed NDCs, implementation of pledges is conditional upon assistance on the finance and technology fronts.
  • Such periodic raising of the stakes is built into the process of PA implementation, which would collapse without support.

What should be done?

  • Improving energy efficiencies across various sectors
  • Expanding the use of renewables
  • But we have to go well beyond that and shift to a radically different pattern of living that no longer involves GHG emissions.
  • Upfront capital investments are crucial for sustainable futures, and without them poorer countries have few options.

 Green Climate Fund

  • The Green Climate Fund (GCF) is an international mechanism set up at the Conference of the Parties-16 (COP-16) in Cancun in 2010.
  • Advanced economies should provide an annual assistance of $100 billion, through public and private sources, by 2020 — the deadline is now extended to 2025.
  • The fund currently has pledges worth $10 billion from various developed countries and there is a commitment to fund projects that enable the lowering of emissions and help in dealing with the effects from climate change.

Undeveloped countries dependence on GCF

  • India, early in its NDC statement, had estimated a requirement of $2.5 trillion to carry out its climate actions until 2030.
  • The least developed countries, small island states and African countries, which are all very vulnerable to the effects of warming and have contributed little to the GHGs, ought to receive the first priority.
  • In April 2017, the GCF Board approved eight projects for a total funding of $755 million.
  • The number of projects they have supported now adds up to 43, and the total amount is $2.2 billion in GCF funds that have a value of $7.3 billion, if one were to include co-financing.
  • The GCF has the ability to bear risks, support innovation and leverage its own funds for further support, therefore making it a vital agency for poor countries.
  • While there are some reports that private funding for the GCF will increase, these are not likely to support adaptation and will focus on actions that bring returns on investments. Thus, funds from advanced economies remain crucial.

Funding constraint of GCF

  • In January, former U.S. President Barack Obama transferred $500 million to the GCF. This was the second payment towards the fulfilment of a $3 billion pledge made in 2014.
  • So far, more than 40 countries, including a few developing economies, have made contributions to the GCF, the major contributors being the U.S., Japan and the U.K., but still the U.S. pledge is only $9.41 in per capita terms — many times lower than that of several European countries.
  • These recent transfers neither fulfil the U.S. pledge nor its obligations as the largest cumulative emitter of GHGs. Countries in Europe will need to pick up the slack, along with other private contributors.
  • Constraints in the flow of funds will prevent even the minimal level of support to deal with climate change.
  • It is not the responsibility of a poor fisherman in Bangladesh or a woman in Sub-Saharan Africa or an islander who loses her house to storms in the Pacific to bear the burden of emissions from rich countries.

Conclusion

  • The fact that all countries have responsibilities has been recognised in the Paris Agreement and we are all pulling the ship, but the rich countries, especially the U.S. and European nations, have to do their fair share for the world to set along a new path towards zero emissions.
  • India or any other developing country simply recommitting to implement its NDCs will not accomplish much, since without help we cannot go far and need the assistance that is owed to us.

Economy


RBI outlines action plan for resolving stressed loans

Context

  • Reserve Bank of India (RBI) has outlined a broad plan to resolve stressed assets at lenders in the wake of the amendment of the Banking Regulation Act earlier this month.

Background

  • The RBI, which has sought information from lenders on the current status of large stressed assets and is working on norms for expediting the process of taking cases through insolvency and bankruptcy, said it would constitute a panel “comprised majorly of its independent board members” to advise it in this matter.

 

  • The Reserve Bank is working on a framework to facilitate an objective and consistent decision making process with regard to cases that may be determined for reference for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC).
  • The RBI is also exploring the possibility of credit rating assignments determined by it, in order to avoid conflict of interest.

Oversight committee

  • The two-member Oversight Committee (OC) would also be reconstituted and put “under the aegis” of the RBI. The OC would be enlarged to include more members so that it could set up benches to deal with the volume of cases.
  • The central bank would soon name additions to the OC, who would join the existing members.

Smallest nation joins solar alliance

  • The world’s smallest republic, the tiny island nation of Nauru — has become the sixth country to ratify the International Solar Alliance (ISA) Framework pact initiated by the Indian and French Governments at the climate change summit held at Paris in 2015.
  • Five more nations, from Africa, — Comoros, Cote d’Ivoire, Somalia, Ghana and Djibouti — have committed to sign the pact during the ongoing meeting of the African Development bank in India.
  • Headquartered in India, the alliance, conceived as a coalition of solar resource-rich countries to collaborate on meeting their energy needs through a common, agreed approach, will become a legal entity once at least 15 countries ratify and deposit the framework agreement.
  • India has earmarked about $2 billion to finance solar projects in Africa out of it commitment to provide $10 billion of concessional lines of credit for projects in the continent.

Live Mint


Banking ordinance opens up Pandora’s box

Context

  • The recently promulgated Banking Regulation (Amendment) Ordinance is aimed at resolving the non-performing assets (NPA) crisis in the banking sector.

Pre-requisites to solve NPAs

  • Resolution of NPAs is a two-stage process.
  • The first stage involves assessing the viability of the debtor’s business.
  • The second stage involves deciding whether the debtor’s company should be restructured or liquidated.
  • Any such resolution, be it restructuring or liquidation, imposes losses on the banks that had lent money to the corporate debtor.
  • The larger the losses, the higher the amount of capital needed by the banks to meet the Reserve Bank of India’s (RBI) guidelines on provisioning requirements.
  • While the government has promulgated the ordinance, it has not made any commitment of additional capital to support the resolution efforts.
  • Capital allocated for the banking sector in the 2017-18 Union budget, or as part of the mid-term capital infusion plan, falls short of what the banks collectively need.

Essential need of capital

  • In absence of additional capital, the RBI’s directions to the banks under the ordinance may impede the resolution process.
  • The RBI may have no option but to direct the banks to extend lifelines to unviable companies to defer the problem to a future date. This can happen as part of the new Insolvency and Bankruptcy Code (IBC) or otherwise.
  • Over the last few years, cash flows of the large stressed companies have been declining. Restoring their viability necessitates loan write-offs.
  • For the banks, resolving these cases requires the most capital. Given the lack of capital, banks could be given the regulatory cover under the ordinance to refinance these large corporate debtors. This has already happened under the RBI’s corporate debt restructuring (CDR) mechanism.
  • The ordinance does not change the status quo where good money is thrown after bad and no real resolution of NPAs takes place.

Improving the financial health of indebted entity

  • Resolving a bank’s NPAs requires resolving the entity to which money has been lent. The ordinance may instead create perverse outcomes.
  • Under IBC, banks as members of the creditors’ committee are required to vote on a resolution plan. If the RBI directs a bank to initiate IBC action against a corporate debtor, it may also have to direct the bank on the decisions in the creditors’ committee.
  • By empowering the RBI to act, the government has taken away any incentive of the banks to act on their own. In India today, different banks are at different levels of capital adequacy.
  • An IBC resolution plan that works for one bank may be inimical to the interests of another. As the banking regulator, RBI is responsible for the health of all banks.
  • So it is possible that the resolution plan that finally gets approved by the banks under RBI’s directions will focus more on the health of the banks as opposed to addressing the insolvency of the corporate debtor. This defeats the purpose of an IBC resolution.

Undermining of Insolvency and Bankruptcy Code itself

  • RBI giving directions on the resolution of banks’ NPAs may undermine the IBC process in other ways too.
  • It may thwart the incentives of third parties which would have otherwise been willing to offer their bids or resolution plans in a market-driven process.
  • Public and private sector banks have non-government shareholders, and non-bank creditors. So do companies that may get referred to the IBC following RBI’s directions to the banks.
  • Any action under the ordinance that adversely affects the interests of these parties may be litigated in court. In a litigation if courts take cognizance of the rights of private shareholders and rule in their favour, this can further weaken the IBC process.
  • Also private parties, domestic and foreign, may view this as state interference in market processes. This may affect their future investment decisions.

Diffusion of roles to tackle the NPAs

  • With the ordinance in place, all eyes are now on the RBI to resolve the NPAs of the banking sector. This could be problematic because the range of actions that the banks can take to address the problem is limited by the shortage of capital.
  • The tools available to RBI are limited. If the RBI intervenes on a case-by-case basis, questions about conflict of interest, regulatory capacity and capability will arise.
  • If RBI intervenes through general rules and conditions, this will be no different from the corporate debt restructuring (CDR) mechanism, the strategic debt restructuring (SDR) scheme, and the scheme for sustainable structuring of stressed assets (S4A) that have failed in the past to resolve the problem. Either way, the ordinance puts RBI’s credibility and reputation as a micro-prudential regulator at stake.

Conclusion

  • The ordinance was presumably brought about because banks on their own could not trigger IBC proceedings against the stressed companies for fear of investigation and prosecution, or due to lack of capital or because of challenges in negotiating with politically connected promoters.
  • The ordinance gives banks the regulatory cover to take resolution decisions, but it is, by design, limited in its capacity to resolve the crisis.
  • Most importantly it puts the RBI in a difficult spot and makes the IBC vulnerable to potential abuse.
  • It also creates the problem of misaligning creditors’ and debtors’ incentives farther away from an effective resolution.

 

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