Brief of newspaper articles for the day bearing
relevance to Civil Services preparation
What is 9 PM brief?
- GS PAPER 1
- Remnants of El Nino holding up monsoon {Geography}
- GS PAPER 2
- U.S. sanctions still block Iran payments {Foreign Policy}
- Foreign firms can now fund parties {Bills and Laws}
- A blow against free speech {Polity}
- Buffer solution {Governance}
- GS PAPER 3
- The power to certify {Polity – Paper III}
- Investors making money must pay taxes, says Jaitley {Economy}
- Decline in exports ‘at the end of the worst’ {Economy}
- On-tap bank licences: 5 questions that linger {Economy}
- How to kill a bank in India {Economy}
GS PAPER 1
[1] Remnants of El Nino holding up monsoon
El Nino:
- The El Nino refers to a cyclical warming of the Central and Eastern Equatorial Pacific that frequently corresponds to a drought in India.
La Nina:
- The La Nina is the converse of the El Nino and brings good rains over the subcontinent.
Geography:
- Generally rain-bearing winds begin to be drawn across the equator by this time of the year.
- These so-called cross equatorial flows haven’t developed substantially for this time of the year and even the IMD doesn’t yet have a clear explanation for this phenomenon.
- While it has been steadily raining over Andamans — a meteorological thumb-rule that the monsoon is on track — they are likely to peter out because they aren’t sufficiently fuelled by the cross-equatorial flows.
- There is a lag in the seasonal transition.
- Usually there are cyclones in May and we haven’t seen one so far.
Pre-monsoon rains
- There will be rains over Tamil Nadu and Kerala in and around June 1 but these would be pre-monsoon rains.
- The IMD has an elaborate set of criteria to officially declare the monsoon’s onset over Kerala.
- These include at least 8 of 14 specified locations in Kerala and Karnataka receiving a minimum quantity of rains over two days, and a specific range of land temperatures and wind speeds.
IMD had said that India’s monsoon rains would be “above normal” and 106 per cent of 89 cm.
- This is cheerful news on the back of two consecutive years of drought in 2014 and 2015 and severe water shortage in several parts of the country.
- Policy makers relying on a good monsoon to bolster economic growth and consumption.
GS PAPER 2
[1] U.S. sanctions still block Iran payments
News:
- India asks U.S. to convince U.K. banks to allow a “one-off” deal of $6.5 billion.
- Officials are working hard to seal an agreement to repay $6.5 billion owed to Iran over the years when it was under sanctions.
- The effort has run into a brick wall over the reluctance of European banks to process the payments.
India said that:
- We are trying our best to conclude the agreement during the week.
- We would have liked to transfer at least some part of our outstanding dues to Iran
- New Delhi has repeatedly said it is keen to pay back Iran the $6.5 billion, most of it for oil transactions.
Background
European banks blamed U.S. restrictions that still prevent financial transactions between American companies and Iranian entities.
Recently, a group of nine international banks including HSBC and Standard Chartered met with U.S. Secretary of State John Kerry in London, and refused to consider dealing with Iran until the Washington opens up for business after decades of sanctions on Iran.
It is ironic that four years ago, it was U.S. pressure that made us slash oil imports from Iran, and now it is the U.S. that has to ensure that we can do business with Iran.
[2] Foreign firms can now fund parties
What happened?
- The government has admitted that the amended Foreign Contribution Regulation Act (FCRA), 2010, which they brought in through the Finance Bill route, will not only help foreign-origin companies to fund NGOs here but has also cleared the way for them to give “donations to political parties.”
Response from Opposition
- This is subversion of democracy, the FCRA amendment was brought in through the Money Bill route and passed without any discussion in Parliament.
- This reflects the government’s authoritarian character, it will only fulfil the agenda of certain people
[3] A blow against free speech
Discussed earlier click here
Why Supreme court ruling on section 499 of IPC might be flawed?
- It held that the right to “reputation” was protected under Article 21 of the Constitution which guarantees “life and personal liberty”. Now, Article 21 only protects the individual’s life and liberty against interference by the state. Supreme Court declared that the right to free speech under Article 19(1)(a) had to be “balanced” against the right to “reputation” under Article 21. The court never explained how this balancing exercise was to be carried out.
- To have it prevail over free speech — have no basis in either the text or the structure of the Constitution. Instead of using Article 21 as a shield to protect the individual against State persecution or indifference, it used it as a sword to cut down the fundamental right to freedom of speech and expression.
[4] Buffer solution
Context
- Buffer stock should be created in commodities like pulses, sugar, onions, potatoes or milk powder, which have a significant bearing on food inflation.
Current Scenario
- Sugar is already selling at around Rs 40 a kg — a third more than its level at this time last year — and could rise further as the effects of lower cane plantings in Maharashtra and Karnataka fully show up in production during the upcoming season beginning October.
- Onion is today retailing at about Rs 15, with farm gate prices in Maharashtra and Madhya Pradesh falling to Rs 5 per kg and below.
- A common theme running through these is the absence of proper market intelligence with the government or a mechanism for intervention to check extreme price fluctuations that benefit neither consumers nor producers in the long run.
Misplaced Policies
- In the case of sugar, the Centre till early this year was actually forcing mills to export at prices below domestic market realisations.
- It clearly had no clue on the extent of drought in Maharashtra and Karnataka, despite ground-level reports, warning of sharp acreage reductions and diversion of cane for fodder.
- Having woken up late, it has now swung to the other extreme.
- Stock-holding limits on traders have been imposed and one could expect more controls to follow in the days ahead.
- Needless to say, these actions were prompted only in response to prices shooting up for consumers.
Solution
- All this can be avoided through the creation of buffer stock in commodities having a significant bearing on food inflation.
- Right now, this is limited to just rice and wheat — where the problem is really of too much of stocks with government agencies — while practically non-existent in pulses, sugar, onions, potatoes or milk powder.
Buffer Stock
- A buffer stock scheme (commonly implemented as intervention storage, the “ever-normal granary”) is an attempt to use commodity storage for the purposes of stabilising prices in an entire economy or, more commonly, an individual (commodity) market.
- Specifically, commodities are bought when there is a surplus in the economy, stored, and are then sold from these stores when there are economic shortages in the economy.
GS PAPER 3
[1] The power to certify
Context
- Recently, the Aadhaar Bill and the Finance Bill were passed as Money Bills, though they may not have met the strict criteria laid out in the Constitution.
- This meant that the Rajya Sabha had only a recommendatory role while discussing these Bills.
- While the Speaker has the power to determine whether a Bill fulfils the requirements of a Money Bill, there has to be a check to ensure that this power is not misused.
- The Supreme Court should examine this issue under its power of judicial review .
What is a Money Bill?
- Article 110(1) of the Constitution states that a bill can be termed as a Money Bill if it contains “only” six types of provisions or anything incidental to these.
- Broadly speaking, these include taxation, government receipts and expenditure, government borrowings, and guarantees.
Procedure for the passing of Money Bills
Article 109 of the Constitution laid down the special procedure in respect of Money Bills . The following is the procedure for the passing of Money Bills in Parliament :
- A Money shall not be introduced in the Council of States.
- After a Money Bill has been passed by the House of the People it shall be transmitted to the Council of States for its recommendations and the Council of States shall within as period of fourteen days from the date of receipt of the Bill return the Bill to the House of the people with its recommendations.
- If the House of the people accepts any of the recommendations of the Council of the States , the Money Bill shall be deemed to have been passed by both Houses with the amendments recommended by the Council of States and accepted by the House of the People.
- If the House of the People does not accept any of the recommendations of the Council of States the Money Bill shall be deemed to have been passed by both Houses in the form in which it was passed by the House of the People without any of the amendments recommended by the Council of States.
- If a Money Bill passed by the House of the People and transmitted to the Council of States for its recommendations and is not returned to the House of the People within the said period of fourteen days, it shall be deemed to have been passed by both houses at the expiration of the said period in the form in which it was passed by the House of the People .
Aadhaar Bill passed as Money Bill
| Arguments in favour | Arguments against |
| The primary objective of the Aadhaar Bill is to create a system for providing subsidies, and as the provisions relate to government expenditure the Bill can be termed as a Money Bill. | The counterargument is that the Aadhaar Bill has several other provisions, including permitting use of the system for other purposes, so it does not meet the requirement of having “only” the six provisions. |
Finance Bill passed as Money Bill
- The Finance Bill too had provisions other than those related to taxation.
- It amended the Reserve Bank of India Act to enable the creation of a monetary policy committee.
- It also amended the Foreign Contribution Regulation Act (with retrospective effect) to change the definition of foreign company.
Can the Supreme Court examine whether the certificate of the Speaker was correctly given?
- Article 110(3) states: “If any question arises whether a Bill is a Money Bill or not, the decision of the Speaker of the House of the People thereon shall be final.”
- In addition, Article 122 prohibits courts from inquiring into proceedings of Parliament and examining their validity.
Case Study:-
- In Mohd. Saeed Siddiqui v State of U.P. , Supreme Court decided that the decision of the Speaker is final and the said decision cannot be disputed nor can the procedure of the State Legislature be questioned by virtue of Article 212.
- The Article 212 applies to State legislatures and is analogous to Article 122 for Parliament.
If the Supreme Court cannot examine whether the Speaker gave the certificate correctly, what prevents a misuse of this provision to prevent scrutiny by the Rajya Sabha?
- To illustrate with an extreme example, if a Bill to amend the Indian Penal Code is certified as a Money Bill, is that decision final and not open to judicial scrutiny?
- There are several prior cases in which the Supreme Court has examined the decision of the Speaker or the legislature.
Case Study:
- In Kihoto Hollohan v. Zachillhu, the Supreme Court examined the constitutional validity of Paragraph 6(1) of the Tenth Schedule.
- In this case , SC said that Paragraph 6(1) of the Tenth Schedule, to the extent it seeks to impart finality to the decision of the Speakers/Chairmen, is valid.
- But the concept of statutory finality embodied in Paragraph 6 (1) does not detract from or abrogate judicial review under Articles 136,226 and 227 of the Constitution in so far as infirmities based on violations of constitutional mandates, mala fides, non-compliance with Rules of Natural Justice and perversity, are concerned.
- It went on to say that the protection of Articles 122 and 212 was only to protect the validity of proceedings from mere irregularity of procedure.
- The Court also struck down paragraph 7 (which barred judicial review) stating that it did not meet the requirements of Article 368(2), which requires ratification of half of all State legislatures for any changes made to provisions related to the higher judiciary.
Case Study:
- In Amarinder Singh v. Spl. Committee , Punjab Vidhan Sabha , the court has set limits to the privilege of the legislature under Article 122, and overturned its resolution to expel a member.
Conclusion
- The Constitution has a system of checks and balances, which includes the Rajya Sabha as a check on the Lok Sabha.
- It requires all Bills to be passed by both Houses, with the exception of Money Bills (as these Bills are effectively equivalent to confidence motions).
- While the Speaker has the power to determine whether a Bill fulfils the requirements of a Money Bill, there has to be a check to ensure that this power is not misused.
- The Supreme Court should examine this issue under its power of judicial review under the principles laid out in the Kihoto Hollohan and Raja Ram Pal cases.
[2] Investors making money must pay taxes, says Jaitley
Issue
- The Government has supported the recent changes in the tax treaty with Mauritius
and said investors must pay taxes on money earned in India and ruled out any depletion of FDI due to imposition of capital gains tax on investments through the island nation.
For background, refer Editorial Changes in the tax treaty with Mauritius.
Additional Points:-
- India no longer needs any tax-incentivised route to attract foreign investments as India economy is now strong enough and there are no serious apprehension of investors shifting base to other tax havens due to the re-drawing of the decades-old tax treaty with Mauritius — the biggest source of foreign investments into India.
- By checking round-tripping of funds, the amendment would help boost domestic consumption.
- The imposition of taxes has been done in a phased manner to avoid shock and there will not be any depletion to FDI because of this.
- Also eventually, markets have to operate on inherent strength of economy.
- It would push tax costs for investors but there is certainty and clarity.
- India in the medium to long term will contribute to attract acting investments and a stable environment will auger well for the India rupee which would make the tax cost look insignificant.
[3] Decline in exports ‘at the end of the worst’
News:
- Commerce Secretary, said. India’s exports slid for the 17th month in a row in April to $20.5 billion and it was in line with what was happening in the rest of the world.
- Exports have been declining and this is a part of the global slowdown in trade.
- India’s trade has been largely dependent on what happens with oil and the devaluation of currencies.
- This has affected India’s export earnings.
- Our imports have gone down and similarly exports have also gone down.
- This is mirroring what is happening with the petroleum prices.
- There have been a lot of currency fluctuations in many of our markets.
- The currencies have been devalued which has affected the competitiveness of Indian products.
- Thus exporters have chosen in some cases to sell at low margins.
- So while volumes have remained the same, realization has gone down.
- Rate of decline in exports has started slowing.
- The worst is over and slowly the world is coming out of slowdown.
- It will still take a couple of years. There is no magic bullet on this.
[4] On-tap bank licences: 5 questions that linger
Issue
Questions being asked related to ‘on-tap’ bank licenses.
For background, refer article A revolution in Indian banking
Q.1) External committee needed?
- The RBI had said it would form a standing external advisory committee (SEAC) that will vet the applications after the initial screening is done by central bank staffers.
- The committee is to have a three-year term and will comprise eminent personalities from the banking, financial and other relevant sectors.
- The RBI grants licences to primary dealers, non-banking finance companies and even to foreign banks to operate in India, without any external help. So why do they need a committee only for domestic bank licences?
- Now that on-tap licensing has been proposed, the RBI should set up a separate department to look into only licensing issues
Q.2) No timeframe?
- The central bank has tried to make the process on-tap licensing process transparent.
- For example, for the first time, it has allowed unsuccessful candidates to appeal to the central board of the RBI.
- Unsuccessful candidates can also apply again, after three years from the date of rejection.
- While the RBI has said it will communicate its decision to the unsuccessful candidates as well, it has not specified any timeframe by which a licence will be awarded or declined.
Q.3) Reasons for rejection?
- Applicants from past rounds feel that the central bank, known to be a conservative regulator, seldom communicates the cause for rejection.
- There is a demand from bank aspirants, in order to ensure transparency, that the central bank should make public reasons for rejecting bank licence applications.
Q.4) Not to all eligible?
- In the draft norms, the RBI had said entities or individual promoters would be found be fit and proper if they had 10 years of banking experience or running their respective businesses, sound credentials and integrity, sound financials, and diversified shareholding pattern among promoting entities.
- Prospective applicants said if the objective is to allow financial services to reach the remotest part of the country, adding only a few banks will not solve the problem.
Q.5) Why not business houses?
- It is clear from the guidelines that the central bank wants entities that are predominantly in financial services.
- The big change in guidelines comes in the form of excluding large industrial houses from being promoters, and cap their shareholding to 10 per cent
[5] How to kill a bank in India
News
- Government is thinking of reducing its stake in IDBI Bank Ltd to less than 51%.
- The government is planning to kick-start its privatization drive with IDBI Bank, a lender that is majority-owned by the government, but culturally tries to mimic a private bank.
- Even then, it won’t be easy. Technically, the government does not necessarily need to sell its stake to pare its holding; it can reduce its holding by raising fresh capital from new investors.
IDBI Bank
- It is an Indian government-owned financial service company, formerly known as Industrial Development Bank of India, headquartered in Mumbai, India. It was established in 1964 by an Act of Parliament to provide credit and other financial facilities for the development of the fledgling Indian industry.
- Its original avatar, Industrial Development Bank of India (IDBI), was set up as a project finance institution in July 1964. Till early 1990s
- It was the largest term-lending institution, enjoying the privilege of receiving cheap long-term funds from the government which helped IDBI extend term loans at reasonable rates. Besides, it did not need to pay tax on its profits. It could also convert 20% of its loans given to a company into equity at par, after a few years.
After economic liberalization:
- IDBI started giving short-term working capital loans.
- Even aspired to convert itself into a bank but the militant trade unions did not allow that to happen.
- So, it floated a private bank as a subsidiary when Reserve Bank of India (RBI) opened the doors for new banks.
After 2000:
- IDBI started sinking into a quagmire of shrinking balance sheet, rising non-performing assets (NPAs) and eroding profitability.
By 2003
- Its net profit slumped to Rs.401 crore from Rs.1,501 crore in 1998.
- There was also a dramatic drop in sanctions and disbursements of loans and rise in bad assets.
IDBI wanted to become a bank but the Parliamentary Standing Committee on Finance suggested that the lender should stay away from the retail business.
In September 2004
- A new company was incorporated as Industrial Development Bank of India Ltd with which its subsidiary, IDBI Bank Ltd got merged in April 2005.
- A year later, it took over an old private bank, United Western Bank Ltd, to expand its branch network and collect retail deposits.
In May 2008
- It was rechristened IDBI Bank Ltd but the new name could not cement the cracks created out of three different cultures: a development finance institution, a modern bank and a highly unionised old private bank.
- To maintain profitability, it started selling family silver in the form of non-core assets but could never get its act together even after cleaning up its balance sheet by carving out the bad loans and creating the so-called Stressed Asset Stabilisation Fund, a euphemism for a bad bank.
- RBI too gave it a five-year regulatory forbearance on the mandatory bond buying requirement when it became a bank.
Current position:
- Now IDBI has 1,847 branches and 3,340 ATMs across 3,378 locations but low-cost current and savings accounts still contribute just 25% of total deposits, the lowest among banks of its size.
- Similarly, its net interest margin at 1.96% is thin.
- Despite having a decent cost-to-income ratio, it is a laggard with 8.94% gross NPAs and 4.6% net NPAs in December 2015.
- Loan growth has been stunted and, in the first nine months of fiscal 2016, it had posted a loss of Rs.1,929 crore.
- Corporate loans still account for more than two-third of its loan book.
- Still, it has around 6.5 million customers and 13% capital adequacy ratio.
Conclusion:
- If new investors come in and the bank is privatized, it can be resurrected but that should happen fast.
- IDBI Bank has been suffering from an identity crisis.
- There was a flight of talent after the private bank in its fold was merged and a leadership crisis at the top only aggravated the crisis.
- It never focussed on growing the retail business and the acquisition of United Western Bank added branches but complicated the culture, making it three banks under one roof.
- A reverse merger with its subsidiary bank would have served it better but the old guards were afraid of losing their authority.
- In the process, a fine modern bank crumbled under the burden of a development finance institution which has not been able to find its path.
Leave a Reply