9 PM Daily Brief – 25 May 2016

Brief of newspaper articles for the day bearing
relevance to Civil Services preparation

What is 9 PM brief?

• GS PAPER 2
  1. NEET breather for States as President signs ordinance {Bills and Laws}
  2. Envoys to boycott Africa Day fete today {Foreign Policy}
  3. Lucknow, Warangal among 13 smart cities announced by govt {Governance}
  4. The ease of living in India {Governance}
  5. Raising the stakes with Chabahar {Foreign Policy}
• GS PAPER 3
  1. Govt. targets 120 mn tonne capacity addition in ports {Indian Economy}
  2. Indian Ocean Rim nations to boost cooperation on SEZs {Economy}
  3. It is time for mergers: Banks Board’s Rai {Indian Economy}
  4. Cafe Economics | A new fiscal framework {Economy}
     

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GS PAPER 2

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[1] NEET breather for States as President signs ordinance

The Hindu

News:

• President Pranab Mukherjee giving his assent to the National Eligibility cum Entrance Test ordinance.

Statutory support

• All post-graduate (PG) admissions will be done through NEET this year.
• For under-graduate (UG) courses, an exemption has been made for ‘State quota’ seats in government medical colleges and private institutions for this academic session.
• The Indian Medical Council (Amendment) Ordinance, 2016, and The Dentists (Amendment) Ordinance, 2016, are being promulgated to amend the Indian Medical Council Act, 1956, and Dentists Act, 1948, respectively to make way for a uniform entrance examination for UG and PG courses, with a stipulation that for the 2016-17 academic session, the States can opt to conduct their own examinations for UG courses.
• The State government seats — both in government and private medical colleges — will be exempt from the purview of NEET regulations if the State government so opts. The exemption is only for this academic session.
• For this year, Haryana, Himachal Pradesh, Manipur, Madhya Pradesh, Rajasthan, Odisha, Bihar and Chandigarh will admit students under NEET. Tamil Nadu and Puducherry, which do not conduct an entrance examination for medical and dental colleges, will continue to admit students on the basis of marks obtained in Class XII examinations this year.

[2] Envoys to boycott Africa Day fete today

The Hindu

News:

• Frequent attacks on African youths in India triggered a diplomatic downturn.
• African diplomats announced that they are likely to recommend to their governments “not to send new students to India” because of “stereotypes and racial prejudice against Africans in India”.
• The African Group of Heads of Mission declared that it would not join the May 25 Africa Day celebrations, in solidarity with Masunda Kitada Oliver, a Congolese student who was killed last week in Delhi.
• Called upon India to take concrete steps to guarantee the safety and security of Africans.
• Accordingly, the Indian government is strongly enjoined to take urgent steps to guarantee the safety of Africans in India, including appropriate programmes of public awareness that will address the problems of racism and Afro-phobia in India.
• As regards this year’s celebration of Africa Day being organised by the Indian Council for Cultural Relations for Thursday, the African Group has requested a postponement of the event. This is because the African Community in India are in a state of mourning.

[3] Lucknow, Warangal among 13 smart cities announced by govt

The Hindu

News:

• The Union government announced the names of 13 more cities that will be developed under the Centre’s “Smart City Mission.”
• Lucknow in poll-bound Uttar Pradesh tops the list, followed by Warangal in Telangana and Dharamshala in Himachal Pradesh.
• Seven more capital cities, including Bengaluru, allowed to enter the smart city competition.
• The 13 cities selected in the competition have proposed a total investment of Rs. 30,229 crore
• Other cities on the list are
  • Chandigarh
  • Raipur (Chhattisgarh)
  • New Town Kolkata
  • Bhagalpur (Bihar)
  • Panaji (Goa)
  • Port Blair (Andaman and Nicobar Islands)
  • Imphal (Manipur)
  • Ranchi (Jharkhand)
  • Agartala (Tripura)
  • Faridabad (Haryana).

It aims to transform 100 cities by 2019-20, with the Union government providing financial support of Rs. 48,000 crore over five years.

Central assistance

• Each city will receive Central assistance of Rs. 200 crore in the first year and Rs. 100. crore over the three subsequent financial years.
• State governments and respective urban local bodies will also match the Centre’s contribution.

What are smart cities?

Click here

[4] The ease of living in India

The Hindu

25th anniversary of the 1991 reforms approaches, it would be legitimate to take stock of what has been achieved.

The crisis of 1991

• In 1991, the focus of the reforms had been on trade, exchange rate and industrial policies.
• This had everything to do with the immediacy of the balance-of-payments crisis the economy then faced.
• When the Rao government took charge, it was estimated that foreign exchange reserves would cover up to two weeks’ imports. A rule of thumb is that a country should aim at a cover of about six months.
• To contain the external deficit, Finance Minister Manmohan Singh had devalued the rupee and reined in public expenditure.
• He then went to the International Monetary Fund for balance-of-payments support.
• This would have required courage. Retrenchment, belt-tightening, and devaluation were unpopular across the political spectrum, even within the Congress party — though on the question of how the foreign exchange needed to finance international payments was to be acquired, the critics of the strategy had little credible to offer.
• Within three years the crisis was surmounted and the programme with the IMF ended.

Forex today:

• There can be no doubt that the reforms have eased India’s balance-of-payments constraint.
• India’s reserves today exceed $350 billion, compared to less than $6 billion in March 1991.
• Moreover, the period since is the longest recorded when the country has gone without a foreign exchange shortage.
• Earlier one had arisen in every decade, starting with the 1950s.
• It is also significant that this new-found resilience has been achieved while the economy has got increasingly integrated with the rest of the world.
• This outcome has gone against the pessimistic prognosis of the time that eliminating controls would suck in imports and jeopardise the balance of payments.
• This did not happen as exports also rose, though mainly in a sector unimagined in 1991, that is, software services.
• Of course, the rupee has depreciated very substantially after it was floated.

Great power ambitions

• However, the reforms were not envisaged as merely staving off a balance-of-payments crisis. In Dr. Singh’s words, spoken in Parliament, they were meant to be the harbinger of “the emergence of India as a major economic power in the world”.
• This is a worthy aspiration and the crude nationalism at times on display today should not discourage us from nursing it.
• The question is whether we are on the right path to the goal.
• If per capita income is taken as the measure then we are still some distance away from ‘great power’ status.
• The most recent World Bank data show that over 2011-15 GDP per capita — measured in PPP dollars — was 5,700 in India, 11,108 in Albania, 13,206 in China and, yes, 25,638 in Malaysia.
• Though India’s economy may not at present compare well with that of other countries, it could yet be that its rate of growth has increased after the reforms.
• While the rate of growth of the economy accelerated after 1991, it had done so twice earlier, first in the 1950s and then in the late 1970s.
• So the reforms have only maintained an existing history with respect to economic growth.

What of poverty?

• Here the record is the same as that of economic growth. Absolute poverty has declined since 1991, but this has been the trend since the early 1970s.
• Essentially, the decline in poverty has kept pace with growth.
• Thus, mirroring growth of the economy, while the rate of decline in poverty accelerated since 2004, it had already accelerated on the cusp of the 1970s and the 1980s.
• However, even after a quarter century of economic reforms, approximately a quarter of the country remains poor according to a poverty line that is low by international standards.

It is important to note that poverty measures are dependent upon the definition of poverty.

• The official index in India, on which the above cited trends are based, measures access to food a little more accurately than it does access to other conditions of life which are at least as vital.
• Even beyond health and education, the conditions of life are affected by physical infrastructure, which determines livelihood chances and well-being.
• Major components of this infrastructure would include transportation, water supply and sanitation.
• It is not as if successive governments have not recognised their significance, but they fail to convince that “more reforms” — incidentally called for by both the Finance Minister and the Governor of the Reserve Bank — will be able to provide them.
• Structural reforms as liberalisation aim to provide access to and raise the profitability of the private sector. This may be essential at times, but there is a wide swathe of an economy where the market fails to deliver.
• This it does in the presence of what are referred to as externalities and public goods.
• Public goods are important as they mitigate the impact of income poverty and inequality.
• We can think of health, education, public infrastructure and recreational facilities as constituting the space in which we actually lead our lives.
• A significant transformation of it in India would require both a strengthening of the public finances and a generation of political will.

Natural capital

• Then there is natural capital.
• In many spheres of the economy controls had proliferated over the decades to the detriment of both growth and welfare, and their dismantling has resulted in an increase in both.
• But markets are not always the best way to deal with nature.
• Deep and smart regulation is necessary if we are to deal with depleting natural capital, of which this is only one instance.

Conclusion:

• Widespread liberalisation of the economic policy regime was long overdue in 1991, and has played a positive role since, but its impact has run its course and the policy has recognisable limits.
• Liberalisation cannot address all aspects of the man-made environment and now climate change threatens to change everything forever.
• We do not have another quarter century to deal with these imperatives.
• Government must be prevailed upon to match their concern for the ease of doing business with a commitment to the ease of living in India.
• The official poverty index in India measures access to food a little more accurately than it does access to other conditions of life which are just as vital
• A quarter century of economic reform has transformed the economy. But governments have been less mindful of addressing social and natural capital.

[5] Raising the stakes with Chabahar + Chabahar and the Afghan roundabout + Another opportunity for India in Iran

The Hindu                                 The Hindu                                       Livemint

Background:

• It was in 2003 that the idea of Indian assistance in developing the Chabahar port complex and the Chabahar-Farhaj-Bam railway line was first mooted. This was part of the New Delhi declaration signed by the then prime minister Atal Bihari Vajpayee and former Iranian president Mohammad Khatami.
• The signing of the trilateral agreement between India, Iran and Afghanistan has been described as a “game changer”, improving manifold the way India can deal with both countries in its “extended neighbourhood” without having to deal with its most intractable neighbour, Pakistan. Once the Chabahar port is developed, goods from India will not only travel up to Afghanistan, but beyond, along the yet-to-be developed International North-South Transport Corridor (INSTC) to Central Asia.
• Click here for detailed information

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GS PAPER 3

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[1] Govt. targets 120 mn tonne capacity addition in ports

The Hindu

News:

• Union Shipping Minister has set an ambitious target of capacity addition at 12 major ports by 120 million tonnes in 2016-17.
• These ports had added the highest-ever capacity of 94 million tonnes in 2015-16.
• Minister has asked shipping ministry officials to aim for awarding new projects to add capacity of 180 million tonnes in the major ports over 2016-17, and ensure that new capacities for 120 million tonnes become operational during the year.

Operating margins

• As per the targets, the operating margin for the major ports is set to increase to 44 per cent, compared to 39 per cent during 2015-16.
• The Minister has also directed officials to ensure that that overall operating margins increase by five percentage points compared to the previous fiscal, with the condition that no major port reports an improvement of less than one percentage one.
• An increase in the capacity addition comes despite the government lowering its freight target for ports this year compared to the previous fiscal year’s targets. As per global standards, ports should utilise 70 per cent of their capacity, with the remaining capacity being idle to drive efficient operations and to avoid delays in turnaround time or evacuation of cargo.

Cargo targets

• The cargo handled by the major ports increased by 4.3 per cent to 606 million tonnes in 2015-16 compared to 581 million tonnes a year ago.
• The major ports failed to achieve the target of 695 million tonnes set by the Shipping Ministry for 2015-16 prompting a scale down of targets for 2016-17 to 644 million tonnes.
• The 12 major ports—Kandla, Mumbai, JNPT, Marmugao, New Managlore, Cochin, Chennai, Ennore, VO Chidambaranar, Visakhapatnam, Paradip and Kolkata (including Haldia) — handle more than 60 per cent of the country’s cargo traffic.
• The targets are fixed keeping in view the global trends and past performance of ports in previous years.
• The views of the port (officials) are also taken into consideration while deciding the targets.
• The Minister said that four ports could not meet cargo handling targets due to various reasons such as an embargo on handling dusty cargo, reduction in exports and an economic slowdown.

Road ahead:

• The government also plans to award projects worth at least Rs 2,000 crore towards inland waterways development, known as Jal Marg Vikas programme, in 2016-17.
• Projects in the inland waterways have not picked up and to set a target ensuring that all projects in waterways development programme are awarded sounds ambitious.

[2] Indian Ocean Rim nations to boost cooperation on SEZs

The Hindu

News:

• India and several other nations bordering the Indian Ocean have decided to evolve a regional mechanism for cooperation on Special Economic Zones (SEZ) – or duty-free enclaves with tax holidays — to boost exports.

First meeting

• The first-of-its-kind meeting between SEZ authorities from these Indian Ocean Rim (IOR) nations was held on May 19-20 at Chabahar, Iran, which houses a Free Trade Zone (FTZ) – a synonym for SEZs.
• The meeting comes at a time of global economic and trade slowdown and attempts are being made by countries to boost growth through trade.
• The meeting discussed ways to share information on SEZ best practices and common objectives including trade facilitation.
• Thanks to their strategic locations and access to major waterways, these zones have formed a virtual network of trade connections spanning continents including Asia, Australia and Africa.
• Participants at the Chabahar meet also considered a proposal to form a “joint FTZ” among the IOR Association (IORA) member countries since most of these FTZs are situated or are being built in coastal regions.
• A World Bank (Trade & Competitiveness Global Practice) report in February 2015 said, “More and more countries have begun to implement this instrument (SEZs) for their industrialization process, especially as a way of attracting foreign direct investments mostly in the manufacturing sector, creating jobs, generating exports and foreign exchanges.”
  • It noted that some countries have been successful while others, particularly those in sub-Saharan Africa, were still struggling.

[3] It is time for mergers: Banks Board’s Rai

The Hindu

News:

• Centre is ready to inject more funds to restore banks’ health

Issue:

• India’s state-owned banks now need to merge into half a dozen well-capitalised institutions than can underwrite economic growth.
• The government stood ready to inject fresh funds beyond the $3.7 billion earmarked in the 2016-17 budget.
• Restoring banks to health is vital for Prime Minister Narendra Modi to revive lending, investment and create jobs for the million young Indians who join the labour market each month.
• Stronger banks should decide which of their bad loans to shift off their balance sheets, while weaker banks need fresh capital before a round of consolidation that would cut the number of state banks to no more than six from 27 now.
• In the current budget, the government has put in about 25,000 crores ($3.7 billion), but it has not said that this is the end.
• If the need arises, in the current year, the government has said it would be willing to come forward with more.

Lending spree

• State banks — which account for around 70 per cent of lending in Asia’s third largest economy — hold most of India’s $120 billion in troubled loans after a lending spree under the last government hit trouble.
• The government set up the Banks Board Bureau in April to drive balance sheet improvement and consolidation the sector.
• It will evolve into an investment holding company for state-owned banks, shielding them from political interference in management appointments and lending decisions.
• Reserve Bank of India Governor Raghuram Rajan has set a deadline of March 2017 to clean up the sector.

Merger drive

• Consolidation has already begun with State Bank of India’s move to absorb five subsidiaries and Bharatiya Mahila Bank, a bank for women set up in 2013.
• He expects more mergers but declined to be specific on timeframes.
• Well-performing larger banks could tie up with one another, while smaller, troubled lenders could be taken over once recapitalised – if they offered good value to suitors.
• Bank of India— the country’s third-largest state bank by assets — would not be considered a merger candidate until it was recapitalised.
• Kolkata-based UCO Bank, the state bank with a large presence in eastern India, would be “re-energised” as a standalone institution.
• And Indian Overseas Bank, after recapitalisation, could be absorbed by an acquirer that could leverage off its large branch network in southern India.
• With state banks trading at just 0.5 times book value, valuations were attractive for minority shareholders to subscribe to planned rights issues, alongside the government.

Taking a haircut

• India’s state banks have been reluctant to write down loans, especially to high-profile borrowers.
• Government is planning to create a separate mechanism to review such cases and expedite balance sheet cleanups.
• This mechanism could be a committee, involve an existing joint lenders’ forum, or new guidelines from the RBI.
• A solution that could include all three options is expected within weeks.
• There were no plans to create a “bad bank” to relieve lenders of dud loans.
• India has more than a dozen asset reconstruction companies.

[4] Cafe Economics | A new fiscal framework

Livemint

Concern:

• It is no secret that Indian fiscal policy suffers from a serious deficit bias.
• The consolidated fiscal deficit in India has been far higher than the comparable budgetary gap in other emerging markets.

Why fiscal profligacy is more of a rule than an exception?

• The only reason persistently high deficits have not led to a fiscal crisis for the Indian State is that successive governments have inflated away the public debt.
• Hence the need for a fiscal law that will impose legal restrictions on the ability of governments to borrow.
• The first such discussion is to be found in the constituent assembly debates on Article 292, with B.R. Ambedkar going so far as to say that he would be surprised if future Indian Parliaments do not impose legislative restrictions on government borrowing to fund the budgetary gap.
• The landmark Fiscal Responsibility and Budget Management (FRBM) Act of 2003 had the same underlying logic, but it is now time for a fresh look at what fiscal rule India should follow.
• Current government has now appointed a committee headed by veteran policymaker N.K. Singh to recommend a new fiscal rule for India.

One problem that a new policy rule should address is the perverse nature of Indian fiscal policy.

• Net government spending should pick up when private spending is weak but should retreat when private spending is strong.
• India usually does the opposite. We tend to have pro-cyclical rather than anti-cyclical budgets.
• In other words, fiscal deficits are first too high during economic booms; governments then struggle to cut spending when the private sector is struggling during downturns.

The N.K. Singh committee may look at replacing the simple fiscal rule imposed by the original FRBM with a more flexible one that sets moving targets based on the stage of the business cycle.

• This is in tune with contemporary thinking about fiscal laws the world over, especially since the economic collapse after the 2008 financial crisis made economists realize that countercyclical fiscal policy can become ineffective when there is a rigid fiscal rule.

The move to a cyclically adjusted fiscal balance—or the fiscal deficit as a percentage of potential output rather than actual output—seems an attractive one, but there are significant challenges in making a credible transition to the new framework.

There are two important issues:

1. It assumes that policymakers have a very good understanding about the nature of the Indian business cycle.
2. The estimates of potential output need to be credible if the financial markets are not to assume that the government of the day is manipulating its fiscal targets. Remember that potential output is not directly observed but can be a contentious statistical estimate. And that the business cycle tends to change with time.

These are key problems the N.K. Singh committee will have to deal with if India has to move to a new system of flexible fiscal targets based on potential output.

Solutions:

• The creation of an independent fiscal council on the lines of the bipartisan Congressional Budget Office in the US, which is now being replicated in many countries.
• Such a fiscal council will not have the powers to take policy decisions as the new monetary policy committee will, but it will act as an independent analyst of the fiscal numbers.
• As economists Roel Beetsma and Xavier Debrun say in a recent paper, fiscal councils can bark but not bite. They can also help anchor fiscal expectations.

Conclusion:

• If a new fiscal rule and an independent fiscal council can hopefully impose institutional constraints on perverse fiscal policy, some sort of market discipline can also be added if there is a large reduction in the statutory liquidity ratio that allows the Indian government to automatically access a quarter of household savings in the banking system.
• A significant reduction in this captive market will lead to more market discipline on the part of the government, in the sense that sovereign borrowing costs will increase in tandem with high fiscal deficits.
• So, a short memo to the N. K. Singh committee: The move to a flexible fiscal target based on potential output will be welcome, but it will suffer from a major credibility problem unless there is an independent fiscal council that does its own analysis of the budget numbers.