Answered: Mains Marathon – UPSC Mains Current Affairs Questions – April 3

Following are the Suggested Answers for Mains Marathon, April 3:

1. What are Bharat stage emission standards? Why has SC ordered a freeze on the registration and sale of BS-III fuel compliant vehicles? (GS 1)

The Hindu | Business Standard | Link 

Bharat stage emission standards:-

• Bharat stage emission standards are emission standards instituted by the Government of India to normalize the productivity of air pollutants from internal combustion engine equipment.
• The standards and the timeline for implementation are set by the Central Pollution Control Board under the Ministry of Environment & Forests and Climate Change.
• BharatStage norms are based on European regulations.
• These emission standards were set by the central government to keep a check on the pollutant levels emitted by vehicles that use combustion engines.

Reasons why SC has ordered a freeze:-

• Supreme Court recently banned the sale and registration of vehicles which are not compliant with BS-IV emission norms from April 1 across the country.
• This judgement was given  keeping in mind that the health is more important than the commercial interest of automobile manufactures.
• To Check delay, complacency:SC wanted to ensure that government rules are adhereed to strictly without delays.
• Check the influence of pressure groups of automotive industry on government to get more time to sell old tech vehicles.
• Ensure Fundamental right to life Article 21is ensured for the people of India

Implications:

• It takes years for automakers to develop a new kind of an engine. Once the research and development is over, the task of setting up full scale production comes up. All of this comes at a cost which eventually makes the vehiclemore expensive for the end customer of the product and that can be a cause of concern for automakers given how price sensitive the Indian market is.
• There is a huge stock of vehicles left to be sold into the market that are BS-III compliant and as per the latest SC decision, they won’t be able to do so.
• Banning sales of vehicles with BS-III emission norms will have a negative impact of Rs 12,000 crore on the automobile industry, as about 8.2 lakh new vehicles will be reduced to scrap in value .
• Since BS-IV commercial vehicles cannot run properly on BS-III fuel and such fuel is not available nationwide customers would continue to buy BS-III vehicles.

SC has,thus, taken a stand to ensure that interest of people overweigh commercial interest of vehicle manufacturers.This is a very necessary step especially in the light of current  pollution trends in India.

2. Do you think that reforms are needed in the banking sector? Suggest steps that can be taken by the government in this regard. (GS 3)

Live Mint

Background:

• Therefore, Reforms are needed to revive the banking sector.

Yes reforms are very necessary because:-

• Failure of schemes:
  • Strategic debt restructuring scheme:-
    • The scheme has not worked for a variety of reasons. These include problems of coordination among the different banks involved, regulatory uncertainties (especially for infrastructure projects) which deter new investors, and the unwillingness of bankers to accept a sufficient write-down of the outstanding debt.
    • There is also the practical problem of running the projects taken over until a new management comes in. Banks are ill-equipped to do this.
  • Scheme for Sustainable Structuring of Stressed Assets (S4A):-
  • It has the advantage of not having to look for a new management, but since the incumbent management remains in place, and the debt write-off is not competitively determined,there is a danger that the concessions given may attract the charge of cronyism and corruption.
• Since the oversight body will also consist of public servants, the problem remains.
• Limited participation of the private and foreign banks.The banking sector of India are dominated by the public sector bank with low participation of private banks.
• India has Gross Non-Performing Assets of around Rs. 6.7 trillion.Economic Survey also mentioned about the Twin Balanced Sheet Problems which stands for stressed balance sheets of both Banks and Corporates.
• Banks employees are poorly paid nowadays as compared to government servants

Measures needed are :-

• To issue more licensing to the private sector banks and increase in the FDI limit.
• More focussed lending to the primary sector for example infrastructure, farming, allied activities etc.
• Governance reforms:-
  • PJ Nayak committee recommended setting Non Financial holding company with all government shares to ensure independence in decision making, appointment of higher officers.
• Strengthen the ombudsmanto increase accountability.
• Prevention of corruption act clearly needs to be amended, and a proposal pending in Parliament should be expedited.
• Create a new government institution the so-called “bad bank” to which the public sector banks transfer their large problem assets at a realistic price, leaving it to the new entity to handle recovery.
  • The new entity would have to be funded by the government, perhaps by government guaranteed bonds which are exchanged for NPAs offloaded from banks.
  • It could work in partnership with private asset management companies specializing in particular areas to bring in new investors.
• Recapitalization of PSB: 
  • The Government can’t give much budgetary support to the banks, therefore they need to reduce their holding in various Public Sector banks.
  • It has been proposed by PJ Nayak Committee earlier but the was government is reluctant to do so.
• Increase efficiency of Banks :-
  • Government interference needs to  be reduced and a good step has been taken in this regard by setting up of Bank Boards Bureau but It needs to be given more powers and made into holding company which will act as mediator between banks and Government.
• Identifying stressed assets in time
• Protection to sincere employees who take tough decisions .
• Accelerate recoveries from non-performing assets.

3. It is essential to increase private investment in India, that to private corporate investment, to achieve high growth rates. Do you agree with this opinion? Discuss critically. (GS 3)

The Hindu | Live Mint

Yes,India needs more private investment especially private corporate investment because of the following reasons:-

• The growth rate of the advanced economies remained low and the recovery from the crisis of 2008 was tepid which had an adverse impact on exports.
• Policy paralysis:

• Pointing to the inability of the government to take policy decisions because of coalition compulsions.

• Like many emerging markets, India’s financial and corporate sector balance sheets have become strained in recent years because of credit-led corporate leverage now weighing on near-term credit growth
• If not for the private-sector banks (one-quarter of Indian banking system assets), whose credit growth has remained significantly positive, domestic financial conditions for the corporate sector would have been much more stringent.
• India has committed to quickly implement Basel III standards of capital and liquidity.
• It will help government to focus more on sectors like Health and Education which need large investments to reap the benefits of demographic dividend in the coming years.

No:-

• Private investment is hindered by Twin Balance sheet problem, poor investment climate, lack of global demand etc. Thus, it is risky to depend solely in it.
• Public investment can play a significant role as they have access to funds from multilateral institution, tax sources etc. In these times, it is public investment that can boost the growth and in turn propel private investment.

What can be done to increase more private investment:-

• Domestic financial conditions have to become much more supportive of private investment.
• If corporate balance sheets are weak, automatically the banks’ balance sheets also become weak.This trend in private investment will have to change if India’s growth is to be sustained, given the constraints on public investment from India’s still elevated public debt, and the government’s fiscal consolidation path.
• Public sector undertakings have to come out with an explicit statement indicating the extent of investment they intend to make during the current fiscal.This will inspire confidence among prospective private investors.
• In fact, a recent study shows that the total cost of projects initiated by the corporate sector has come down from ₹5,560 billion in 2009-10 to ₹954 billion in 2015-16. This continuing trend must be reversed.
• Reforms to simplify procedures, speed up the delivery system and enlarge competition must be pursued vigorously. Some significant steps have been taken in this regard in recent years such as moving forward on the GST Bill, passing of the Bankruptcy Act, and enlarging the scope of foreign direct investment.

Despite importance of public spending for immediate revival due to twin balance sheet problem, it is true that in the long run private corporate investment especially foreign investment would play an immense role to propel our growth to double digits