Answered: Mains Marathon – UPSC Mains Current Affairs Questions – February 9

Suggested Answer:

Nagaland government recently announced urban local body elections with 33% reservation for women, as provided for by the Nagaland Municipal (First Amendment) Act. Male tribal bodies have protested against this reservation and the state has seen a spate of violence.

The reasons for the protests are:
1. The all-male dominated bodies such as Naga Hoho allege that the reservation violates Article 371A of the constitution, which provides protection to Naga customs, rituals and culture.
2. Patriarchal mindset which prevents females from political participation.
3. Males want to sustain their dominance in the political sphere and are resorting to the excuse of tradition for that.

However, the protests have no legal basis as:
1. These Naga tribal bodies are not recognized as tribal representative institutions protected under A. 371A.
2. 33% reservation for women is mandated by Article 243T of the constitution.

Government of Nagaland has taken several steps to tackle the situation:
1. Called a tripartite meeting of the Governor, protesting bodies (Nagaland Tribal Action Committee NTAC) and the Church (which holds a significant sway) in order to amicably solve the issue.
2. Denied the use of violence on the protesters as long as the protests were peaceful.
3. Called of the elections till a solution is reached.
4. Written to the centre to exempt Nagaland from Part IX-A of the constitution which deals with urban local bodies.

Tribal traditions and customs notwithstanding, participation of women in the political sphere is an important component of gender equality and therefore must be encouraged. Sati and slavery were tradition as well, until they were outlawed. Thus, the Naga society must reform itself to reflect modern values. However, this change must come from within, and there is a need to stop the violence in order to start this process of change.

Indian economy has been plagued by the Twin Balance Sheet problem: overleveraged corporate balance sheets due to multiple domestic and global issues, as well as rising Non Performing Assets (NPAs) of the public sector banks due to the corporate unable to meet their interest payment obligations.

A Public Sector Asset Rehabilitation Agency (PARA) has been suggested in order to address this TBS problem. It may be needed now because:

1. The current framework to resolve NPAs is decentralized and highly dependent on the banks.
   2. Bank capital has been the focus of the bad loan problem, while the focus should be on resolution of these loans.
   3. Restructuring such loans may require some writing off of debt, which bankers will not do due because of fear of being investigated for collusive corruption. Political class will not do it either due to the fear of a public backlash.
   4. Resolution presents coordination problems, since large debts have many creditors who may have different priorities. These coordination issues of the Joint Lenders’ Forum can be resolved by a centralized agency such as PARA.
   5. Private Asset Reconstruction Companies (ARCs) have been unable to successfully resolve these bad debts and thus there is a need for a proper alternative.
   6. Initiatives such as CDR (Corporate Debt Restructuring), SDR (Strategic Debt Restructuring), S4A (Scheme for Sustainable Structuring of Stressed Assets), 5:25 (longer tenor for infrastructure projects) scheme etc. introduced by RBI for resolution have not bore fruit.
   6. The insolvency and bankruptcy law is still at a nascent stage and the processes around it are still evolving. A single agency will be able to better handle the cases brought before the insolvency tribunals.
   7. Experience of East Asian economies shows that a professionally run central agency with government backing can overcome the bad loan issues fairly efficiently.

PARA will take over the bad assets from the banks and leave the latter’s balance sheets clean. It will also free up substantial capital that the banks have presently set aside for provisioning, thus leading to credit growth, improved lending and revival of the credit cycle.

PARA needs to be financed by the government both for its operational expenses as well as any write-offs that may be undertaken. Survey suggests three options for financing PARA:

1. Through Fiscal windfall after demonetisation [The unreturned money to RBI after declaration of demonetisation + money received through Pradhan Mantri Garib Kalyan Yojana (PMGKY)]
   2. Using RBI’s excess equity. As per survey analysis the central banks of different countries generally don’t hold that much capital and RBI is an outlier here. Hence this excess capital can be used to finance PARA.
   3. By transferring some percentage of RBI-held G-Secs to PARA and structuring it in such a way as to encourage private equity.

Gross NPAs reached nearly 12% of bank advances by September 2016. This ratio is larger than any other emerging market except Russia. Rising NPAs put a brake on economic growth while risking financial crises in the future. Thus, it is imperative that this problem be resolved at the earliest, and PARA seems to be a promising move towards that goal.

Carbon tax refers to levying of such taxes on the use of carbon emitting fossil fuels which discourages their usage by increasing their cost-price. The de-facto Carbon Tax referred in the Economic Survey relates to the high excise duties on petrol and diesel and the clean energy cess being levied on coal. The latter, at Rs. 400 a tonne, now stands at 20% of the mining cost of coal.

 The basic objectives behind levying the carbon tax are:

1. Promoting cleaner sources of energy by artificially inflating the price of fossil fuels to reduce consumption.
   2. Incentivizing researchers to create more fuel efficient technologies.
   3. Assigning economic value to carbon emissions will help in green accounting where adverse effect on environment is factored into balance sheets and creates awareness amongst public. [Taking cognizance of negative externalities].

India has one of the highest Carbon Taxes- $140 per tonne of CO2 emitted for petrol and $64 for diesel. The problems faced by India in adopting a high carbon tax regime, leading to higher fuel prices, are:

1. Increasing fuel prices increase fixed household expenditure and thereby prevent discretionary spending as well as saving, even though they’re supposed to reduce consumption. Lower spending >> low demand.
   Lower saving >> less funds available for the banks to lend.
2. Rising fuel prices push up inflation, especially food inflation in rural areas due to the predominant use of road transport for those purposes.
3. Lowering the present rates of tax would lead to global criticism, whereas with rising crude prices, government will need to cut excise duties (the de facto tax) in order to keep prices constant.
4. Rising fuel prices also make electricity unremunerative due to higher transport prices of coal. Higher electricity prices + subsidized rates >> burden on DISCOMs >> necessitates reform schemes such as UDAY which are a fiscal burden.
5. Rising fuel prices make Indian commodities non-competitive in global markets. For example, it costs $349 to manufacture a tonne of steel in India, compared to $428 in China. However, transport costs in India are 5 times that of China, leading to increased cost-to-consumer.
6. The principle of CBDR – India believes in reducing fossil fuel dependence, but it would need financial and technical support in order to move towards cleaner technologies and tax fossil fuels at one of the highest rates in the world.

There is no doubt that carbon tax can lead to lower consumption of fossil fuels. However, such a tax is inherently a regressive measure that harms the poor population more than it affects the rich. Thus, not only must India be careful in levying such high carbon tax, it should look for other progressive measures to shift to cleaner fuels.