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9 PM Daily NEWS Brief

9 PM Daily Current Affairs Brief – 21 February 2017



  • Front Page / NATIONAL [The Hindu]
  1. Blending humaneness with healthcare solutions
  • Editorial/OPINION [The Hindu]
  1. A brave new self-help world
  2. The writing is on the wall
  3. In India, diverging incomes despite equalising forces
  • Economy [The Hindu]
  1. Centre starts IPO process for rail PSUs
  • Indian Express
  1. Talking To The Taliban
  • Live Mint
  1. Designing the bad bank of India

Front Page / NATIONAL


 

[1]. Blending humaneness with healthcare solutions

The Hindu

 

Context

With India’s ongoing demographic shifts, the number of elderly persons in poverty is increasing rapidly, yet many among this group are unable to access basic healthcare

 

Issues

  • Service delivery is a challenge: At the country level population studies suggest that 80% of the elderly live in the rural areas, and this makes service delivery a challenge
  • Feminization of old Age: Government projections suggest that “feminization of the elderly population” is occurring, with 51% of itlikely to be women by 2016
  • Increase in Older-old: there is likely to be a steady increase in the number of the older-old persons, that is, those above 80 years of age
  • Poverty: 30% of the elderly are below poverty line

 

 

Analysing the NSS data

United States National Institutes of Health (NIH) analysed the data from the 60th round of National Sample Survey in a report. Following are the observations,

  • High rates of disease & hospitalization: Prevalence and incidence of diseases as well as hospitalization rates are much higher in older people than the total population
  • Self-perception of health status: A good or fair condition of health was reported by 55-63% of people with a sickness: It is possible that many older people take ill health in their stride as a part of ‘usual/normal ageing. This observation was highly significant as self-perceived health status is an important indicator of health service utilization and compliance to treatment interventions
  • Nonavailability of affordable models of healthcare: While home-based health solutions such as Portea have cropped up to cater to the demand for healthcare services by the elderly within the middle class, much less is available in terms of affordable models of health and social care for the poor, which is inconsistent with the changing needs of this age bracket
  • Indigenous model may crumble: Report suggests that in India with increase in older population, the indigenous trend of families being the primary care givers might crumble

 

Money& cost of healthcare: Not a prime reason for abandonment of elderly

The primary reason is

  • The inability and hesitance to take care of elderly, particularly when they suffer ailments like stroke or neck of femur fractures that hamper mobility and make them often dependent on others even to answer nature’s call

 

Additional problems to elderly from extremely poor background

The elderly from among the destitute population face additional procedural complexities in terms of admitting institutions intimating the local police station and getting an approval from them.

  • Untrained police: Even though the Maintenance and Welfare of Parents and Senior Citizens Act gives the police a major role, they are usually overburdened and not sufficiently trained to handle such cases in a compassionate manner.

 

Suggestions

  • Like Childline and District Child Protection Committees, which act as the first point of contact for the children in need, a similar set up is needed in rescuing and providing healthcare to abandoned elders, with participation from NGOs that have trained professionals
  • Helpline for elders: There should be a helpline for elders like they have the 1098 helpline for children
  • Setting up palliative care centers: Government should adopt Public Private Partnership model to set up palliative care centers in every town, preferably inside hospitals, that can primarily cater to the needs of elderly and terminally ill patients. Today, we have homes for the elderly in many towns. However, they are ill-equipped in taking care of their health needs. That is where palliative care centers with participation of NGOs can help

 

What is Palliative care?

Palliative care is specialized medical care for people with serious illness. This type of care is focused on providing relief from the symptoms and stress of a serious illness. The goal is to improve quality of life for both the patient and the family

Editorial/OPINION

[1]. A brave new self-help world

The Hindu

 

Context

We may have complained about the post-War order, but the lack of an intellectual replacement is a nightmare

 

Article provides a brief insight into the unpredictable and uncertain world wherein new geopolitical realities are developing. He goes on to provide the example of Trump presidency as the beginning of a new era, an era of closed borders and protectionism.

 

Implications for Asia

  • Increase in Chinese influence: Chinese influence will increase and its smaller neighbors would have no option but to fall in line
  • Impact on entire region:The rise of Russian and Chinese geopolitical influence and their bilateral partnership will impact the entire region, including India
  • Increase in military build-up: With China and North Korea in their neighbourhood, both South Korea and Japan will be forced to increase their own military build-up
  • Security competition will increase: If America indeed withdraws from its foreign commitments, North Korea will take its chances to strengthen its strategic arsenal leading to a great deal more security competition in the region
  • Nuclear option: The demands for exploring the nuclear option may also gather new momentum in Japan. Finally, the ongoing war of words between U.S. and Iran could open yet another front in the region.

 

[2]. The writing is on the wall

 

The Hindu

 

Context

There needs to be greater attention to the issue of identity and security that drove the jallikattu protests

 

Article talks about the reason behind the mass protests over Jallikattu that included youth to a large scale.

Our needs

Author states that if we don’t view history as a series of protests but as behaviors exhibited to fulfill basic needs, we get a different perspective. Human beings are not too different from bulls, in a sense, that our needs are the same.

Our fundamental needs are to ensure

  • Physical safety, which we experience most strongly in our gut
  • Emotional safety, which we experience most strongly in our heart
  • Intellectual safety or the need for identity, which we experience most strongly in our head

When these needs are not met, we have corresponding fears. We then try to adopt various strategies to meet these needs and eliminate our fears.

 

Centralizing trend

The current trend towards centralization of power, for example within the ruling party, between districts and Chennai, and even between States and the Centre is alien to Tamil culture, if we use a 1,000-year-old past as a reference point

  • This has robbed people of their need for an identity and security, especially youth, searching for jobs in a State that has seen little government-driven employment. This is what resulted in the ripple that became a wave

 

[3]. In India, diverging incomes despite equalising forces

 

The Hindu

 

Context

Disparities have been strengthening, not weakening, over time. The less developed States are falling behind the richer ones instead of catching up

 

Need for convergence

Author states that if India is to develop as a whole, then its laggard states need to catch up with the fast developing states. Economists call this process of narrowing down as convergence

 

Defining Convergence

It occurs when a State that starts off with a lower level of per capita GDP sees faster growth of per capita GDP in the future so that it catches up with better-performing States

 

Article refers to an observation made in Economic Survey,

Observation:

  • Presence of divergence: In the 2000s, while standards of living (measured in terms of Gross State Domestic Product or consumption) per capita increased in all the States, the disparities among them also increased. In other words, there was divergence across the States instead of convergence

 

Puzzles

Above observation gives rise to two puzzles,

  • International comparison: Across countries disparities are declining in contrast to India
  • Interstate comparison: The tendency towards disparities within India has been strengthening, not weakening, over time

 

Graphs

Source: The Hindu

Source: The Hindu

 

If we plot per capita GDP growth on the y-axis and the initial level of per capita GDP growth, convergence would show up in the form of States being distributed around a downward sloping line. This is done in figure 3 for the period 2004-2014,

 

Figure 3: Displays divergence

The line for India is upward sloping while those for the Chinese provinces and countries in the world are downward sloping.

 

Further observations from figure 3

  • Interstate disparity increasing in India: Poorer countries are catching up with richer countries, the poorer Chinese provinces are catching up with the richer ones, but in India the less developed States are not catching up; instead they are, on average, falling behind the richer States
  • Migration of people to coasts: The driving force behind the Chinese convergence has been the migration of people from farms in the interior to factories on the coast, raising productivity and wages in the poorer regions faster than in richer regions
  • Reversal of trend internationally: Globally since the 1820s, poorer countries grew slower than richer countries, leading to the basic divide between advanced and developing countries characterized as “Divergence, Big Time” by Prof. Lant Pritchett of Harvard University. However, since 1980 this long-term trend was reversed and poorer countries started catching up with richer ones

 

Figure 2: Initial convergence & divergence

  • China and the world has initial weak convergence as graphs are tilted downward
  • India shows a weak divergence displayed by a slight upward tilt of the graph

 

Thus, the opposing results in China & in India remains a puzzle.

 

How convergence happens?

Convergence happens essentially through trade and through mobility of factors of production.

  • High return to the capital due to cheap labor: If a State/country is poor, the returns to capital must be high and should be able to attract capital and labour, thereby raising its productivity and enabling catch-up with richer States/countries
  • A less developed country that has abundant labour and scarce capital will export labour-intensive goods (ie exporting unskilled labour) and import capital-intensive goods (ie attracting capital)

 

Why convergence has failed in India?

  • Governance deficit: One possible hypothesis is that convergence fails to occur due to governance or institutional traps. Poor governance makes the returns on a capital very low
  • India’s pattern of development: A second hypothesis relates to India’s pattern of development. India, unlike most growth successes in Asia, has relied on growth of skill-intensive sectors rather than low-skill ones. So, unless the less developed regions are able to generate skills (in addition to providing good governance), convergence may not occur.

 

The above two hypothesis do not answer the following question,

 

Why isn’t there pressure on the less developed States to reform their governance in ways that would be competitively attractive?

 

Conclusion

Article concludes by mentioning that the shift towards economic divergence across India in the face of the equalizing forces of trade and migration is a deep puzzle that remains to be solved


Economy


[1]. Centre starts IPO process for rail PSUs

 

The Hindu

 

Context

Regarding listing of Rail PSUs as announced in the Union Budget

 

What has happened?

Within three weeks of the Budget announcement, the Finance Ministry has started the process of listing three rail PSUs — IRCTC, IRFC and IRCON. The government currently holds 100% stake in these three companies.

 

Disinvestment

The government intends to raise ₹72,500 crore through disinvestment of PSUs in the next fiscal.

 


Indian Express


[1]. Talking To the Taliban

 

Indian Express

 

Context

It is in India’s strategic interest to engage Afghan insurgents

 

Issue: Hosting of Afghanistan Peace conference by Russia on 15th Feb 17

 

Note: Please read the already covered articles on Peace conference in the previous briefs dated 17th Feb 17&20th Feb 17 before going over this one.

 

Why Russia is bent on including Taliban vis-à-vis peace in Afghanistan?

Russia is asserting that the Islamic State (IS) is gaining significant ground in Afghanistan and will pose a grave threat to the Central Asian Republics and its own security.

  • Counter IS: To counter the IS, Russia wants to confer international legitimacy on the Taliban; it has acknowledged its own contacts with the group and wants it to be accommodated in Afghanistan’s power structures. In pursuit of this, it has warmed up to Pakistan

 

Author’s contention

IS is not as potent a threat as Russia is making it out to be. It largely consists of Tehreek-e-Taliban-e-Pakistan (TTP), renegade Afghan Taliban and criminals. Its focus is Pakistan and Afghanistan, not entire Central Asia or Russia

 

A reversal of the situation

Author states that the situation now is almost the exact opposite of that of the 1980s.

  • Then, the Soviets had troops in Afghanistan, supported the Kabul government and combated jihadist groups, backed by the US
  • Now, the US is supporting the Kabul government
  • The difference: The fundamental difference though between the 1980s and now lies in the rise of global terrorism. Pakistan-Afghanistan is a major centre of international terrorism. The US cannot allow Afghanistan to become a staging post for terror

 

Controlling Afghan choices

Author points out that one thing will always remain constant,

  • Pakistan’s desire to control Afghanistan’s choices vis-à-vis India

 

Pakistani stance

Pakistan hopes an Islamist government in Afghanistan, like the Taliban from 1996-2001, will keep India out: However, some Taliban elements seem keen to open a channel with India

 

Author suggests

India should maintain quiet contacts with Taliban. The key for India is to maintain contacts with all groups in the Afghan political process


Live Mint


[1]. Designing the bad bank of India

 

Live Mint

 

Context

The most efficient approach would be to design solutions tailor-made for different parts of India’s bad loan problem.

 

Issue: Resolving NPA problem via Bad Bank

 

Schemes to resolve NPA problem

Author states that to solve the problem of bad loans in India, the Reserve Bank of India (RBI) has introduced multiple schemes over the last few years:

  • Flexible Refinancing of Infrastructure (5/25 scheme)
  • Asset Reconstruction (ARC)
  • Strategic Debt Restructuring (SDR)
  • Asset Quality Review (AQR)
  • Sustainable Structuring of Stressed Assets (S4A)

 

Present situation: Problems persist

Banking sector is facing following problems as of now,

  • The “twin balance sheet problem” persists
  • Stressed Assets: On the banking side, stressed assets now stand at over 12% of the total loans in the banking system
  • High Stressed-Loan ratio: Public sector banks, which own almost 70% of banking assets, have a stressed-loan ratio of almost 16%
  • Unwilling to issue fresh credit: Banks are unwilling to take on fresh risks, which has led to negative growth of real credit, the lowest in over two decades

 

Bad Bank

Author states that a new solution which is being propounded is that of a “Bad Bank

  • The concept is simple: Divide a bank’s assets into two categories, good and bad but the implementation can be quite complicated

 

So, how to design the bad bank of India?

 

Designing the Bad Bank

A report by McKinsey & Co., “Understanding The Bad Bank”, proposes four organizational models for a bad bank based on two decision factors, viz.,

  1. Decide whether or not to keep the bad assets on the bank’s balance sheet. Moving assets off the balance sheet is better for investors and counterparties and provides more transparency into the bank’s core operations. But it is more complex and expensive
  2. Decide whether the bad-bank assets will be housed and managed in a banking entity or a special purpose vehicle (SPV)

 

Four Bad Bank Models

Depending on the choices, there are 4 bad Bank models,

  1. On-balance-sheet guarantee
  2. internal restructuring unit
  3. special-purpose entity
  4. bad-bank spin-off

 

On-balance-sheet guarantee

In the on-balance-sheet guarantee structure,

  • Loss-guarantee: The bank gets a loss-guarantee from the government for a part of its portfolio
  • Pros:The model is simple, less expensive and can be implemented quickly
  • Cons:However, the transfer of risk is limited and bad assets continue to remain on the bank’s balance sheet, clouding its core performance
  • Can be used where:This approach is useful for stabilizing a bank in trouble

 

Internal restructuring Unit: An internal Bad Bank

An internal restructuring unit is like setting up an internal bad bank.

  • Separate internal unit for bad assets: The bank places bad assets in a separate internal unit, assigns a separate management team and gives them clear incentives. This model relies on the existing management team to restructure assets.
  • Pros:This works well as a signalling mechanism to the market and increases the bank’s transparency, if the results are reported separately
  • Cons:However, if the existing management is looking to kick the can down the road (meaning trying to put away confronting the problem), as is the case for many banks in India, this is not an effective solution

 

Special-purpose entity

In a special-purpose entity structure,

  • Bad assets are shifted into a SPV, securitized and sold to a diverse set of investors.
  • Can be used where: The model works best for a small, homogeneous set of assets
  • An effective solution:The bad loan problem in India is concentrated in a few sectors like infrastructure and basic metals. An effective solution would be to transfer bad loans from these distressed sectors into sector-specific SPVs, securitize them and sell them in an auction. If the pricing is determined by the market, PSU bankers will receive less blame for losses to the exchequer

 

Bad-bank spin-off

A bad-bank spin-off is the most familiar, thorough and effective bad-bank model. In a spin-off,

  • Separate entity: The bank shifts bad assets into a separate banking entity, which ensures maximum risk transfer
  • Cons:
    • Complex & Expensive model: The model is complex and expensive because it requires setting up a separate organization, equipped with a skilled management team, IT systems and a regulatory compliance set-up
    • The problem related to asset valuation and pricing will be the most severe in this model

 

Given the complexity and cost of the model, it is recommended to be used as a last resort, after all other initiatives fail

 

PARA is a Bad-Bank spin-off

The Public Sector Asset Rehabilitation Agency (PARA) proposed by the Economic Survey 2016-17 falls in this category

Author suggests

Just setting up one PARA will not be enough to get the banking sector back on track. The most efficient approach would be to design solutions tailor-made for different parts of India’s bad loan problem.


 


 

Categories
9 PM Daily NEWS Brief

9 PM Daily Current Affairs Brief – 01 February 2017



Front Page / NATIONAL

[1]. Note ban a radical measure: CEA

[2]. SC rejects plea to stay Jallikattu law

[3]. Kathmandu meet to finalise SAARC budget, agenda

Editorial/OPINION

[1]. Demonetisation’s long shadow

[2]. Drawing up a diet plan

[3]. This land is their land

ECONOMY[The Hindu]

[1]. Reward States’ good fiscal show

[2]. CSO revises GDP growth for 2015-16 upwards to 7.9%

[3]. Economic Survey wants modification of FRBM Act

Indian Express

[1]. Demonetisation 2.0

[2]. Surveying ideas for India

Live Mint

[1]. The building blocks of economic policy

[2]. The right priorities for healthcare spending


Front Page / NATIONAL


[1]. Note ban a radical measure: CEA


Note ban a radical measure: CEA


The Hindu

Context

Demonetisation will have an impact on economic growth

Article contains views of Chief Economic Adviser and mentions pointers from Economic Survey itself.

Main points of Economic Survey shall be dealt with in a separate post.

Give it a go-through once


 


[2]. SC rejects plea to stay Jallikattu law


SC rejects plea to stay Jallikattu law


The Hindu

Context

A few hours after the President gave his assent on Tuesday to the Tamil Nadu amendments in the Prevention of Cruelty Act of 1960 to allow Jallikattu, the Supreme Court refused to stay the new State law

Petition declined

Allowing the Central government to withdraw its January 7, 2016 notification permitting jallikattu, the Bench declined the plea of NGO Compassion Unlimited Plus Action for an interim stay on the operation of the Prevention of Cruelty to Animals (Tamil Nadu Amendment) Act, 2017

Bench’s position

Basis of the challenge: It asked the organisation and other animal rights activists the ‘basis’ of their challenge to the new State law

  • Preservation of culture: Referring to the amendments made by the Tamil Nadu Assembly to the 1960 Central Act, Bench pointed out that the declared object of the new legislation is the preservation of a particular breed of bulls
  • Within the ambit of culture or not?: Court will decide on whether Jallikattu comes within the ambit of ‘culture’ meant in Article 29 (1) and whether this kind of a sport or event or activity is safe. Conservation of a culture should not involve inflicting unnecessary pain [on] or suffering to animals

Article 29 (1)

Center’s arguments

  • Article 29 (1) of the Constitution mandates that citizens have the right to take measures to “conserve their culture.”
  • Article 48: If Jallikattu is cruelty, what about slaughtering of animals? Slaughtering is done not only for food but also in the name of religion like halaal and sacrifices of goats, etc. Section 11 (3) (e) of the 1960 Act, which is a Special Act, exempts slaughter for food despite the fact that Article 48 prohibits slaughter”
  • Bench’s counter: Slaughtering for food comes within the purview of Doctrine of Necessity. Section 11 (3) (e) permits slaughter for food but also mandates that the animal should be killed without inflicting upon it unnecessary pain and suffering

 


[3]. Kathmandu meet to finalise SAARC budget, agenda


Kathmandu meet to finalise SAARC budget, agenda


The Hindu

Context

Diplomats say the meeting is critical as it will require consensus among members

 What has happened?

Indian and Pakistani officials will meet to finalise the budget and agenda of the SAARC during the February 1-2 meeting in Kathmandu.

  • Significance:
  1. The meeting will mark the beginning of the annual calendar of events of the organisation which failed to meet in Islamabad for a summit and is in focus as it is the first time high officials of member-countries will meet since the cancellation of the summit
  2. The meeting in Kathmandu will be critical as it will require consensus among members for finalizing budget of the organisation

 


Editorial/OPINION


[1]. Demonetisation’s long shadow


Demonetisation’s long shadow


The Hindu

Context

The Economic Survey presented on the eve of the Union Budget has been dominated by a singular action of the government

Economic survey’s view on Demonetization and its impact

  • Difficult to predict: Economic survey acknowledges the complexities in assessing its potential impact as well as the lack of historical precedent to make reliable predictions
  • Short-term costs and long-term benefits: Survey asserts that although there have been short term costs to economy, there will be long term benefits
  • Reduction in GDP: Real GDP growth in the current fiscal, the Survey projects, will see a likely reduction by one quarter to half a percentage point relative to the baseline of about 7% as a result of the demand shock (a sudden event that increases or decreasesdemandfor goods or services temporarily) triggered by demonetisation

 Recommendations of the survey

Devoting a whole chapter to demonetisation, the Survey recommends

  • Fast, demand-driven remonetisation
  • Further tax reforms, including bringing land and real estate under the ambit of the Goods and Services Tax
  • Reducing tax rates and stamp duties

 


[2]. Drawing up a diet plan


Drawing up a diet plan


The Hindu

Context

The welfare challenge lies in providing assistance to needy households to ensure adequate diets without creating conditions in which they opt for inferior diets that are too heavy on cereals

 A disconnect

In the first few paragraphs, author has depicted an apparent disconnect between an improvement in the proportion of households receiving PDS subsidies and corresponding improvement that should be witnessed in malnutrition

  • Source of the data: State-wise data has been taken from Annual Health Survey/District Level Health Surveys of 2012-14 as well as National Family Health Survey IV of 2015-16
  • Rajasthan: Proportion of households receiving PDS subsidies in Rajasthan increased by about 15 percentage points, underweight declined by 3 percentage points
  • Madhya Pradesh experienced increase in the PDS but a sharper decline underweight (17 percentage points)
  • Gujarat shows a drop in PDS use but records a modest improvement in underweight statistics (5 percentage points)
  • Andhra Pradesh: The number of people receiving PDS rose to76 % in 2011-12 but underweight rate seems to be stuck around 32% with hardly any improvement

This is the apparent disconnect which the author is trying to expose here in this article

 A more complex relation

Author states that a recently released report based on India Human Development Survey of 2004-05 and 2011-12 suggests that the relationship between the PDS and nutrition may be more complex

  • Survey organised by: Jointly by researchers from National Council of Applied Economic Research and University of Maryland
  • USP: It is the first nationwide survey to interview the same households at two points in time
  • What has survey done? Households with similar income, family size, land ownership and place of residence have been compared
    • One group is with Below Poverty Line (BPL) or Antyodaya Anna Yojana (AAY) card and the other group is without these cards
  • What do results suggest?

For households with BPL or AAY card:-

  • Access to PDS subsidy changes allocation behavior: When items like rice, wheat and other cereals are available cheaply households try to get more of their required calories from cereals and less from milk, fruits and vegetables
    • Cereal consumption is high: Results show that households with BPL/AAY cards consume a monthly per capita average of 11.87 kg of cereals, but only 2.77 litres of milk
    • Food consumption forms 56% of household budget

For households without BPL or AAY card:-

  • Lesser consumption of cereals: Households without BPL/AAY cards but at the same income level, consume somewhat less cereals (11.22 kg) but more milk (3.21 litres)
  • Food consumption forms 58% of household budget

Why money saved from buying cereals in families with BPL or AAY card is not being used to buy fruits, vegetables and nuts?

Because school and medical costs are rising and households face many other demands on their purse, these savings seem to be spent on non-food items

Previous study

Author states that a previous study done in a similar manner and published in joint NCAER/Brookings journal, India Policy Forumfound that

  • No effect of subsidy access to child nutrition: Households with a BPL/AAY card were no better than households without PDS subsidies when it came to child nutrition

Reason: Dietary diversity (eating different kinds of foods) is important for balanced nutrition. Access to cheap PDS cereals reduces this habit and people consume more and more of cereals on a daily basis leading to nutritional deficiencies which ultimately results in no visible improvements in child nutrition.

Q: So, should food subsidies be discontinued?

A: No because as per the NCAER report,

  • Access to PDS is vital in maintaining dietary diversity: For very poor households or households that experience income declines of 20% or more between the two surveys, access to the PDS is very important for preserving food intake and dietary diversity

Survey findings:

  • Households with BPL/AAY card: When faced with a sharp income decline, households with BPL/AAY cards reduce their cereal intake by 770 g per capita per month, and maintain their milk intake
  • Households without BPL/AAY card: In contrast, households who can’t avail of food subsidies reduced their monthly per capita cereal intake by 930 g and milk intake by 280 milliliters

The Challenge

Author states that the challenge lies in providing assistance to needy households without creating conditions that force them towards inferior eating habits

Author suggests

  • Cash transfers: Cash transfers may be one way of dealing with this challenge. They would allow households to invest in better diets without restricting what they consume. Currently they are given rice, and other cereals which limits their choice
    • However, success of cash transfers would depend on the ability to effectively administer transfers and reduce leakages

Conclusion

Author concludes by stating thatifthe mechanisms for effective administration of the UBI are in place, it is possible to make a case for replacing PDS by cash transfers on nutritional grounds

 


[3]. This land is their land


This land is their land


The Hindu

Context

In the light of recent Bhangar violence in Kolkata WB, the article states that despite the new land acquisition law, questions of resettlement and rehabilitation persist

What happened?

On 18th January 2017 hundreds of angry locals blocked major roads in Bhangar, 40 km from the state capital Kolkata, demanding an assurance from Chief Minister Mamata Banerjee that their land will not be forcibly acquired by the government for a power sub-station

  • Agitations have left two dead, several arrested and many injured since November 2016

 The Bhangar story

In the violence in Bhangar, the Trinamool Congress that agitated against the high-handedness of the Communist Party of India (Marxist) in Nandigram and Singur claims the people first agreed to part with 14 acres of land and then outsiders created unrest.

  • No knowledge about full extent of the project: The local residents claim that they had no knowledge of the full extent of the project. In negotiations with the government and the Power Grid Corporation of India Limited, they were informed only of a power sub-station that would improve the power supply of the area. They discovered belatedly that on completion, the Bhangar sub-station would receive power from the Sagardighi thermal power plant and the Farakka unit that would then be transmitted via high-tension wires to Kolkata, the northeastern States and Purnea in Bihar
  • Demand for an EIA:They demand an environmental impact assessment to ascertain the adverse impacts of the high-transmission lines on the local population, agriculture and ecology
  • Land acquired fairly: State representatives claim that land was acquired with consent, compensation was negotiated with the residents, and outsiders are instigating violent agitations.

Author’s contention

Author contends that if the new land acquisition law was improvement over the previous one and was enacted to comprehensively address opposition to land acquisition, why do governments still get land acquisition wrong?

Issues plaguing new land acquisition law

  • Access to information: Author states that the information regarding projects is seldom accessible and those affected discover it by accident or by exercising their RTI
  • Prior informed consent is a farce: There are no clear procedures for establishing consent in the case of private sector involvement and there is complete exemption for state-led projects
  • Meagre compensation: Compensation offered is very little to offset the loss of livelihood and biodiversity. Small and marginal farmers are provided with too little a compensation and once that is finished, they are left to fend for themselves

State intervention

Author states that wherever there is an agitation towards land acquisition by locals, it is termed as being under influence of outsiders by the state.

  • Local infrastructure devalued: The idea of infrastructure as understood by state is such that it benefits only the capitalist side of the puzzle.Existing agrarian and local infrastructure is devalued, rendered backward, and considered in need of improvement for achieving greater economic growth

 Examples:

Author cites example of Narmada BachaoAndolan (NBA), Protest over Dholera Smart City project wherein the water that was promised to peasants in Gujarat by the construction of the SSP is now to be officially diverted to supply real estate and infrastructure projects for a city& the POSCO agitation, to demonstrate that those protesting against such infrastructure projects backed by the state, are locals and not outsiders

In the ensuing paragraphs, author presents us with the following questions,

Q: Who pays for the losses of life, livelihood, peace and well-being of the local residents during months and years, sometimes decades, of agitation?

Q: What of the loss to the exchequer, and ultimately the Indian public, for all the effort made to suppress agitations and democratic principles by the state’s sovereign assertions over the greater common good?

Q: Where does the state source its sovereign power over citizens in a democracy?

Eminent Domain

State acquisition of land is done under the doctrine of Eminent Domain. It implies the right of a government or its agent to expropriate private property for public use, with payment of compensation

 Conclusion

Author concludes by stating that the Eminent Domain is a colonial era legacy that should be done away with


ECONOMY[The Hindu]


[1]. Reward States’ good fiscal show


Reward States’ good fiscal show


The Hindu

Context

The Economic Survey recommended the Centre to incentivize good fiscal work by States to keep the overall fiscal performance on track

Improvementsin financial position of the states

The Economic Survey pointed out that there has been an improvement in the financial position of the States over the last few years.

  • “The average revenue deficit has been eliminated, while the average fiscal deficit was curbed to less than 3% of GSDP. The average debt to GSDP ratio has also fallen
  • Exogenous (External) factors: Survey states that the cause of the progress is mostly due to external factors most notably assistance from the Centre in the form of increased revenue transfers, the assumption of state debt, and the introduction of centrally sponsored schemes.

Increase in fiscal challenges

Survey pointed out that Pay Commission recommendations, and mounting payments from the UDAY bonds will lead to increase in fiscal challenges for the States. Hence, there is a need “to review how fiscal performance can be kept on track.”

Redistributive Resource Transfer (RRT)

What is RRT?

Redistributive Resource Transfer or RRT to a state (from the Centre) is defined as gross devolution to the state adjusted for the respective state’s share in aggregate GDP.

  • The Survey has further suggested that Redistributive Resource Transfers should be significantly linked to fiscal and governance efforts on the part of the States
  • Negative relationship b/w RRT & various economic outcomes: Survey has pointed out that there is no evidence of a positive relationship between these transfers and various economic outcomes, including per capita consumption, GSDP growth, development of manufacturing, own tax revenue effort, and institutional quality. Instead, there is a suggestive evidence of a negative relationship. For example, larger RRT flows seem to negatively affect fiscal effort
  • Recommendation: Use a part of the RRTs or redistribute the gains from resource use, as a Universal Basic Income directly to households in relevant states which receive large RRT flows and are more reliant on natural resource revenues
  • Top ten recipients of RRT: Sikkim, Arunachal Pradesh, Mizoram, Nagaland, Manipur, Meghalaya, Tripura, Jammu and Kashmir, Himachal Pradesh and Assam.

 


[2]. CSO revises GDP growth for 2015-16 upwards to 7.9%


CSO revises GDP growth for 2015-16 upwards to 7.9%


The Hindu

Context
Revision of GDP estimates

What has happened?

Government has marginally revised upwards GDP growth for 2015-16 to 7.9 per cent from the earlier estimate of 7.6 per cent after factoring in latest data on agriculture and industrial production

Give the rest of the article a go-through


 

 


[3]. Economic Survey wants modification of FRBM Act


Economic Survey wants modification of FRBM Act


The Hindu

Context

India has “changed utterly” over the last 13 years since the Fiscal Responsibility and Budget Management (FRBM) was enshrined in law for prudent fiscal management and therefore, the FRBM operational framework designed in 2003 “needs to be modified to reflect the India of today and even more importantly, the India of tomorrow,” according to the Economic Survey

Significance of the recommendation

The recommendation of the survey assumes significance in the wake of N.K. Singh panel;sreport on revising the FRBM Act

A lower fiscal deficit target

The government has set a target for fiscal deficit (the gap between expenditure and revenue for the financial year) of 3.5% of GDP for FY’17, a lower target than the 3.9% set for 2015-16 which was achieved. In value terms, the 3.5% is Rs. 5.33 lakh crore.

 


Indian Express


[1]. Demonetisation 2.0


Demonetisation 2.0


Indian Express

Context

In the present article, author has tried to prove his contention that demonetization move by the government was a completely political move with no economic rationale. Read on to find out how he does that.

 Three reasons for demonetization

Author states that economic theory and historical precedents provide us with 3 reasons for which demonetization can be done

  1. Hyperinflation: A period of rapid inflation usually caused by rapid increase in money. People do not want to hold on to money because its value changes by the minute. For eg: If eggs cost 10rs now, they might cost 100rs a minute or hour later. The value of money has degraded and it continues to do so. Hence, people no longer want to keep cash with them. Monetary system as a whole begins to collapse and under such circumstances demonetization can be a legitimate move

 Read More: Hyperinflation has been explained quite beautifully here

  1. Counterfeit currency: If most part of the currency in circulation is counterfeit it makes sense to demonetise. It restores integrity to the monetary system
  1. Attacking organised crime: Rarely used in routine transactions of citizenry, high-value notes primarily help the operations of smugglers and criminals. As an attack on organised crime, such high-denomination notes can be decommissioned without hurting law-abiding citizens.

 Author’s contention

None of the above conditions prevailed in India on November 8.

  • Low inflation rate: India’s inflation rate is low
  • Low size of counterfeit currency: The estimated size of counterfeit currency is small
  • Large-value notes issued again: The crime-fighting purpose of large-value notes was undermined by the issuance of new Rs 2,000 notes

 Moreover, if only an estimated 6-8 per cent of the black economy was in cash, it is unclear how an overnight decommissioning of high-value notes meaningfully attacked the problem of corruption.

Rest of the article presents the economic views and political motivations of our PM that might have been the reason for demonetization as per the author.

Not relevant as per exam but can be given a light read


 

 


[2]. Surveying ideas for India


Surveying ideas for India


Indian Express

Context

Economic reforms are not, or not just, about overcoming vested interests; they are increasingly about shared narratives on problems and solutions. Economic Survey builds on this idea

A brief commentary on what 2017 Economic Survey is all about, by none other than the Chief Economic Advisor (CEA) Arvind Subramanian himself

Give it a go-through once


 

 


Live Mint


[1]. The building blocks of economic policy


The building blocks of economic policy


Live Mint

Context

Article reflects on themes that should guide the economic policy

Guiding themes

  1. Focus on Market failures: The policy should focus on market failures. Free markets work in enhancing prosperity but there are areas where state intervention is needed. However, in India, the state is dominant in sectors where it is not required and lacks capacity in areas where the intervention is actually desired. It often intervenes with no evidence of market failure, which affects resource allocation. This needs to change
  2. Policy intervention should be seen from a long-term perspective. Often, policy changes are made with narrow objectives, focusing on one sector or area. Government should avoid such ideas
  3. Efficient government spending: The government should spend more efficiently. There are demands for increasing spending in various sectors of the economy and they are often legitimate as India needs improvement in a number of areas
  • Cost of public spending: Public spending has a cost. Kelkar and others have calculated that the marginal cost of one rupee of public spending to society is around Rs3. Therefore, the government should spend carefully as the cost to society is much higher than what gets recorded in the books
  1. Factoring in the change of behavior: Individuals, including politicians, are driven by incentives. Policy changes should factor in the possibility that people can change their behaviour. Insights from public choice theory (a body of theory developed by James Buchanan and Gordon Tullock to try to explain how public decisions are made. It involves the interaction of the voting public, the politicians, the bureaucracy and political action committees) show that politicians and bureaucrats also work in self-interest
  • Reducing fiscal profligacy: Fiscal profligacy is termed as a fiscal policy characterized by higher government spending in short-term which results in higher growth but is unsustainable in the long run. What is needed is an agency like the US Congressional Budget Office which independently reviews government finances so that the public in general is better informed. This will help reduce fiscal profligacy.
  1. Policy should promote competition. A high level of competition is desirable in a market economy as it leads to efficient allocation of capital (i.e. a competitor who yields best returns will receive the capital)
  • The government has done well by getting the bankruptcy code passed as it will facilitate the closing of firms and the shifting of capital to more productive sectors of the economy

Conclusion

Author concludes his article by stating that following these broad principles in policymaking will help build credibility and lead to better economic outcomes in the medium to long run.


 


[2]. The right priorities for healthcare spending


The right priorities for healthcare spending


Live Mint

Context

The only sustainable solution is robust infrastructure and sufficient manpower, not controlling the prices of drugs

Author asks

Author presents us with following question at the start of the article itself and states that they need to be pondered upon before deciding any policy measure directed at health sector

Q: What do patients actually want? Will they settle for compromised, sub-standard healthcare as long as prices are affordable? Or does the vast majority prefer the best quality possible at rational cost?

Dramatic transition: What needs to be done?

Author states that India is witnessing a dramatic transition in disease burden, with non-communicable diseases taking centre stage.The only sustainable solution lies in

  • Robust infrastructure
  • Effective resource mobilization
  • Capacity-building within our states

 Author’s contention

Author contends that we need to improve the quality of doctors and nurses, healthcare delivery systems, better hygiene and sanitation levels, and not just focus on controlling the prices of drugs

Barriers to access

Author points out that the access to healthcare for India’s vast population remains an enormous challenge. The real barriers to access are

  • Deficient infrastructure: A study by IMS Health found that, while a majority of our population resides in rural and tier-II/III/IV towns, healthcare infrastructure, including hospitals, hospital beds per patient, path labs, diagnostic centers and trained doctors, is severely limited. This needs to be addressed on an urgent basis
  • Manpower constraints

Biggest issue: Low healthcare spending

The biggest issue is our low spending on healthcare. India stands right at the bottom of the list when it comes to budget allocation for healthcare

  • A small health budget: In the World Health Statistics 2015, WHO ranked India 187th among 194 countries and yet our health budget is abysmally low.  From being a meagre 0.9% of GDP (gross domestic product) in 2005, (according to the Economic Survey 2015-16), government expenditure (Central and state governments combined) on health as a percentage of GDP has gone up by a whisker to about 1.3% while other developing nations, such as Thailand and some African countries, spend over 5% of their GDP on health

Other problems

  • Low health insurance coverage: The prevalence of health insurance coverage is very low in the country. The number covered under health insurance policies during the financial year 2015-16 was 358.9 million, which is approximately 30% of India’s population
  • IRDA Obligations 2015:The Insurance Regulatory and Development Authority of India (IRDA) has notified IRDA (Rural and Social Sector) Obligations, 2015 that mandates for every insurance company to offer insurance coverage to the rural and defined social sector population. This is a step in the right direction

Some positives

Not all is lost, though. Some promising steps have been taken recently

  • National Health Mission: Under the National Health Mission, support is being provided to states and union territories to strengthen their healthcare systems and provide accessible, affordable and quality healthcare to all citizens
  • Universal Health Coverage: Universal health coverage wherein people will be able to access the quality health services that they need, without suffering financial hardship, is a key goal of the 12th Plan

Read More: Universal Health Coverage (UHC)

  • Rashtriya SwasthyaBima Yojana (RSBY): The government of India has been implementing the Rashtriya SwasthyaBima Yojana (RSBY) since 2008
    • Centrally Sponsored Scheme: This is a centrally sponsored health insurance scheme which covers our below poverty line population and 11 other defined categories (Mahatma Gandhi National Rural Employment Guarantee Scheme workers, construction workers, domestic workers, sanitation workers, mine workers, licensed railway porters, street vendors, beedi workers, rickshaw pullers, ragpickers and auto/taxi drivers) that are enrolled under the RSBY
    • Health insurance:This population is entitled to cashless health insurance coverage of up to Rs30000 per annum per family
    • Out-of-pocket expenditure, up to Rs30000 per family each year, is provided under the RSBY

Way forward

Author states that India needs a health policy which encompasses views from all the stake holders including patients & patient groups


 


 

Categories
9 PM Daily NEWS Brief

9 PM Daily Brief – 21st December 2016


 

  • Front Page / NATIONAL[The Hindu]

  1. Can courts make life terms more rigorous, asks SC
  2. NCRPB tells States to submit action plan to curb pollution
  • INTERNATIONAL [The Hindu]

  1. India, Kyrgyzstan seek a global pact against terror
  • Editorial/OPINION [The Hindu]

  1. An unkind postscript
  2. Time for a policy shift
  • ECONOMY [The Hindu]

  1. Credit costs hinder cashless economy
  • Indian Express

  1. Good signalling
  • Live Mint

  1. Formulating an Act Manipur policy
  2. Reforming healthcare in India

Click here to Download 9 PM Daily Brief PDF (21st Dec. 2016)

Front Page / NATIONAL[The Hindu]


[1] Can courts make life terms more rigorous, asks SC


The Hindu

Context

The Supreme Court will examine whether courts are statutorily empowered to make life imprisonments harsher for convicts by adding the term “rigorous” while delivering a sentence of life imprisonment.

What has happened?

A Bench of Justices P.C. Ghose and U.U. Lalithas said that it would consider whether the Criminal Procedure Code (CrPC) or any other penal law empowered the courts to add the term ‘rigorous’.

Backdrop

The Supreme Court decided to hear on this aspect while considering the appeal filed by Ram Kumar Sivare, who is serving rigorous life term in a Chattisgarh jail, for murder.

  • The State High Court had upheld the trial court judgment convicting and awarding life term to Sivare and Bhuneshwar Prasad for stabbing to death Anil Bhoyar on January 5, 2010 near a government hospital in Durg district of Chhattisgarh following a quarrel over a minor issue

Petitioner’s contention

Challenging the High Court verdict in the murder case, Sivare’s lawyer and senior advocate Parmanand Katara, contended that the judgment pronounced by the lower courts was “unconstitutional and ultra-vires” as penal and procedural laws do not empower them to qualify the life sentence awarded to a convict with the term “rigorous”.


[2] NCRPB tells States to submit action plan to curb pollution


 The Hindu

Context

NCRPB said that air pollution in Delhi is a matter of serious concern and Delhi, along with Uttar Pradesh, Haryana, Rajasthan and Punjab should act in unison to mitigate the suffering of the people.The Board will soon file an affidavit before the Delhi High Court regarding the matter.

What has happened?

In the light of deteriorating air quality, the National Capital Region Planning Board (NCRPB) has asked Delhi and adjoining States to submit action plans to control air pollution in the Capital.

 Affidavit to HC

The Board will soon file an affidavit before the Delhi High Court regarding the matter. The CPCB said that an action plan to curb pollution was prepared under the directions of the Supreme Court in November, which could be part of the affidavit to be filed by the NCRPB.

Increase tree cover

Delhi, Haryana, Uttar Pradesh and Rajasthan have been asked to increase forest and tree cover in the NCR in a phased manner to 20 per cent of total geographical area while expressing concern over the present cover of just 3.30 per cent in 2012, declining from 4.30 per cent in 1999.

Naturally Conservation Zones

The NCRPB made it clear that NCZs are the major natural features identified as environmentally sensitive areas, which include the extension of Aravalli ridge in Delhi, Haryana and Rajasthan, forest areas, the rivers and tributaries of Yamuna, Ganga, Kali, Hindon and Sahibi, sanctuaries, major lakes and water bodies such as Badkal lake, SurajKund and Damdama in Haryana Sub-region and Siliserh lake in Rajasthan.

Prepare Regional Plan-2041

The Board also authorized the NCRPB Secretariat to initiate preparation of Regional Plan-2041 for the National Capital Region.

 More inter-State links

The Board also discussed 14 inter-State links with the aim of facilitating seamless travel in the NCR, which includes Kalindi by-pass road from Ashram Chowk to Faridabad by-pass, development of Mehrauli–Guragaon Road as NH-236 to ease traffic on NH-8 and connecting Nelson Mandela T-Point at Vasant Kunj with the existing Gurgaon-Mehrauli Road to reduce travel time.


INTERNATIONAL [The Hindu]


[1] India, Kyrgyzstan seek a global pact against terror


 The Hindu

Context

India and Kyrgyzstan finalized plans for joint military exercises, and reiterated the need for a global convention against terrorism

Matter: KyrgyzstanPresident’s 4-day visit to India

Things finalised

  • Following a bilateral summit at Hyderabad House, the delegations finalised plans to hold the annual joint military exercises named “Khanjar-IV” in February-March
  • The “Khanjar-II” exercises were held in March 2015 in Kyrgyzstan and “Khanjar-III” in March-April 2016 in Gwalior

Joint statement

A joint statement which marked the end of the visit took note of the IT support that India had provided to the Kyrgyz military institutions, including building three IT centres in the past two years

  • the high-altitude Kyrgyz-Indian Mountain Training Centre being built in the city of Balykchi, which will be used to train Indian military personnel
  • Both sides reiterated the demand for global counter-terror norms to fight terrorism in Asia, and called for the adoption by the United Nations of the draft Comprehensive Convention on Combating International Terrorism.

Editorial/OPINION [The Hindu]


[1] An unkind postscript


The Hindu

Context

The Governor of the Reserve Bank of India, Urjit Patel, said there was a ‘confluence of thought’ in the government and the central bank to deal with black money by removing existing Rs.500 and Rs.1000 notes as legal tender.

Article talks about the new restrictions imposed by RBI upon depositing old tender

 New conditions announced

Anyone depositing Rs. 5,000 or more into a bank account will have to satisfactorily explain to two bank officials why this was not done earlier

Exception:

  • Those opting to disclose unaccounted income under the new amnesty scheme, the Pradhan Mantri Garib Kalyan Yojana, face no restriction on depositing old notes.
  • Finance Minister has suggested that such explanations will not be required for anyone making a deposit for the first time

Why this move is an unfair one?

As per author there may be genuine reasons for people not to have deposited the old tender at the banks till now including their faith in the earlier announcements that old tender could be deposited until December 31st.


[2] Time for a policy shift


The Hindu

Context

The unorganized manufacturing sector should be reoriented towards non-household units to provide efficiency gains.

Small vs large units

In the first few paragraphs author mentions that in the context of the manufacturing and agriculture sectors, the debate on small versus large dominated the intellectual space for several decades.

He states that,

  • Usually thought to be efficient: Small units are usually thought to be efficient in terms of resource use and management, and technically more efficient
  • Lack of access to resources: Small units do not have access to several kinds of resources, particularly in relation to credit and marketing facilities, and are not able to reap the economies of scale. Thus, large units may reveal better performance indicators and may have an edge in market competition.

What is a manufacturing sector?

The Manufacturing sector comprises establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products.

Unorganized manufacturing sector (UMS from here on)

Authors state that UMS, which is composed of both household and non-household units, accounts for a majority of the total manufacturing employment in India

  • Type of units: Small in size

Authors point out that to ensure decent wages to the workers in this sector and to ensure pro-poor growth, the units in this sector have to be made economically viable.

 Organised vs Unorganised units

Comparing economic viability: Authors state that one way of the economic viability of unorganised manufacturing units is to consider the performance index in terms of ‘technical efficiency’ relative to the organised sector units

What is technical efficiency?

It is the ability of an industrial unit to transform inputs into output judged against the best practice units in the same industry

Results of research

Studies done by the authors and many other scholars point out that,

  • Within the unorganised sector, units seem to reveal similar characteristics in terms of performance indicators, while organised sector units are much better performers
  • Unorganised sector units are not able to benefit in the process of rapid economic growth. The demand side factor or agglomeration-specific factor does not impact on the performance of unorganised sector enterprises in a favorable way
  • Organised sector units respond positively to a rise in income in the region where they are located, which possibly can be explained in terms of quality differences in the products manufactured by the organised and unorganised sectors
  • With a rise in income, demand for products shifts away from the unorganised to the organised sector
  • Ancillarisation:the process of ancillarisation is expected to benefit unorganised sector units indirectly by creating greater opportunities through inter-sector linkages, the increasing role of labour intermediaries and payment of wages on piece rate basis do not seem to be facilitating this process

 What is Ancillarisation?

The following requirements are to be compiled by an industrial undertaking for being regarded as ancillary industrial undertaking:

  1. “An industrial undertaking which is engaged or is proposed to be engaged in the manufacture or
  2. production of parts, components, sub-assemblies, tooling or intermediaries or
  3. the rendering of services & the undertaking supplies or renders or proposes to supply or
  4. Render not less than 50% of its production or services, as the case may be, to one or more other industrial undertaking & whose investment in fixed assets in plant & machinery whether held on ownership terms or on lease or on hire purchase, does not exceed Rs 10 million.”
  • The level of infrastructure also does not exert a positive impact on the performance of the unorganised sector, while the efficiency of the organised sector improves with a rise in the availability of infrastructure.

Overall conclusion

On the whole, unorganised sector enterprises exist to provide means of survival only, which is especially true for household units.

Steps that can be taken

  • Improving product quality: Designing policies to help improve the product quality within the unorganised sector
  • Improving access: steps need to be initiated for improving their accessibility to infrastructure provisions. There are many unorganised sector units, particularly ones that are operated by households, which are located in remote rural areas.

Issues with unorganised units

  • Inability to expand: Unorganised manufacturing units cater only to local markets and are not able to expand their market size in a significant way
  • Inadequacy of infrastructure
  • Absence of credit and marketing facilities
  • Issue of electricity pricing. 

Other findings

Authors point out that findings of some past research on the efficiency of India’s unorganised manufacturing sector point to

  • Higher technical efficiency of small industrial units in urban areas than their counterparts in rural areas reflecting advantages due to the location
  • Smart City programme: Authors state that this programme designed to boost urbanisation is expected to make unorganised manufacturing more economically viable. How?
  • Access to investment: Several small towns (census towns) which have been recognised as urban by Census 2011 but still do not have urban local bodies are not able to draw investment meant specifically for urban areas. Once they are treated as a part of urban areas, unorganised sector units in such localities will benefit significantly
  • Sub-contracting: Since engagement in sub-contracting activity enhances to some extent technical efficiency of unorganised manufacturing units and the incidence of sub-contracting is relatively greater in urban areas, it follows that a process of rapid urbanisation will help.

 Problem with household units in unorganised manufacturing sector

Authors state that household units suffer from following problems,

  • Less efficient: Household-based units with only family labour are known to be much less efficient than non-household manufacturing units, also known as ‘establishments’ which are relatively bigger in employment size and make use of non-family hired labour
  • Poor performance in labor standards: In terms of labour standards, household units perform far worse than unorganised non-household units

Important Question

Therefore, an important policy question is whether the unorganised manufacturing sector should be helped to restructure increasingly from household units to establishments. Such a transformation will provide efficiency gains to unorganised manufacturing, but may come at the cost of some loss in employment.


ECONOMY [The Hindu]


[1] Credit costs hinder cashless economy


 The Hindu

Context

Imposed indirectly on merchants, these are passed on to customers through increased sale price.

What has happened?

On November 18, Reserve Bank of India (RBI) issued a circular asking banks to waive charges levied on transactions by merchant establishments using point of sale (PoS) terminals. “Customer charges, if any, being levied on all such transactions (are) waived till December 30, 2016, subject to review,”

What are Customer Charges or MDR?

In this case, the Customer Charges also known as Merchant Discount Rate. It refers to the rate charged to a merchant by a bank for providing debit and credit card services.

Merchants have not passed on the waiver to the consumer. Why?

Q: Why is there a reluctance on the part of the banks to waive the fee, even if it is meant for a limited period?

Current MDR

  • For debit cards: 1 per cent per transaction
  • For credit cards: The rate could go up to 2.5 per cent

Who gets how much?

The charge is borne by the merchant and goes to the issuer bank (the bank that has issued the card), the acquirer banks (the bank that installed the PoS terminal) and payment gateways such as Mastercard, Visa and Rupay. The issuer bank gets the maximum share of the MDR.

Case of a debit card

Let us take the case of debit cards. Debit cards are issued to customers who have a savings bank account and the money from that account gets debited immediately after the card is swiped for a transaction.

When a depositor keeps the funds in the savings account for which she earns 4 per cent, the bank, in turn, lends that money which can earn it at least 6.5 per cent, a risk-free rate.

  • Cost savings: Issuing a debit card to the customers saves cost for the bank. RBI studies have found that if a customer visits a bank branch for a transaction, the cost incurred by the bank is in the range of Rs.30-32, but when the customer visits automated teller machines, the cost comes down to Rs.14-15 per transaction

Q: Why does a bank need to charge a merchant for debit card transactions; a charge that acts as a disincentive for the merchant to install the machine?

Credit cost, imposed indirectly on the merchants is, in turn, passed on to all customers through increased selling price of goods and services

Thus, credit-less digital payments cross-subsidise the hidden cost of credit embedded in the payment system

Point of Sale terminals (PoS) growth

Following the demonetisation exercise, installation of PoS terminals has seen an exponential growth.

  • SBI: State Bank of India (SBI), for example, saw 3.75 lakh transactions every day in the PoS terminals before November 9 amounting to Rs.94 crore per day. After demonetisation the number increased to 16.43 lakh transactions amounting to Rs.324 crore per day

Q: Would waiving off the charge completely prove optimal?

  • Complete waiver detrimental: According to a top central banking source, while there is scope for further rationalising the charges, waiving them off completely could be detrimental to decisions on further investments by banks.

 MDR should be at optimal level

The committee, set up to present a roadmap for digital payments, headed by finance secretary RatanWatal, said in its report that the MDR rate should be at an optimal level. As per the report,

  • Keeping it optimal: The MDR must be low enough to ensure that merchants adopt the payment method, and encourage customers to use such payment methods. At the same time, the MDR must be high enough to cover costs, and incentivize issuers and acquirers to keep acquiring greater number of merchants
  • Regulatory caps: Regulatory caps placed upon MDR may ultimately hamper the growth of the payments industry
  • Market drive approach: Setting of MDR should be market-driven.

Indian Express


[1] Good signalling


 Indian Express

Context

EPFO cutting rates is a step in the right direction. There must be no roll-back.

Article talks about the decision of EPFO to cut interest rate and why this move is the right one in the current situation.

Give it a go through once.


Live Mint


[1] Formulating an Act Manipur policy


Live Mint

Context

Development in the region cannot be seen as an incidental benefit to a national foreign policy.

Issue: India’s Act East policy with a special focus on Manipur

Act East policy

India’s “Look East” policy was reoriented to “Act East” policy in 2014

The policy intends to

  • Create a better relationship with South-East Asian countries
  • The policy at its core focuses on using India’s eastern border states to improve trade relations with South-East Asia.

Weak link

Author states that the weakest link in the Act East policy is the dismal state of the states along the North Eastern border.

 Why Manipur?

Manipur, which shares 355km of its border with Myanmar and remains India’s most economically viable border to the south-east.

Backdrop

Manipur’s contentious merger with India and subsequent land and identity issues have resulted in a cycle of violence and insurgency movements within the state. The lack of competent governance institutions, infrastructure and economic growth has further intensified the inadequacies within the state.

  • Impact of AFSPA: Author points out that the Armed Forces Special Powers Act in Manipur, which has been in place since 1958, has continued to alienate the local population, and act as a deterrence for modernization of state police and counter-insurgency forces.
  • Tribal trouble: Existing tensions between the majority Meitei ethnic group who occupy the valley and hill tribes like the Kukis, Nagas and Zomis have added to the trouble
  • Outer forces: Vested interests within the state and outside interests have intensified existing tensions by calling for a stricter definition of who can be a resident, calling for control of outsider entry into the state, and greater autonomy for the hill district
  • Increased speculation: The signing of the Naga framework accord between the National Socialist Council of Nagalim (Isak-Muivah) and the National Democratic Alliance government in 2015 has also increased speculation about the territorial disintegration of Manipur as Manipur’s northern districts have been long claimed by Nagas as part of the greater Nagalim territory.
    • Creation of new districts: The creation of the seven new districts (on 9 December), with at least three districts dividing the Naga-dominated areas in northern Manipur, has given new life to this tension, resulting in the continuation of a two-month economic blockade and now a curfew.

What state and central governments can do?

The Union and state governments must come together to act on these issues

  • Phased removal of AFSPA&implementation of the Sixth Schedule, which gives autonomy to tribal districts, rather than an inner-line permit which will restrict the entry of people, will give people greater control. 

What is an Inner Line Permit?

Inner Line Permit (ILP) is an official travel document issued by the Government of India to allow inward travel of an Indian citizen into a protected area for a limited period. It is obligatory for Indian citizens from outside those states to obtain a permitfor entering into the protected state.

  • Ceding administrative control to small groups: Tribal groups currently in conflict with the state over land should be given administrative control of that area which will remove any incentive for rise of small insurgent groups and will shift the responsibility for maintaining peace from state to the groups themselves.

Manipur & Myanmar

  • More than a shared border: Manipur has historical and cultural contiguity with Myanmar, apart from having a clear navigable, active trading route with Myanmar
  • Securing the trade route: The roadway between Moreh in India and Tamu in Myanmar is the core of trade and connectivity to South-East Asia. India’s planned trilateral highway starts from Moreh and is designed to cross Myanmar, extending all the way to Mae Sot in Thailand. Legalizing, securing, and streamlining this existing natural trade route will ensure economic connectivity remains, and benefits the state
    • Developing Moreh as a Smart City: Focus on developing Moreh as a smart city will help improve infrastructure and will also be a vital step in its development as the main trading point on the India-Myanmar border
  • Stopping illegal cross border imports: Manipur, after Mizoram, remains the port of choice for drugs and arms originating from the golden triangle on the Myanmar, Laos, Thailand border.Better security infrastructure, a narcotics agency with more powers, better equipment, a modernized border force, and streamlining of trading posts can help stop illegal cross border imports.

Conclusion

Manipur, along with other eastern states, needs to be made a stakeholder in any foreign policy that involves acting east. Development in the region cannot be seen as an incidental benefit to a national foreign policy. An Act East policy that uses the growth and regional impact of a stronger, better-governed Manipur will have far greater impact on India’s commitment to its eastern neighbors.

Read More: Golden Triangle


[2] Reforming healthcare in India


Live Mint

Context

India’s largely unorganized healthcare sector is focused on curing sick people rather than preventing sickness itself

Triple disease burden of India

Authors state that India is facing a triple disease burden as of now,

  • Maternal and child health
  • Infectious
  • Non-communicable diseases

Question

What prevents India’s healthcare system from delivering world-class services, especially for the over 800 million people of rural India?

  • Low funding of healthcare sector
  • Health insurance covers less than 5% of total health expenditure. The formal private network is a miniscule component of India’s health sector and is focused on secondary and tertiary care for urban India

Present situation

Burden on the individuals: Over 60% of healthcare expenditure in India is incurred by individuals whenever they seek care

Informal healthcare providers: Money is spent on seeking healthcare services from several informal providers and on purchasing large quantities of irrational medicines directly from pharmacies.

As a result, India’s largely unorganized healthcare sector is focused on curing sick people rather than preventing sickness itself.

 So, why not create a free market for healthcare sector?

This won’t work because

  • High degree of variability: Unlike other expenses, those on healthcare tend to have a high degree of variability and are most often unexpected
  • Negligent behavior: Seldom people think about their health when they are in absolutely fine condition. Health becomes a prime issue only when we are suffering from an ailment. Due to these factors, health insurance is never on the radar of a common citizen in India
  • Complete dependence on doctors: A common citizen is not even aware of his/her health status and is completely dependent on the medical practitioner for advice

All of the above factors explain as to why a free market model cannot work in healthcare sector and why this sector is state regulated

Principles behind a successful health system

A careful study reveals three essential principles that are central to the design of each of these successful health systems:

  1. Pre-payment with pooling: Countries have either used higher taxation levels to achieve this or have required residents to mandatorily purchase some form of health insurance. Britain is an example of a largely tax-financed health system while Germany is largely reliant on mandatory health insurance. Japan mandates citizens to enrol with one of its several insurers for universal coverage. The money thus collected is then aggregated into large pools which are able to absorb the high level of variability of health expenditure.
  2. Concentrated purchasers with organized providers: The second principle is that these pools are managed by one or more large agencies, which use pooled money to pay for healthcare for their members, and thereby discipline both providers and consumers. Britain uses public trusts, Germany sickness funds, Japan uses multiple insurers and Thailand adopts a single national health security office which buys only from primary care-led integrated providers.
  • Distinction between the roles of the purchaser of health services and the providers of healthcare: In several countries, there is a distinction between the roles of the purchaser of health services and the providers of healthcare. In such examples, a public trust or designated organization could receive pooled finances, acting as a purchaser.
  • Mix of public & private:Providers could be a mix of public and private accredited facilities that compete for contracts based on high-quality services and on a capitation basis. Health insurers provide a wider suite of innovative products, covering outpatient and primary care. This enables the shift towards a futuristic healthcare design where payments to healthcare providers are based on achievement of outcomes.
  1. The government’s role as an active shaper and steward of the entire health system: The third and most crucial design principle in all effective health systems is that the government plays an active role in designing and supervising the entire health system, instead of focusing only on the management of a health system owned by itself

Way forward

In the 1960s, countries such as Thailand, Brazil and South Korea had health statistics similar to or worse than India’s in 2010, but transformed the status quo over four decades. In India, each state represents a different social, economic, and cultural environment, and will need a customized approach towards its health systems’ redesign.

Conclusion

Each state in India can take lessons from these design principles to build a strong healthcare system


 

Categories
Daily Editorials for UPSC IAS Exam Preparation

Daily Editorial – Issue of Healthcare financing in India

 


  • Issue of Healthcare financing in India

  1. So what are the challenges in making India healthy?

  2. How is it affecting the individuals?

  3. Why free market solution doesn’t work for healthcare?

  4. Analysis of RashtriyaSwasthyaBimaYojana

  5. Learning from other countries


Click here to Download Daily Editorial PDF (21st Dec. 2016)

 


Issue of Healthcare financing in India


Every country needs a healthy human force, which is high on productivity, then only it can achieve the intended goals of development. But India’s health care system is not doing well, due to many causes resulting into less productive human force.

This is despite India’s status as the third-largest economy in the world, with annual spending of over Rs6 trillion on healthcare on its 1.3 billion population.


So what are the challenges in making India healthy?


There are several finance related factors that are creating hurdles in the healthcare sector development:-

  • India spends about 1 per cent of its GDP on public health compared to 3 per cent in China and 8.3 in the US.
  • India’s tax-based funding of healthcare is far too low and barely supports a government-owned health system.
  • Government-owned health system is almost exclusively focused on basic maternal and child health, leaving others on their own.
  • India’s health insurance covers less than 5% of total health expenditure.
  • Formal private network is very small, that too mainly in the urban areas.

How is it affecting the individuals?


  • Individual expenses on the health care constitute almost 60% part of the total healthcare expenditure in India.
  • People spend their money for their healthcare needs on the informal sector.
  • It also led the people to end up purchasing large quantities of irrational medicines directly from pharmacies.
  • Over 63 million persons are faced with poverty every year due to healthcare costs alone.

Why free market solution doesn’t work for healthcare?


There is always need of the government help and assistance due to various reasons:-

  • Healthcare expenses tend to have a high degree of variability, as the human does not think about their health until they do not get sick.
  • Most of the individuals are not aware of their health status.
  • This uncertainty prevents people from purchasing health insurance, ending into heavy expenditure in hospitals.
  • Thus government needs to build a successful healthcare system.

Analysis of RashtriyaSwasthyaBimaYojana


On April 1, 2008, the Indian government launched the RashtriyaSwasthyaBimaYojana (RSBY) to provide health coverage to informal workers and those living below the poverty line (BPL).

Features

  • Sum assured/ cover of up to Rs. 30,000 on a floater basis for a family consisting of 5 members.
  • (RSBY) empowers the beneficiary, i.e., the BPL households and workers in the uncategorized sectors, to choose health care options from private hospitals and public hospitals.
  • Beneficiaries will receive a smart card which is biometric-enabled and it also contains the photo and fingerprint of the individual.
  • This scheme provides the benefit of paperless and cashless transaction to its beneficiaries.
  • Scheme has set up an efficient system for monitoring and evaluating the transactions made by beneficiaries.

Criticisms of the scheme

  • The criterion for inclusion is based on a Below Poverty Line (BPL) list, the problematic criterion.
  • Responsibility of the spreading awareness by state governments has been handed over to insurance companies.
  • Hospital-based health coverage is only effective in reducing household expenditures when there is a robust, supportive primary health system, which is still at nascent stage.
  • In the absence of coverage for outpatient visits or drugs, the RSBY risks being a band-aid solution to a much larger problem.

Learning from other countries


There are several successful examples of building a healthcare system, which actually works.

According to a study, there are three essential principles that are central to the design of each of these successful health systems:-

  • Pre-payment with pooling; concentrated purchasers with organized providers; and the government’s role

Let’s have look into some of the models:-

Taxation based financing or making insurancemandatory 

  • Countries have either used higher taxation levels to finance the healthcare systems.
  • They also have required residents to mandatorily purchase some form of health insurance.

Examples:-

  • Britain is an example of a largely tax-financed health system while Germany is largely reliant on mandatory health insurance.
  • Japan mandates citizens to enroll with one of its several insurers for universal coverage.

Money thus collected is then aggregated into large pools

Fund Pooling

  • Countries have used the money pooling system, managed by one or more large agencies for health care financing.

Examples

  • Britain uses public trusts, Germany sickness funds, Japan uses multiple insurers.

Many countries have differentiated between the purchaser of the health services and providers of the health services.

While the trust or any designated organization can works as a purchaser of the healthcare services, Providers could be a mix of public and private accredited facilities that compete for contracts based on high-quality services.

Health insurers provide a wider suite of innovative products, covering outpatient and primary care.

Government role

  • Government should play an active role in designing and supervising the entire health system, instead of focusing only on the management of a health system owned by itself.

Many countries such as Thailand, Brazil and South Korea had health statistics similar to or worse than India’s in 2010, but they have transformed their health care system based on the above principles. India should also try to follow these principles in designing its healthcare policies.