Look to your gender, Nirmalaji! (The Hindu)

Mains Paper 3: Economy
Prelims level: Industry 4.0
Mains level: Economic growth and key concern areas

Context

• The past few days in particular have been arguably the worst she has had to face in her current stint helming the economy.
• Despite a series of sweeping measures — from the ₹1.76-lakh crore reserve transfer from the RBI to the Centre to the mega merger of state-owned banks to several measures aimed at, to quote her own words, “honouring wealth creators” — the said wealth creators have stubbornly refused to respond.

Background

• GDP growth in the first quarter of the current fiscal has collapsed to 5 per cent, the worst in six years.
• Manufacturing expanded at its slowest pace in 15 months. Despite the hasty rollback of an ill-advised charge on overseas investors, the markets are tanking fearing an exodus of foreign portfolio investors.
• Despite the rupee crashing against the dollar, exports are showing no immediate signs of a pick up, with exports inching up 2.5 per cent in July.

Economic focus

• The “reforms” announced to spur growth have singularly failed to achieve that goal.
• This is largely because most of the reforms are actually simply the correcting of some past mistakes (like de-criminalising the failure to meet the CSR spends on the part of corporate.
• Though it still remains a civil liability and, therefore, a back-door tax on corporate profits), or the relaxing of a few restrictions which shouldn’t have been there in the first place (like those on e-commerce and single-brand retail).
• And even direct action, like allowing government departments to buy new cars, is unlikely to pull the automobile sector out of its current monumental slump.

So what can she do?

• One, of course, is to put some actual money into the hands of consumers by way of meaningful tax breaks, or seriously incentivise consumption (like the tax deduction on home finance kick started the real estate boom years ago), or simply start a massive income transfer scheme (like a universal basic income).
• The trouble is, though we are an aspiring middle-income country our tax collections are nowhere near the levels required to attempt such sweeping giveaways.
• With a perfect storm of structural and cyclical issues striking at the same time, it is a moot point whether some of these measures would have worked even if the money had been around.
• Perhaps it is time our policymakers stopped chasing the immediate and the short-term fixes and looked instead to some more long-term solutions which can lead to a secular and sustained increase in growth levels.
• Two big fixes will be revamping the direct tax code and fixing the mess in the GST.
• For various reasons, I have little hope of either materialising in a meaningful way.
• The Centre already has a revised direct tax code pending with it, but the vim with which Modi Sarkar 1.0 initially approached the subject has long evaporated.
• The late Arun Jaitley had promised to cut corporate taxes to 25 per cent in his first Budget, something which the government does not even bother to discuss seriously nowadays.
• On the GST front, admittedly, the Centre cannot do anything on its own, but even there, the approach continues to be one of piecemeal tinkering, rather than the bold restructuring which is needed.

Disparity in numbers

• India’s much talked about demographic dividend continues to remain largely unrealised, because of systemic failures in education, training and skilling, which have left most of the millions of young people joining the workforce every year largely unemployable.
• At 17 per cent, India has a lower share of women’s contribution to the GDP than the global average of 37 per cent; in a scenario where women participate in the economy as equals with men, it could add $2.9 trillion to India’s annual GDP by 2025.
• Only 14 per cent of Indian businesses are run by women.
• Over 51 per cent of the work done by women in India is unpaid; 95 per cent is informal.
• Women farmers comprise 38.87 per cent of agricultural labour and yet control only 9 per cent of the land in India;
• 60 per cent of women (double the ratio for men) do not own any valuable asset in their name, like land or housing.

Women’s contribution

• More than 50 per cent of women don’t have cellphones, and 80 per cent of women cellphone users lack access to the Internet (these are 2016 numbers, the figures may have improved since then).
• If as many women as men had phones, it could create $17 billion in revenue for phone companies in the next five years alone.
• A Deloitte study, which looked at the potential of Industry 4.0 to redress India’s yawning gender imbalance, concluded pretty much the same thing.
• Of India’s approximately 120 million-strong population of adolescent girls, three million are not in school, while nearly 40 per cent drop out between the ages of 15-18 — i.e., without completing a formal school-leaving programme.
• Without the education and skills, women will continue to miss out on the benefits of growth.

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Tending to the heart: On cardiac care (The Hindu)

Mains Paper 2: Health
Prelims level: cardiovascular disease
Mains level: Key highlight about the prevention of cardiovascular disease

Context

• The reinvention of the wheel can be painful.
• Taking lessons from those who have already run the wheel several revolutions and tweaking those lessons for domestic conditions might not be a bad idea.

Key highlights of the study

• For India, there is indeed valuable learning from the results of the Prospective Urban Rural Epidemiology (PURE) study published in The Lancet this week.
• Studying the situation in 21 countries across five continents, categorised by income levels, researchers showed that while cardiovascular disease (CVD) is the leading cause for death overall, there have been some transitions, particularly in the high-income countries, which have managed to reduce the number of deaths from CVD.
• In low-income countries, including India, however, CVD is still the top killer, with death three times more frequent than that due to cancer.
• What flies in the face of logic is that the risk burden of CVD-linked mortality is inversely proportional lower risk but higher mortality in low-income countries, and higher risk but lower mortality in high-income countries.
• PURE’s analysis concluded that the higher mortality in poorer countries was likely due to other factors, including ‘lower quality and less health care’.

Healthcare situation in India

• Access to affordable, quality health care is still a dream in many pockets in India. A great amount of out-of-pocket expenditure (according to Health Ministry data for 2014-15, nearly 62.6 % of India’s total health expenditure) often frustrates continuation of treatment, or adherence to drug regimens.
• While some States have shown limited successes with government-sponsored health insurance schemes, the Centre’s Ayushman Bharat Yojana will have to take much of the burden of hospitalisation for complications of non-communicable diseases.
• National and State schemes running on mission mode, including the National Programme for Prevention and Control of Cancer, Diabetes, CVD and Stroke will have to step up efforts to target people at risk with life-saving interventions.
• While most of the predominant risk factors for cardiovascular disease present no startling medical revelation,
• It is significant that the single largest risk factor is a low education level. It is no doubt part of the job description of the National Programme to modify this risk factor.

Way forward

• However, governments will have to muscle up to tackle a rather startling finding — ambient air pollution and indoor air pollution have an impact on CVD and mortality.
• Household air pollution is the third top risk factor in low-income countries, according to the study.
• The need of the hour is out-of-the-box solutions combined with inspiration from models of those who seem to have belled this particular cat.
• Any plans that target the risk factors and prevent the onset of non-communicable diseases will clearly have to be truly game-changing, and incorporate the environmental angle as well.

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A ‘brain drain’ tax? (The Hindu)

Mains Paper 3: Economy
Prelims level: Brain drain tax
Mains level: Significant of introducing brain drain tax

Context

• It is that time of the year when Indian graduate students are arriving on US campuses. Social media is replete with pictures of students showing off their US-bound boarding passes or posing for selfies at international hubs en route.
• Those of us who immigrated in the mid-1980s are just as guilty of continuing this cycle of emigration which kicked off in the 1960s, but at least, our numbers were limited, and we had our reasons.
• We were educated in an economy which was so centrally planned that private-sector jobs barely existed and entrepreneurs were unwelcome.

Background

• But in 2019, the average Indian’s craze for pursuing a life abroad is head-scratching.
• Four years ago, a UN report named India as having the largest “diaspora” populatio in the world, with more than 16 million persons of Indian origin living abroad.
• If India can’t plug the drain, it should at least receive compensation for it.
• The US, with a far less-widely sprung diaspora, taxes its citizens on worldwide income. There’s no reason why India shouldn’t do the same.
• A $1,000 annual surcharge on each diaspora Indian would generate $16 billion, about ₹1.15-lakh crore, an amount sufficient for the government to immediately announce a 33 per cent across-the-board reduction in income taxes to spur economic growth.

Highlights the predictions about India

• The World Bank still rates India as the fastest growing economy among large countries. India continues to be an attractive place for innovators and job creators.
• Even better, nearly two-thirds of our economy’s size is due to domestic demand.
• From a market of zero just a few years ago, there are now a million electric rickshaws in north India which ferry around 60 million riders.
• Smart entrepreneurs can profitably offer essential services to India’s heartland and thrive.
• A rich family with a roaring business acquires investor green cards. The IT employee prays day and night to earn that coveted H-1B visa.
• The student, whose father set up a hotshot small business by taking advantage of the liberalised economy of the 1990s, plans her trip abroad as early as the first year of college. Many small and medium-scale enterprises have no family heirs to nurture them and grow — and are sadly, sold.

So what awaits all these immigrants out West?

• Indian diaspora populations rarely integrate with the locals.
• They create India colonies everywhere they go. Indian small businesses exist only to serve other Indians.
• What binds everyone together is the power of the almighty dollar, and the perceived higher quality of life when waits for green cards exceed 18 years.

Conclusion

• India loses on all counts, ceding away valuable human capital in which it has invested its scarce resources.
• Worse, large scale migration is burdening India’s vaunted family structure with senior citizens left behind.
• With a thumping majority in parliament, the government should enact big, bold, structural moves to limit regulation on residents and free up India’s jugaad spirit. The Brain Drain tax is just one idea.

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Hold that trigger (Mint)

Mains Paper 2: Social Justice
Prelims level: Mid Day meal
Mains level: Malnutrition problem

Context

• The mid-day meal revelation in Uttar Pradesh’s Mirzapur district is yet another instance.
• The children at a primary school in the district were served roti and salt, instead of a more wholesome lunch of pulses and vegetables.
• The government’s flagship scheme, designed to offer nutrition alongside education, also mandates the serving of milk on certain days of the week.

Highlighting the incident

• Journalist Pawan Jaiswal shot a video of that particular meal’s inadequacy and sent it to a Delhi-based news agency.
• Soon, the video went viral on social media, catching the state government and the district administration offguard.
• Someone would’ve had to be hauled up and orders issued for proper meals.
• The matter may have ended there had the authorities not filed a case against Jaiswal, charging him, among other things, with a criminal conspiracy and producing false evidence.
• This, despite the fact that in the FIR filed against the scribe, the administration admitted that only roti and salt had been made at the school until noon on the day of the incident.
• If the incident has snowballed into an all-India controversy, it’s largely for the attitude on display.
• Instead of responding to the news, the authorities’ instinct was to shoot the proverbial messenger.
• To explain the conspiracy charges, Mirzapur’s district magistrate has made the bizarre argument that Jaiswal should have clicked photos and written about the incident, rather than take a video, since he is a print journalist.

Conclusion

• The state government of Uttar Pradesh should put a stop to this theatre of the absurd, address inadequacies in its implementation of the mid-day meal scheme, and let reporters freely report the true state of affairs.

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Upholding the law (Indian Express)

Mains Paper 2: International
Prelims level: Hong Kong Crisis
Mains level: China’s position and attitude to resolve the crisis

Context

• Recently, the situation in China’s Hong Kong has drawn much attention.

What happened in Hong Kong?

• As protests in Hong Kong have descended into violent acts, the top priority is to stop the violence and chaos, and restore order in accordance with law.
• Over the past two months, Hong Kong saw continued illegal protests, which have become more and more aggressive and descended into extreme violence.
• This is by no means a matter of democracy or freedom. The aggressiveness and destructiveness of these acts are shocking.
• Radical protesters attacked official institutions. They stormed the Hong Kong Legislative Council building, tore up copies of the Basic Law and defaced the regional emblem of the Hong Kong Special Administrative Region (HKSAR).
• They besieged the Liaison Office of the Central People’s government in HKSAR and defaced China’s national emblem.
• They repeatedly removed China’s national flag from the flagpole and threw it into the sea. Radicals have staged multiple violent assaults against the police.
• They attacked police with toxic liquids and powders and bit off one officer’s finger. They hurled petrol bombs at police at various locations.
• A dozen police officers were injured and sent to hospital. What is even more horrifying is that on the evening of August 30, three masked men hacked a Hong Kong police officer with a knife, leaving him with bone-deep wounds.
• Radical protesters have assaulted citizens, bound up and attacked one reporter from the mainland, vandalised shops and hurled petrol bombs.
• These atrocities, which are still escalating with extreme hazards and cruelty, defy laws both human and divine, and cannot be tolerated by any civilised society.

Who caused the current situation there?

• External meddling in Hong Kong must cease. If one looks for the source of the violent acts, it can be found that rushing at the front are radical protesters, behind the scenes are “anti-China” forces inside and outside Hong Kong who scheme to destabilise the city.
• These people colluded with each other in an organised and premeditated attempt to create social unrest in Hong Kong.
• Some external forces have played a very disgraceful role in this regard.
• Instead of condemning the recent violent crimes in Hong Kong, some Western politicians criticised the HKSAR government for stopping the violence and chaos and restoring order in accordance with the law, defaming China’s social system and internal and external policies.
• The diplomatic agencies of some countries in Hong Kong support radicals by providing guidance and funding to them secretly or in public. Some Western media follow suit — they distort facts and paper over violence, advocating that “violence is the only solution to problems”. They blame the Hong Kong police, who uphold public order, for “excessive law enforcement”, but turn a blind eye to the atrocities committed by radicals against the police.

With such double standards, how could equity and justice be upheld?

• On July 1, 1997, China resumed sovereignty over Hong Kong and Hong Kong returned to the embrace of the motherland. Hong Kong is a part of China.
• The Chinese government exercises jurisdiction over Hong Kong according to the Constitution of the People’s Republic of China and the Basic Law of the HKSAR. Hong Kong affairs are purely China’s internal affairs. This is a fact recognised internationally. All governments in the world recognise China’s sovereignty over Hong Kong.
• Hong Kong implements the policy of “One country, Two systems”.
• What needs to be highlighted is that “One country, Two systems” should be understood and implemented as a whole.
• When talking about “Two systems”, one must not forget that “One country” is the fundamental premise.
• In implementing “One country, Two systems”, any attempt to endanger China’s sovereignty and security, to challenge the power of the central government and the authority of the Basic Law, or to use Hong Kong to carry out infiltration and sabotage activities against the mainland is absolutely impermissible.

What is China’s position and attitude?

• The central government of China has the strong resolve and confidence to maintain Hong Kong’s prosperity and stability.
• Hong Kong is known for its openness, prosperity and law and order.
• In the 22 years since its return to China, and with the support of the central government, Hong Kong’s economic output has doubled and its global rule of law ranking jumped from below 60th to 16th.
• Hong Kong’s status as an international financial, shipping and trade centre has been consolidated.
• It has been recognised by many international institutions as one of the world’s most free economies and most competitive regions.
• Maintaining the rule of law, stability and prosperity of Hong Kong is in line with the common interests of all parties. I believe that all our fair-minded Indian friends would like to see Hong Kong put an end to violence, curb chaos and restore order.

Conclusion

• Lessons from history tell us that so-called democracy and freedom without rule of law and order only lead to anarchism and social disorder.
• The people of Hong Kong can no longer bear the current grim situation and have spoken with righteous voices “anti-violence, seeking stability”.
• What Hong Kong needs most today is to stop the violence and chaos, advocate the rule of law, restore order and punish violent activities.

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A democratic language, an authoritarian writ (The Hindu)

Mains Paper 2: Polity
Prelims level: Fait accompli
Mains level: Impact of populism on democrac

Context

• By the second decade of the 21st century, democrats were in for a rude shock.
• Even as they were busy debating its finer points, right-wing populist governments, across the world hollowed out democracy. Interestingly, they retained the language.
• Democracy is after all a ‘hurrah’ word. And the crucial question what the impact of populism on democracy is was propelled onto the agenda.

Whither institutions?

• Populists appeal to an indeterminate entity called ‘the people’ on two planks, a corrupt elite and an inefficient and useless institutional structure. They have succeeded. The consequences are momentous.
• Democratic theory holds that power should be vested in institutions and exercised according to procedures.
• But the populist embodies in his corporeal body the people and the country, the nation and the government. Not surprisingly, such leaders interpret criticism of their policies as anti-national.
• Populists do not tolerate criticism either from individuals, or from forums of deliberation, such as Parliaments.
• Parliaments are not only law-making bodies. They are forums that enable deliberation, encourage mediation, facilitate criticism of government policies, and make possible the hammering out of compromises and the offering of alternatives.
• Today, powerful populists hold representative institutions hostage to their own projects of power.

Republican blockade

• In the United States a Republican-controlled Senate has succeeded in blocking progressive legislation debated and adopted by the House of Representatives.
• Members of the Democratic party, which controls the House since the 2018 elections, have initiated and passed a number of pro-democracy bills.
• These range from anti-corruption and pro-democracy reform measures, to net neutrality, to equal pay, to health care, to infrastructure, to re-establishing the role of the U.S., in Climate Change negotiations.
• Once these bills reach the Senate they are blocked by the Republicans. The majority leader in the Senate from Kentucky, Mitch McConnell, refers to himself as the ‘grim reaper’ of legislation promoted by the Democrats.
• The ‘grim reaper’, recollect, personifies death. It is represented by a skeleton clothed in a hooded cape that carries a scythe.

Crisis of representation

• On August 28, 2019, British Prime Minister Boris Johnson made a determined bid to curtail the debating powers of the British Parliament.
• He announced that Parliament will shut down for five weeks, from September 9 to October 14 of this year.
• Committed to a no-deal exit from the European Union (EU) on October 31, 2019, Mr. Johnson intended to pre-empt debate on the issue in the House of Commons.
• Law makers would hardly have time to debate on a fresh proposal, or on the desirability of abandoning the idea of a no-deal Brexit, or on the need to abandon Brexit altogether.
• Economists have warned the government that the country will descend into economic chaos if it leaves the EU without a deal.
• But Mr. Johnson persevered. However, he misjudged the political moment.
• Last Saturday, thousands of people in the U.K. protested against the prorogation of Parliament. Conservative party members expressed outrage at this constitutional impropriety. Opposition parties moved quickly to thwart suspension of Parliament.
• On September 3, even as Mr Johnson was reporting to the House of Commons on the G-7 meet, one of his colleagues in the Conservative Party, the former Justice Minister, Phillip Lee, crossed the floor and joined the Liberal Democratic Party. Mr Johnson now runs a minority government.

Fait accompli

• Another constitutional outrage was committed by the Bharatiya Janata Party-led government on August 5, 2019 in India.
• On that day the Home Minister asked the Rajya Sabha to approve of a fait accompli, the dismemberment of Jammu and Kashmir which is a constituent State of the Indian federation.
• No one seems to remember that J and K existed several decades before India became independent and proceeded to integrate over 500 princely states into its territory.
• Every protocol that the territorial boundaries of an existing State in the federation cannot be altered without the assent of the representatives of the people has been infringed.
• Parliament, which in its majesty represents the Indian people, has been reduced to a handmaiden of the ruling party.
• When a democratic and representative institution like Parliament loses power and misplaces its capacity to challenge power, it ceases to represent the interests, the needs and the aspirations of citizens.
• We are deprived of the right to be represented. The right to participate is neutralised in the process.

Conclusion

• Populist leaders have established their sway over large parts of the world. They speak the language of democracy but their solutions to the problems of the people are rankly authoritarian.
• Once upon a time, democracy was a subversive term. Anti-feudal and anti-colonial movements deployed the vocabulary in their fight for their freedom.
• Democratic institutions replaced colonial and feudal bureaucracies.
• The wheel has turned full circle. We are back to the days of personalised power and suppression of democratic institutions. The person of the executive replaces representative government.

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Putting the skids under border trade (The Hindu)

Mains Paper 2: International Relations
Prelims level: MFN status
Mains level: Revoking effect impact on Pakistan

Context

• The India-Pakistan face-off in the recent period is having more repercussions than intended, with border economies the worst hit.

What is the recent trade unrest?

• In February 2019, in the wake of the Pulwama attack, India decided to withdraw the Most Favoured Nation (MFN) status to Pakistan.
• Subsequently, it imposed 200% customs duty on all Pakistani goods coming into India.
• After the Balakot airstrikes, again, India and Pakistan closed their airspace, with Pakistan keeping the ban in place for nearly 5 months.
• In April 2019, India suspended trade across the Line of Control in J&K, citing misuse of the trade route by Pakistan-based elements.
• More recently, post the Jammu and Kashmir Reorganisation Bill, Pakistan cut off diplomatic and economic ties with India.
• It expelled the Indian envoy, partially shutting airspace and suspending bilateral trade.

What was the impact?

• The impact of the escalating tensions has trickled down to trade relations between both the countries, much severe this time.
• In 2018-19, bilateral trade between India and Pakistan was valued at $2.5 billion.
• In this period, India’s exports to Pakistan accounted for $2.06 billion and imports from Pakistan were at $495 million.
• India’s decision in regards with the withdrawal of MFN status and imposition of 200% duty has hurt Pakistan’s exports to India.
• The exports fell from an average of $45 million per month in 2018 to $2.5 million per month in the last 4 months.
• With Pakistan deciding to completely suspend bilateral trade, cotton exports from India to Pakistan might get affected the most, eventually hurting Pakistan’s textiles.
• In all, the trade tensions have led to a loss on both sides.

What is the larger implication?

• Unlike national economies, border economies owe their existence to cross-border economic opportunities.
• These economies generally experience sudden ups and downs on account of political changes, trade bans, price and exchange rate, and tax fluctuations.
• E.g. Amritsar (where major economic activity is largely dependent on border trade with Pakistan)
• Amritsar is land-locked, and is not a metropolis and traditionally has no significant industry.
• Hence, any decision on India-Pakistan trade has a direct impact on the local economy and the people of Amritsar.
• Since February 2019, estimated, 5,000 families have been directly affected in Amritsar because of breadwinner dependence on bilateral trade.

Way forward

• In all, the overall economics of the two countries may very well manage to stay afloat despite the suspension of economic ties.
• However, it is the local economies that will suffer the most and are already perishing.
• In this connection, there has been a loss in business, rise in prices, lack of alternative sources of livelihood, and an expected increase in bank defaults.
• Alternative sources of livelihood that can be generated to keep border economies afloat should be found with high priority.

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On the edge: On economic slowdown (The Hindu)

Mains Paper 3: Economy
Prelims level: Gross value added
Mains level: Economic slowdown process and its effect on economy

Context

• India’s deepening slowdown has now left the economy on the verge of stalling. The latest estimates for GDP show year-on-year growth in the April-June period slid for a fifth straight quarter to 5%, the slowest pace in more than six years.
• Disconcertingly, the mainstay of demand private consumption spending slumped to an 18-quarter low, with the expansion decelerating sharply to 3.1%, from 7.2% in the preceding quarter and 7.3% a year earlier.
• Gross fixed capital formation (GFCF), a proxy for investment activity, grew a meagre 4%, less than a third of the 13.3% growth it posted 12 months earlier.

Key highlights about the RBI report

• The RBI had, in its annual report released on Thursday, noted that indicators of GFCF had shown either moderation or contraction in the fiscal first quarter and pointed specifically to gross value added (GVA) by the construction industry, which government data revealed had eased to a 5.7% pace, from 9.6% in the year-earlier period.
• With demand for manufactured products ranging from cars and consumer durables to even biscuits having sharply diminished, manufacturing GVA growth plunged to an eight-quarter low of 0.6%.
• Save mining, electricity and other utility services and public administration and defence, all the five other contributors to overall GVA weakened from a year earlier.
• RBI observed in its last monetary policy statement, consumer confidence gauged by its July survey has worsened appreciably, with 63.8% of respondents expecting discretionary spending to stay at the same level or shrink one year ahead.
• The comparable reading in June 2018 was 37.3%.

Measure taken by government

• That the government is cognisant of the gravity of the situation is evident from its recent slew of policy pronouncements including tweaks to investment norms to draw more Foreign Direct Investment, moves to relieve the debilitating sales slump in the auto sector and a sweeping consolidation of public banks.
• Any beneficial impact from these measures will, however, take time to feed into the economy and time is a luxury that the faltering economy can ill afford, especially given the global headwinds.
• With the farm sector still stuck in a low income trap and this year’s mercurial monsoon rains, leaving some parts flooded and others still facing deficits and engendering a shortfall in kharif sowing, rural demand is unlikely to return any time soon.
• Also, with the RBI’s four interest rate reductions since the start of 2019 having, so far, failed to incentivise credit-fuelled consumer spending and business investment to any significant degree and with limited fiscal headroom to try and prime the pump with increased expenditure, big, bold structural reforms may be the only way out.

Conclusion

• The government must lose no time in consulting with the widest possible spectrum, including the Opposition, and then implement the agreed-on reforms prescriptions to reinvigorate demand and investment.

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A polar region we must keep on the radar in a multipolar world (Live Mint)

Mains Paper 3: Environment
Prelims level: Northern Sea Route
Mains level: Arctic, climate change and geopolitics

Context

• US President Donald Trump’s recent offer to buy Greenland appeared to come out of the blue, was tactless, and gave the impression of an arrogant real-estate mogul making a brazen offer to land owners holding out.
• It is, however, indicative of the emerging geopolitics of the Arctic region, where climate change and China are fast destabilizing the status quo, throwing up political, security, legal, and environmental challenges.
• If we throw emerging technology into the mix where autonomous vehicles and robots can populate uninhabitable regions the next few decades could see the Arctic emerge as a hotspot of great power competition.

Background

• Rising global temperatures are causing the frozen Arctic ocean to melt, opening up new sea routes and opportunities to extract hydrocarbons and minerals from the seabed and the newly exposed land surfaces.
• Countries of the Arctic are trying to take advantage of these opportunities.
• China declared itself a “near Arctic” country and is making determined efforts to extend its footprint in the polar region. Chinese firms have tried to purchase large tracts of land in Iceland, Norway and Denmark.
• There are concerns that Chinese investments in Greenland’s natural resource economy might persuade the local population to secede from Denmark, creating a Laos-like Chinese satellite state between North America and Europe.

History of superpower behavior

• In the 19th century, the US acquired Louisiana, Florida, Alaska and parts of Arizona and New Mexico through purchases.
• China drew dashed lines on a map around the South China Sea it coveted and claimed that it had always belonged to Beijing.
• Russia annexed Crimea by sending unmarked, masked troops to just take over the place.

Issues underlying Arctic politics

• How should the region be shared among the eight Arctic countries – Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the US as there are overlapping territorial claims among them.
• Should these countries be allowed to assert territorial claims at all? They have formed the Arctic Council to institutionalize their self-assigned rights, but many in China, the European Union, India are against conceding sovereignty to the Arctic countries.
• Russia, Canada and Denmark are all claimants to the ownership of the Arctic pole.
• Russia is both building up its military capabilities in the region and promoting the Northern Sea Route (NSR) as a new artery of global shipping. It recently announced that it will impose rules on commercial and naval vessels using the route.
• Both China and the US will contest Russia’s jurisdiction on this water.
• China’s position in the Arctic is all for freedom of navigation, while its position over the South China Sea is denial of freedom to other countries.
• China has declared that it wants to be a polar great power. To be considered a polar great power, it must have high levels of polar scientific capacity,scientific research funding, presence in the polar regions, economic, military, political, and diplomatic capacity and international engagement in polar governance.
• Russia is keen for India to get involved in the Russian Far East and the Arctic. It liberalized visa procedures to enter Vladivostok, invited Prime Minister as the chief guest at this week’s Eastern Economic Forum.

India’s position

• So far, Indian involvement in the Arctic has centred around scientific and environmental studies, mostly in partnership with Norway.
• Indian and Russian energy companies have signed agreements worth billions of dollars on exploration and joint production.
• Conditions are favourable for private Indian investors to go beyond these and explore the Siberia and further North.

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A polar region we must keep on the radar in a multipolar world (Live Mint)

Mains Paper 3: Environment
Prelims level: Northern Sea Route
Mains level: Arctic, climate change and geopolitics

Context

• US President Donald Trump’s recent offer to buy Greenland appeared to come out of the blue, was tactless, and gave the impression of an arrogant real-estate mogul making a brazen offer to land owners holding out.
• It is, however, indicative of the emerging geopolitics of the Arctic region, where climate change and China are fast destabilizing the status quo, throwing up political, security, legal, and environmental challenges.
• If we throw emerging technology into the mix where autonomous vehicles and robots can populate uninhabitable regions the next few decades could see the Arctic emerge as a hotspot of great power competition.

Background

• Rising global temperatures are causing the frozen Arctic ocean to melt, opening up new sea routes and opportunities to extract hydrocarbons and minerals from the seabed and the newly exposed land surfaces.
• Countries of the Arctic are trying to take advantage of these opportunities.
• China declared itself a “near Arctic” country and is making determined efforts to extend its footprint in the polar region. Chinese firms have tried to purchase large tracts of land in Iceland, Norway and Denmark.
• There are concerns that Chinese investments in Greenland’s natural resource economy might persuade the local population to secede from Denmark, creating a Laos-like Chinese satellite state between North America and Europe.

History of superpower behavior

• In the 19th century, the US acquired Louisiana, Florida, Alaska and parts of Arizona and New Mexico through purchases.
• China drew dashed lines on a map around the South China Sea it coveted and claimed that it had always belonged to Beijing.
• Russia annexed Crimea by sending unmarked, masked troops to just take over the place.

Issues underlying Arctic politics

• How should the region be shared among the eight Arctic countries – Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the US as there are overlapping territorial claims among them.
• Should these countries be allowed to assert territorial claims at all? They have formed the Arctic Council to institutionalize their self-assigned rights, but many in China, the European Union, India are against conceding sovereignty to the Arctic countries.
• Russia, Canada and Denmark are all claimants to the ownership of the Arctic pole.
• Russia is both building up its military capabilities in the region and promoting the Northern Sea Route (NSR) as a new artery of global shipping. It recently announced that it will impose rules on commercial and naval vessels using the route.
• Both China and the US will contest Russia’s jurisdiction on this water.
• China’s position in the Arctic is all for freedom of navigation, while its position over the South China Sea is denial of freedom to other countries.
• China has declared that it wants to be a polar great power. To be considered a polar great power, it must have high levels of polar scientific capacity,scientific research funding, presence in the polar regions, economic, military, political, and diplomatic capacity and international engagement in polar governance.
• Russia is keen for India to get involved in the Russian Far East and the Arctic. It liberalized visa procedures to enter Vladivostok, invited Prime Minister as the chief guest at this week’s Eastern Economic Forum.

India’s position

• So far, Indian involvement in the Arctic has centred around scientific and environmental studies, mostly in partnership with Norway.
• Indian and Russian energy companies have signed agreements worth billions of dollars on exploration and joint production.
• Conditions are favourable for private Indian investors to go beyond these and explore the Siberia and further North.

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Cryptocurrencies could constrain a country’s choices (Live Mint)

Mains Paper 3: Economy
Prelims level: Bitcoins, Libra
Mains level: Cryptocurrency and impact on monetary policies

Context

• There was news of Facebook launching a cryptocurrency called Libra, designed to appeal to its global user base of over 2 billion.
• Unlike Bitcoin, which is a roller coaster, Libra will be backed by a basket of fiat currencies.

The trilemma of monetary policy

• International economics has a concept called the “impossible trinity" or the “trilemma" of monetary policy.
• It was first defined (independently) by economists John Fleming and Robert Mundell in the early 1960s.
• It states that it is impossible to have all three of the following conditions fulfilled at the same time:
• (1) a fixed foreign exchange rate,
• (2) free capital movement (that is, an absence of capital controls) and
• (3) an independent monetary policy (which controls domestic money supply, mainly through an interest-rate regime).
• The trilemma is a theory based on the “uncovered interest rate parity condition" and is supported by evidence-based studies where governments that have tried to simultaneously pursue all three goals have failed.
• The uncovered interest rate parity condition means that if a dollar can only fetch a 1% rate of return in the US, but say 6% in India (at the same levels of risk), investors are bound to move from dollars to rupees.
• The reason they don’t is that the differential of 5% will likely reduce to zero as a result of a slide in the rupee’s value to the extent of its current interest differential against the dollar.

Way forward

• Strong capital controls have meant that other means of payment have been in use before, such as the infamous “hawala" system. Law enforcement agencies track these down relentlessly.
• However, the ease of use and the scope of new Big-Tech cryptocurrencies are about to create global currencies of a completely different class.
• The economists begin with a model that considers a two-country system.
• Both use their own national currencies as well as a global cryptocurrency.
• Assuming markets are efficient and complete, and that the global cryptocurrency is freely used in both countries, they show that the interest rates in both countries must necessarily be equal, and that the exchange rate between the two countries becomes what is termed a “martingale".
• A martingale is a sequence of variable numbers where the next number in the sequence, given all prior numbers, is most likely the same as the present value.
• Simply put, it means that the best predictor of tomorrow’s value would be today’s value.

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Raja Mandala: Reaching out to Europe (Indian Express)

Mains Paper 2: Internationl Relation
Prelims level: G7
Mains level: New Delhi’s diplomacy and challenges emerged in this region

Context

• Prime Minister Narendra Modi’s visit to Biarritz on the Atlantic coast of France late last month to join the G-7 leaders as a special guest of President Emmanuel Macron and his travels to Vladivostok on Russia’s Pacific coast for a meeting with the Russian President Vladimir Putin this week helps frame the growing importance of Eurasia for India’s changing geopolitics.
• The Modi government is unwilling to buy the proposition that the tension between the concepts of Eurasia and the Indo-Pacific is real.
• Russians and Chinese establishments see the “Indo-Pacific” as an effort to contain China.
• The Americans believe the promotion of “Eurasia” is about a Sino-Russian design to marginalise the US in the continental space.

Importance of India

• Located at the crossroads of Asia and at the heart of the Indian Ocean, India sees itself as a maritime power in the Indo-Pacific with big interests in continental Eurasia.
• Delhi may find Europe is the right partner in overcoming the presumed tension between the two concepts.
• In his bilateral talks with Macron last month, Modi highlighted the importance of India’s new alliance with France, by coining a characteristic acronym, IN-FRA, that might be critical for India in both the maritime and continental domains.

Challenges emerged in this region

• In deepening its partnership with Europe, Delhi can overcome some of the recent challenges that have emerged in the conduct of its foreign policy.
• First is the Russian question. If the end of the Cold War, the collapse of the Soviet Union and the integration of Russia into the global order opened up enormous geopolitical space for India after 1991, renewed tensions between Russia and the West have begun to shrink Delhi’s room for manoeuvre.
• Second, as it seeks to address the current contradictions in Eurasia, France is eager to work with India in developing new coalitions to stabilise the Indo-Pacific.
• France, a resident power in the Indo-Pacific, is eager work with India, Japan, Australia and other nations to prevent the littoral from becoming a hostage to the vagaries of US-China relations.
• Third is the problem of US-China tensions over trade that is affecting all major nations, including India. Delhi has good reasons to support the initiative by France, Japan and others to save the global trading system through much needed reforms to make it work for all nations. In the past, India’s preference was to forge coalitions like the G-77 that have long ceased to be effective. Working with Europe and Japan, however, might lend greater weight and credence to India’s trade diplomacy.
• Fourth, India has a strong interest in joining the so-called “Alliance for Multilateralism” — a German initiative backed by France — that calls for modernising international institutions, strengthening the rules-based order and promoting global, rather than national, solutions to global challenges.
• It does not include the US, Russia and China, but is drawing many middle powers like Japan and Canada in the developed world and South Africa in the developing world.
• Last, but not least, there is room for expansive cooperation between India and the Central European states.
• In sticking to its traditional method of engaging Europe through big powers, India has neglected the enormous possibilities for mutual enrichment with other European states as well as the European Union.
• Jaishankar’s visit to Brussels, hopefully, renews the momentum in the partnership with the EU.

Conclusion

• As the region’s weight grows within Europe, Eurasia and the world, Jaishankar’s visit has hopefully created the basis for a more productive engagement with the region.
• It could begin with an early summit meeting between the PM and the leaders of the Visegrad group the Czech Republic, Hungary, Poland and Slovakia.

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Centre must loosen purse strings (Indian Express)

Mains Paper 2: Governance
Prelims level: Not much
Mains level: Outlook of the government policies

Context

• The first set of announcements came against the backdrop of mis-governance of the earlier regime. This time around, it is an acknowledgment that something is amiss in
• The economy with GDP growth for the first quarter of 2019-20 slipping to a six-year low of 5 per cent.
• While economists are debating whether the current slowdown is cyclical or structural, the fact is that jobs are not being created.
• Consumption is not picking up and companies are not investing like they used to.

Background

• This has been the trend since demonetisation in 2016.
• Growth, across sectors, barring electricity and the government, has been less than 8 per cent, and less than last year.
• Manufacturing, in particular, has grown by just 0.6 per cent in the first quarter, and while the high base effect of 12.1 per cent last year provides some comfort.
• The fact is that there is evidence of a washout in the auto segment with large job losses reported and with India Inc’s sales at around 4-5 per cent in the first quarter.
• In 2017, low growth was attributed to GST, which led to destocking and hence, lower production. This time, it is structural in nature, with the demand side dominating.
• The trade and transport as well as finance and real estate sectors have also witnessed lower growth in the first quarter at 7.1 per cent and 5.9 per cent respectively.
• Growth in construction has also slowed down from 9.6 per cent in the first quarter last year to 5.7 per cent this year with limited activity seen only in segments such as roads, where the central government is involved.
• The private sector is still cautious in investing, as evident in the slight dip in the gross fixed capital formation ratio from 30 per cent of GDP in Q1 2018-19 to 29.7 per cent in Q1 2019-20.

Reasons behind the slowdown

• The reason for the slowdown is more on the demand side.
• Households are not spending as employment generation has been limited and incomes have not been rising.
• The rural economy has been buffeted in the last three years by demonetisation and lower price realisation due to good harvests.
• It remains to be seen whether prices will firm up at the time of the kharif harvest.
• The auto and consumer durable segments have been affected the most on this score as the propensity to spend tends to be higher in rural areas, especially during the harvest season which coincides with the festival season.
• The sectors that have been doing relatively better are cement and steel, where expenditure is government linked, and segments such as housing, e-commerce and retail.
• However, the real estate segment has been under pressure with the NBFC route of financing being severed.

How is one to read all these steps?

• The first package was more in terms of fostering operational convenience reversal of the surcharge on FPIs and revisiting the clause relating to angel investors.
• SME payments are to be streamlined with a one-time settlement plan in place and the government is to ensure that it makes its payments on time for projects (over Rs 40,000 crore is stuck in the pipeline).
• Banks have been given Rs 70,000 crore through recapitalisation (this was already in the budget through recap bonds which was anyway fiscal neutral), and structures have been created for the corporate bond market.
• While the auto sector is to get some relief on depreciation on vehicles and the government has clarified on the validity of registration on Bharat IV vehicles, the government will now be buying new vehicles, which was barred earlier.
• But, the question is whether the government has more money to spend given its tight budget. The stocks of auto companies have not been enthused.
• The FDI rules now give single brand more breathing space in terms of local procurement and setting up of physical structures.
• Also, 100 per cent FDI through the automatic route in coal mining and related activities has been permitted as has 26 per cent FDI under the government route for uploading/ streaming of news and current affairs in digital media.
• However, these rules take time to work out and one does not expect to see a flurry of capital flows.
• The big bank-merger plan announced on August 30 is progressive. But, it may not really add much on the credit side as the amount of capital to be provided remains unchanged and only the bank names would change.
• While governance standards will change, there will still be a reluctance to lend to risky projects.

Conclusion

• Therefore, while there will be fewer public sector banks, the mindset will not change.
• Besides, in the present environment, liquidity is less of an issue compared to the willingness to lend, given the credit risk profile of India Inc.
• This is critical, as the problem is deep on the demand side. Making “doing business” easier is a positive, and creating mega PSBs a progressive step.
• But this cannot change the 5 per cent growth number immediately. Money has to be spent and a fiscal compromise is required.
• Or else, we will continue to walk the path of gradual upward movement.

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Current Affairs MCQ for UPSC Exams - 02 September 2019

Q1. Consider the following statements regarding occurrence of forest fires :

1) Human activities near or within forested areas are the number one cause of forest fires.
2) Lightning is the biggest natural cause of forest fires.
3) Sometime volcanic activities such as eruptions and lava flow can cause forest fires.
4) Human-caused fires constitute the greater percentage of forest fires in our forests, but natural fires constitute the great majority of the total area burned.

Which of the above statements are true ?

a) 1 & 2 only
b) 2 & 3 only
c) 1 & 3 only
d) all of the above

Q2. Consider the following hill stations of India with their location states :

1) Panchgani : Madhya Pradesh
2) Chail : Himachal pradesh
3) Horsley hills : Maharashtra
4) Patnitop : Jammu & Kashmir
5) Almora :Uttarakhand

Which of the above pairs are incorrectlymatched ?

a) 1,2& 3 only
b) 3 & 5 only
c) 1 & 3 only
d) 2 & 4 only

Q3. Recently beaches in Chennai witnessed a blue shimmer on the waves. The visitors spotted a magical blue glow on the beach. Which of the following statements regarding the same stands true ?

1) According to marine experts, the blue glow is known as Bioluminescence. The phenomenon is caused by Noctilucascintillans, a type of phytoplankton that converts their chemical energy into light energy when washed ashore.
2) Similar to the sight of fireflies, bioluminescence is found in many marine organisms such as bacteria, algae, jellyfish, worms, crustaceans, sea stars, fish and sharks.
3) The occurrence of these phytoplanktons is highly beneficial to the ecosystem in the long run as they provide food for the fishes.

a) 1 & 2 only
b) 2 & 3 only
c) 1 & 3 only
d) all of the above

Q4. Consider the following statements :

1) The RBI earns money in a variety of ways like the Open market operations, wherein a central bank purchases or sells bonds in the open market in order to regulate money supply in the economy, are a major source of income for the RBI.
2) Dealings in the foreign exchange market that the RBI engages in may also contribute to the bank’s profits.
3) However, that unlike commercial banks, the primary mandate of the RBI is not to earn profits but to preserve the value of the rupee. Profit and loss are thus merely a side effect of its regular operations to shape monetary policy.

Which of the above statements stands true ?

a) 1 & 2 only
b) 2 & 3 only
c) 1 & 3 only
d) all of the above

Q5. Which of the following cities have been ranked number one in the safe city index (SCI-2019) by the economic intelligence unit ?

a) London
b) Tokyo
c) Beijing
d) Ottawa

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On releases composite water management index (Mint)

Mains Paper 2: Governance
Prelims level: Composite water management index
Mains level: Objectives and implications of that such index

Context

• The composite water management index (CWMI) 2.0 was recently released by the NITI Aayog.

About the index

• The states are ranked across 9 themes and cover 25 states and 2 union territories.
• [It does not include data from West Bengal, Mizoram, Manipur and Jammu & Kashmir.]
• This has been done through a first of its kind water data collection exercise.
• It was done in partnership with the ministry of jal shakti, ministry of rural development and all the states/union territories.

Key objectives

• The CWMI is an important tool to assess and improve the performance of states and union territories in efficient management of water resources.
• It is an attempt to create a pan-India set of metrics that measure different dimensions of water management and use across the lifecycle of water.
• The objective of the index is to involve all key stakeholders to understand how states can better manage water resources.
• It provides useful information for the states and for the concerned central ministries/departments.
• This is to enable them to formulate and implement suitable strategies for better management of water resources.

Key highlights

• CWMI 2.0 ranks various states for the reference year 2017-18 as against the base year 2016-17.
• Gujarat has retained its first position in the Composite Water Management Index (CWMI) 2.0 Gujarat, Andhra Pradesh, Madhya Pradesh, Goa and Karnataka have topped the CWMI 2.0 for 2017-18 among non-Himalayan states.
• Among Himalayan states, Himachal Pradesh, Uttarakhand and Tripura are on top of the index.
• The report points out that 82% of rural households in India do not have individual piped water supply. 163 million live without access to clean water close to their homes.
• Around 80% of the states assessed over the last 3 years have improved their water management scores, with an average improvement of 5.2 points.
• However, 16 out of 27 states still score less than 50 points on the index, out of 100.
• They account for 48% of the population, 40% of agricultural produce and 35% of economic output of India.

Index implications

• States are displaying progress in water management, but the overall performance remains below what is required to tackle the challenges.
• High-performers continue to demonstrate strong water management practices, but low-performers are struggling to cope up.
• By 2030, India’s water demand will exceed supply by two times, indicating severe water scarcity in the country.
• In fact, 820 million Indians living in 12 river basins have a per capita water availability close to or lower than 1,000 cubic metres.
• This is notably the official threshold for water scarcity. The average all-India per capita water availability is expected to be 1,341 cubic metres by 2025.
• It could touch a low of 1,140 cubic metres by 2050, close to the official water scarcity threshold.

Way forward

• The states need to build on this momentum, and upgrade their water management practices to show outcomes and not just outputs.
• Areas like agriculture could have a larger impact on saving water along with focusing on low performing states.

Several disparities exist in water management amongst states.

• Improved knowledge-sharing amongst states can enable them to learn and solidify water management practices across the board.

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A new ethics for a sustainable planet (The Hindu)

Mains Paper 3: Environment
Prelims level: Greenhouse gases
Mains level: Environment impact assessment

Context

• Brazil’s Amazon forests are ablaze with dozens of fires, most of them set intentionally by loggers and others seeking greater access to forest land.
• How long the fires can continue is unclear. But at this scale, they are paving the way for a global climate catastrophe.

Key implications from the forest fires

• The burning of the world’s largest forest reserves, the withdrawal of the world’s leading polluter from a major international treaty and the U.K.’s isolationist policies may appear to be the triumph of nationalist ideology.
• But these actions have consequences that far transcend national boundaries and impact all creatures that share life on the planet.
• While energy and transport are mainly responsible for the accumulation of greenhouse gases (GHGs) in the atmosphere, changes in land use patterns too have made significant contributions.
• Deforestation, industrial agricultural systems and desertification are major drivers of climate change.
• Agriculture, forestry and other land use activities accounted for a little less than a quarter (23%) of the total net anthropogenic emissions of GHGs between 2007-2016.
• The Intergovernmental Panel on Climate Change (IPCC) recently brought out a special report on Climate Change and Land that covers desertification, land degradation, sustainable land management, food security and greenhouse gas fluxes in terrestrial ecosystems.
• Very wide in its scope, the report makes it clear that unless land is managed in a sustainable manner, the diminishing chance that humanity will survive climate change will become smaller still.

Land management

• Land is part and parcel of people’s lives. It provides food, water, livelihoods, biodiversity and a range of other benefits from its ecosystems.
• Land use is indeed interlocked with several aspects of life on earth.
• Soils have become depleted with heavy use of chemicals, farms have few or no friendly insects, monoculture has led to a reduction in the use of indigenous crop varieties with useful characteristics, groundwater is depleted and polluted farm runoffs are contributing to contaminated water bodies while destroying biodiversity.
• We have created a system that no longer supports agricultural households, and the stresses have led to farmer suicides.
• Managing land better for farming would entail implementing more sustainable agricultural practices.
• It would mean, for instance, reducing chemical input drastically, and taking the practice of food production closer to natural methods of agroecology, as these would reduce emissions and enhance resilience to warming.
• The report calls for avoiding conversion of grassland to cropland, bringing in equitable management of water in agriculture, crop diversification, agroforestry and investment in local and indigenous seed varieties that can withstand higher temperatures.
• It also recommends practices that increase soil carbon and reduce salinisation.

Establishing sustainable food systems

• Establishing sustainable food systems means reducing food waste, which is estimated to be a quarter of the food produced.
• It also necessitates eating locally grown food and cutting meat consumption.
• Alongside these changes, it is important to put an end to deforestation, while conserving mangroves, peatland and other wetlands.
• To make these significant changes and reduce inequality and poverty, land use policy should incorporate better access to markets for small and marginal farmers, empower women farmers, expand agricultural services and strengthen land tenure systems.
• Sustainable land management can reduce multiple stressors on ecosystems and societies.
• It will also help societies adapt better to warmer climates and reduce their greenhouse gas emissions.

Conclusion

• In thinking about how to address the transnational challenges of climate change and land, the narrow lens of nationalism is no longer serving us.
• We need a new planetary ethics that supports alternative systems for the future, for a sustainable earth.
• It is one that cultivates the growth of ecological sensibilities, supports pluralism, enhances quality of life, shifts values away from consumerism and creates new identities and cultures that transcend conventional boundaries.
• More recently, Fridays for Future and Fossil Fuel Divestment are part of such evolving sensibilities.
• How we move forward with these successes to create a sense of solidarity across boundaries, instead of building fortress worlds, will contribute to the path we build.

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Citizenship, figured: On Assam NRC final list (The Hindu)

Mains Paper 2: Polity
Prelims level: NRC
Mains level: Key highlights about the NRC data

Context

• The publication of the final National Register of Citizens on Saturday brings no closure to the vexed issue of illegal immigration to Assam yet.
• Those left out are not foreigners until the tribunals set up to determine their fate pronounce them so. The process could go all the way to the Supreme Court.
• The Home Ministry has also extended the time to file appeals against exclusion in the Foreigners Tribunal from 60 to 120 days.

Key highlights about the NRC data

• The point, however, is that the process has yielded an updated register, and a figure.
• It has had its warts and all even as it left over 1.9 million people staring at statelessness in a continuing saga of glaring omissions, a serving lawmaker, a former legislator, and retired Army man Mohammad Sanaullah, whose case propelled NRC excesses into the spotlight, did not make the cut.
• But protests across the spectrum expressing concern over the excluded, suggest the judiciary-led process was perhaps largely robust and the errors were more procedural than targeted.
• The State government and many political parties have promised to offer legal help to those excluded, but such assistance should have been forthcoming from the time the updating exercise was rolled out on the ground in 2015.
• Instead, it was mostly left to sundry organisations and concerned activists to come to the aid of hundreds of thousands oblivious of documentation novelties such as legacy data.

Possible moves taken by the government

• The administration is readying detention centres, but only a veritable ‘prison state’ can house such numbers.
• Options being bandied about include instituting a system of work permits, a renewed attempt to nudge Dhaka to take in some of the declared foreigners with appropriate deal sweeteners (though India has thus far maintained that the NRC update is the nation’s internal matter, and Bangladesh has never acknowledged any illegal crossings across its borders), or ‘friendly’ State governments volunteering to share some of the burden.
• While the Assam Chief Minister struck a temperate tone, the studied silence of the Prime Minister and the Home Minister on publication day is unnerving.
• Of greater concern is the stance of the de facto No. 2 in the State government, who said that the NRC was no quarter-final, semi-final and final for driving out Bangladeshis and promised “more finals”.

Way forward

• The Centre might have a plan in place, but if it is in the form of the Citizenship Amendment Bill to extend citizenship to non-Muslims alone, left after judicial filtration, that would negate the very non-denominational premise of the exercise to identify those who entered the country illegally after the cut-off date of March 24, 1971.
• While the apex court could still consider limited reverification to satisfy sentiments even though it had rejected the plea in the run-up to final publication, the aim should be to bury the bogey of the Bangladeshi.

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Mega bank mergers: A re-think is needed (The Hindu)

Mains Paper 3: Economy
Prelims level: Banks consolidation
Mains level: Bank mergers and consolidation and its effect on economy

Context

• Creating globally stronger banks, doing away with needless overlaps in operations and infrastructure, and ushering in economies of scale to bring down costs have always been at the heart of any consolidation drive.
• Sadly, none of these compelling reasons have led to the mega public sector bank mergers announced by the Centre, which have brought down the tally of PSBs to 12 from 18.
• The shotgun weddings brokered by the Centre appear to have been triggered by one reason to ease the Centre’s burden of massive capital infusion into ailing PSU banks.

Key highlights

• Recent half-hearted attempts at consolidation have also delivered far from desirable outcomes. SBI’s bad loan problems only grew bigger after the merger of its five associate banks two years ago.
• Significant write-offs and persisting slippages have been eating into SBI’s profit and capital, impeding credit growth.
• The merger of Bank of Baroda with Vijaya Bank and Dena Bank last year was a thorny affair right from the start, given the weak finances of Dena.
• One year on, BOB’s numbers only confirm the underlying issues with forced mergers.

Reasons behind the banks consolidation

• The current round of proposed mergers stands on even weaker ground.
• Once the second largest PSU bank, PNB, hit by the Nirav Modi scam the worst-ever banking fraud is still grappling with scarce capital and fresh frauds.
• With its own NPAs at over 16 per cent, it is unclear how the Centre expects the bank to subsume the weaker OBC and United Bank. The logic for the merger of far weaker banks Union Bank of India, Andhra Bank and Corporation Bank is even more baffling.
• While the Canara Bank and Syndicate, as also the Indian Bank and Allahabad Bank, mergers involve at least one sturdier party, they come at the cost of debilitating the few stronger PSBs left.
• What is interesting but alarming to note is that the four mergers appear to have one common thread bunching up banks operating on a similar core banking solution.
• This would ease integration, but has it been the only rationale for the matchmaking?

Way forward

• The Centre proposes to infuse capital into the merged entities based on their size and need. But it’s highly unlikely that this will be the last round of capital infusion.
• Also, the fate of the six PSBs left out of the merger spectacle some of whom have NPAs of 20 per cent or more hangs in limbo.
• The much graver issue is that of finding the right leaders to steer the integration process at these colossal establishments.
• While the Centre has announced a slew of governance reforms, hoping to make managements more accountable to boards and give longer tenure to key officials to implement plans, these are unlikely to bring about significant structural changes.
• The move is also singularly ill-timed, with GDP growth plummeting to a six-year low. Turmoil in the banking sector can only hurt growth further.

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Is the slowdown cyclical or structural? (The Hindu)

Mains Paper 2: International
Prelims level: Slowdown GDP
Mains level: Effect of Policies & Politics of Countries on India's Interests

Context

• The slowdown is cyclic, aggravated by a focus on structural reform, that neglected responding to a slowdown in industry and investment evident since 2011.
• There were structural features, such as constraints in agriculture that kept food inflation high.
• But industry paid a disproportionate and unnecessary cost, since real interest rates were raised to the highest-ever historical levels to fight food inflation, for which their effectiveness was limited.

Background

• The financial sector and foreign investors favoured the conservative monetarist stance, because they value macroeconomic stability, but perhaps they did not realise that excessive tightening also creates risk in Indian conditions.
• Growth that was lower than potential for almost a decade hurt investors also.
• Despite the noise about deficits and inflation, research shows that the country ratings are most strongly associated with per capita output, which depends on growth.
• As real appreciation and high interest rates damaged domestic industry, the economy’s import dependence increased.
• As oil import dependence sets a floor to rupee depreciation, stimulating domestic demand and reducing supply costs to maintain the Indian industry’s export competitiveness is particularly important.

Tight liquidity

• High real interests aggravated and sustained NPAs. Highly leveraged firms find it difficult to repay, more so if earnings fall since demand is kept low.
• An asset quality review cannot help when assets keep deteriorating. The decision to keep durable liquidity in deficit since 2011 aggravated matters.
• The deficit often became too large, since the Indian economy is subject to large liquidity shocks, for example from movements in foreign capital.
• Cash leakages are higher in tight liquidity conditions. Short-term liquidity available in the LAF was not an adequate substitute.
• Moreover, government spending in the second half of 2018-19 was lowered by about 2 per cent of the GDP in order to meet fiscal deficit targets.
• This government tends to front-load spending and to spend more in the first half of a fiscal year. Private investment also slowed, partly due to pre-election uncertainty, while the global slowdown affected exports.
• Falling incomes, as well as credit, slowed consumption.
• The liquidity deficit turned surplus only in June, after one year.
• The long squeeze had left pockets empty. There were hardly any real estate transactions. The consumption and growth slowdown is not surprising.

Change in monetary policy

• Monetary policy has finally become accommodative, liquidity is in surplus, many schemes are making it easier for NBFCs to get liquidity, and there are signs the government is front-loading spending again since July.
• The transfer from the RBI is only 0.75 of the GDP, but can help jump-start planned spending through a rise in money supply, without forcing the government to borrow ahead of revenues and thus raise G-Sec interest rates.
• The Finance Commission may relax the FRBM to enable counter-cyclical spending. Privatisation can transform government assets into infrastructure, which has more spillovers.
• For the first time after the global financial crisis, monetary policy is loosening to counter an external shock and the exchange rate has depreciated to competitive levels.
• The festive season should see some cheer. If real interest rates come down, the drag on demand, in place since 2011, would dissipate.

Three key structural constraints:

• A surplus in agriculture, together with soft global prices, will keep food inflation low.
• Also, the changing dynamics of global oil markets is likely to keep oil prices, and India’s import bill, manageable.
• A functioning bankruptcy code, so that promoters cannot pass on all their losses to the taxpayers, makes fuller recapitalisation of banks possible.

Calculated reform

• The traditional-reform lobby sees land-labour reforms as necessary for growth to revive. Those are the structural constraints they highlight.
• But structural reform cannot reverse the growth slowdown, since it has long delivery lags and large short-run costs.
• Reforms are required to bring down costs of doing business and improve productivity, but they need to be done continuously and unobtrusively, not as a big bang that creates resistance and spends political capital.
• The focus has to be on feasible, least-cost reforms that deliver fast.
• Apart from preponing spending, some relief and confidence-building is possible for stressed sectors. Relief for sectors that have large spillovers on the rest of the economy can have the same effect

as a macro stimulus.

• But such relief should be consistent with long-run reform. Ministries are working on packages with these features, after brainstorming and stakeholder consultation.
• These are being announced in quick succession, showing a willingness to listen and respond.

Way forward

• However, more has to be done for bridge financing to the real estate sector, since banks will be busy with mergers. Otherwise, unfinished projects will then add to NPAs, while preventing possible homebuyers benefit from lower home loan rates and tax breaks.
• Co-lending with NBFCs and banks has potential, since the first can better assess credit risk and mange operational aspects, while the second have the funds. Foreign equity can also be leveraged.
• The Economic Survey asks for a big bang rise in investment, using foreign triggers. But these are scarce in a global slowdown.
• They may not be irreplaceable, however. Small changes in the right direction can cumulate to tip the economy to a higher growth path.
• An investment GDP ratio of 32 is not low. If the propensity to spend rises marginally above that to save, it can raise growth, jobs, incomes, taxes and savings, as in past Indian high-growth cycles.
• The credit has to rise and the financial system has to deliver safely. As the government improves the supply side, monetary policy has to stimulate demand.

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  General Studies Pre. Cum Mains Study Materials

An e-commerce blueprint for India’s ‘Next Half Billion’ (Mint)

Mains Paper 3: Economy
Prelims level: e-commerce 2.0
Mains level: Upgradation of e-commerce industry

Context

• By 2022, half a billion Indians are expected to come online through their mobile phones, a population we refer to as India’s Next Half Billion (NHB).
• Their internet journey starts with them gaining internet access, then moving forward step by step to eventually making commercial transactions online.
• The NHB differs considerably from the initial waves of internet users. They have very different income profiles, education levels, language skills, and social/cultural milieus.

Background

• In the last 18-24 months, there has been considerable progress in addressing various barriers they face in their internet journey, due to efforts by entrepreneurs and various government initiatives.
• The NHB is now at an inflexion point for online shopping.
• E-commerce 2.0 will expand the market beyond the relatively small 40-50 million sticky customer base of e-commerce 1.0.
• However, the new version will look, feel, and operate differently from the first wave of online shopping.

Performances under e-commerce 1.0

• Consider e-commerce 1.0. Existing e-commerce platforms are better suited to sell structured and branded products (mostly electronics like mobile phones, televisions and air-conditioners).
• They mainly appeal to relatively sophisticated shoppers, for whom convenience and selection are important.
• Their English-first approach and user interfaces are constraints for the NHB segment. Moreover, the format does not enable an important mechanism for building trust, such as information on what others are doing on the platform.
• For sellers too, e-commerce is designed to cater to larger, organized players, whereas most sellers in India, even online, are small.
• Overall, online shopping is at present more about price discovery than product discovery.
• E-commerce has made important strides, but its penetration is still low in India.

Measures needed to establish e-commerce 2.0

• E-commerce 2.0 needs its building blocks. One enabler is affordable data. Frugal innovation is helpful as well, with low-cost digital payment infrastructure as the prime example.
• A lack of trust and confidence acts as a barrier, but communities on social media are helping generate trust in the internet.
• Another barrier is women staying away from the internet, which is being addressed by women-centric digital platforms such as Healofy, WhiteHat Jr, and CENTA.
• In adapting to the NHB’s context, solutions include using a relatable language and creating inclusive user experiences such as mobile number-based log-ins, apart from simple navigation and purchase recommendations.
• This is typified by enterprises such as RailYatri, Doubtnut, and Scripbox. Inadequate Indian language content for e-commerce is another barrier, though vernacular platforms and videos have recently emerged as the dominant mode of content consumption.
• Startups such as MyUpchar, Pratilipi and Dailyhunt have been leaders here. Local apps for social communication have been few, but new players such as Sharechat have emerged in this space.
• With these solutions, the average Indian mobile phone user now consumes more data than most Europeans. These enablers have created the building blocks for e-commerce 2.0.

What will e-commerce 2.0 look like?

• It will leverage these solutions to tackle three important issues relevant to the NHB.
• Value consciousness: E-commerce 2.0 will be dominated by smaller, unbranded items catering to value-conscious buyers.
• Trust and confidence: this is best built by social validation. To achieve this, e-commerce 2.0 players will leverage social communities and influencers on WhatsApp, Facebook, Instagram, and YouTube. Initially, virality will be created through social platforms.
• On this base, players will then craft the elements that social platforms cannot provide, such as amplifying the mindshare of the e-commerce content, logistics, tracking, returns and customer support.
• Resonance with the NHB context: Products will be “pushed" to users instead of being discovered through search.
• This replicates the NHB’s offline shopping experience of being actively assisted and served by shop assistants on retail premises. Apps will be Indic-language heavy or in Hinglish.

Conclusion

• In sum, e-commerce 2.0 will differ from its earlier version in many ways.
• It will be intent and “impulse-driven", rather than being only intent-driven; make product discovery easier by offering a curated selection instead of a wide selection; focus on smaller and unbranded items instead of larger, branded ones; prioritize value over convenience; leverage influencers and social media; offer bulk-buying for better pricing; use Hinglish and Indic languages with a user interface built for India, and use the viral nature of content and social media platforms to drive customer acquisition.
• The second wave of e-commerce could change the way Indians shop online, which will evolve from being a hobby to a habit.
• We also expect a significant rise in women shoppers in smaller cities.
• Most importantly, e-commerce 2.0 could significantly expand India’s online market and make it truly inclusive.

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