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CURRENT AFFAIRS 04-08-2018

RBI and The Indian Economy

Relevancy

  • GS Mains Paper-3, Economy

Why in News?

  • RBI has raised the repo rate by 25 bps in order to rein inflation.

What is the issue?

  • While controlling inflation is important, it is also vital to ensure sufficient funds to aid businesses to capitalise on projected economic uptick in FY2019.

What is RBI’s inflation outlook? 

  • RBI looks confident of the growth prospects and has estimated the FY18-19 growth to be 7.4% (FY 2017-18 level was only 6.6%)
  • Notably, it has sighted improved “Foreign Direct Investment” (FDI) flow and pick-up in services and manufacturing growth as reasons for optimism.
  • Hence, in line with the projection in its June review, RBI in its recent review again revised its 2H FY19 inflation forecast upwards by 10 bps to 4.8%.
  • RBI’s “Monetary Policy Committee” (MPC) has also raised the repo rate by 25 basis points (bps) for the second time in a row.
  • This has reiterated RBI’s position as an inflation warrior by sticking to the path of maintaining the 4+2% inflation target.
  • Clearly, it is watchful of inflationary pressures like firming household expectations, monsoon spread, increase in crop MSP and fiscal risks.

What are the barriers to reap the projected economic potential?

  • The latest FICCI survey shows that capacity utilisation levels are in the 75-80% range for sectors such as auto, chemicals, electronics, leather and footwear, machine tools, metals, paper products and textiles.
  • Considering this, the funding pattern calls for change – funds has to now move away from working capital loans and cater to capacity enhancement.
  • Hence, while increase in the cost of funds (due to 25 bps raise by RBI) is being debated, the real issues will be fund availability for capacity enhancement.
  • This can be ushered in only through a conscious policy push as the Indian banking sector is in a deep mess.

How is India’s banking sector doing?

  • Public sector banks (PSBs) that comprise 70% of the total banking system, hamstrung by poor balance-sheets, are yielding space to private players.
  • The government and the RBI have leaned heavily in favour of the insolvency bankruptcy code (IBC) to resolve the NPA problem.
  • Also, the RBI has put 11 PSBs in the prompt corrective action (PCA) framework list and reportedly six more are likely to be added to this list.
  • RBI’s recent “Financial Stability Report” (FSR) estimates that the gross NPA ratio (bad loans as a percentage of total loans) will reach 12.2% by March 2019.
  • While would be the highest since 2000, a further warning bell is that FSR states that this could worsen further if macro-economic conditions deteriorate.
  • More significantly, for PSBs the gross NPA ratio may increase from 15.6% in March 2018 to 17.3% by March 2019 – indicating severe stress.
  • In this context, private banks will have to do the heavy lifting in meeting the credit needs of an economy which is beginning to recover.

What is “Financial Stability Report”?

  • “Financial Stability Report” (FSR) is released by the RBI.
  • It reflects the overall assessment of the stability of India’s financial system and its resilience to risks emanating from global and domestic factors.
  • The Report also discusses issues relating to developments and regulation of the financial sector.

What is “Prompt Corrective Action”?

  • To ensure that banks don’t go bust, RBI has put in place some trigger points to assess, monitor, control and take corrective actions on banks which are weak.
  • The process or mechanism under which such actions are taken is known as Prompt Corrective Action (PCA).

What is the way ahead?

  • India’s investment cycle is poised for a cyclical upswing from FY19, after years of sub-par performance.
  • In this context, it is important to incentivising and nurturing sectors in need of funds before the cost of funds begins to bite.
  • Notably, this is all the more significant considering the global headwinds, which looks risky due to rising political and trade tensions, and currency wars.

Strategic Trade Authorisation -1 list

Relevancy

  • GS Mains Paper-2, International Relations, Bilateral Agreements

Why in news?

  • The US has eased controls on high-technology dual-use exports to India after a year of negotiation.
  • The US has granted India exemption under the Strategic Trade Authorisation-1 list.

How did India-US defense ties evolve over the years?

  • In 2008 India signed the civil nuclear deal with the United States.
  • A key objective was to gain access to high technology.
  • Notably, India had been denied access, especially from the 1970s through the 90s.
  • Towards the end of Obama’s presidentship, the US recognised India as a “Major Defence Partner”.
  • It committed itself to sharing technology to the same level as its closest allies and partners.
  • It also agreed to collaboration for defence co-production and co-development.

What caused the delay?

  • The US either has military alliances such as the NATO or bilateral defence treaties with other countries.
  • Hence, the status of Major Defence Partner is unique to India.
  • So Indian and American negotiators had to draw up the framework of what the status would entail.
  • Given this, the export of defence and dual-use technology by the US is mostly a “political determination”.
  • This is driven by two factors namely US national security and the recipient’s regional stability.
  • Dual-use exports refer to an item or technology that can be put to both military and civilian use.

What happened recently?

  • India was in STA-2 list (Strategic Trade Authorisation-2), along with 7 other countries.
  • These include Albania, Hong Kong, Israel, Malta, Singapore, South Africa, and Taiwan.
  • India has now been elevated to the STA-1 list of countries.
  • What is Strategic Trade Authorisation?
  • In 2009, Obama announced a comprehensive review of the US export control system.
  • As part of this came the concept of Strategic Trade Authorisation (STA).
  • This is a move towards a licence-free or license exemption regime.
  • Accordingly, two lists were created namely STA-1 and STA-2.
  • STA-1 and STA-2 established a hierarchy among those the US was willing to certify as “good countries”.
  • STA-1 – STA-1 countries are America’s most trusted allies.
  • The STA-1 list has 36 countries including NATO allies and bilateral treaty allies like Japan, South Korea, and Australia.
  • The US considers the non-proliferation controls of these countries the best in the world.

These are also among those that are part of the four multilateral export control regimes:

  1. the Nuclear Suppliers’ Group (NSG)
  2. Missile Technology Control Regime (MTCR)
  3. the Australia Group
  4. the Wassenaar Arrangement
  • STA-1 countries have licence-free access to almost 90% of dual-use technology.
  • They are also eligible to import items for reasons of national security, chemical or biological weapons, etc.
  • This is irrespective of whether the technology or item impacts regional stability or American national security.
  • STA-2 – Countries in the STA-2 list enjoy some form of licensing exemption.
  • But they cannot access dual-use items/technology that may impact regional stability, or contribute to nuclear non-proliferation, etc.
  • A vast majority of countries remain outside both STA-1 and STA-2.
  • They cannot access high technology from the US without specific licences.
  • They have to apply for a licence for every item on the Commerce Control List (of dual-use items).

What is the importance of all the bilateral agreements?

  • China, Pakistan, and Russia are on neither list.
  • Albania is a NATO member, but is still in STA, and Israel, a major US ally, is not in STA-1.
  • Given these, India joining an elite group of allies of the US is a significant move.
  • India is now part of STA-1, despite not being member of all four multilateral export control regimes.
  • This is thus another testament to India’s non-proliferation credentials.
  • India can now access 90% of defence technology and equipment for dual-use supplied by US government and its defence industry.
  • It is expected to lead to greater high-technology trade and commerce.
  • For Indian high-tech industry, this could open up doors for both sales and manufacturing in India.
  • Third countries can also set up manufacturing units, requiring import of dual-use equipment from the US, without the license process.

GM Crops

 

Relevancy

  • GS Mains Paper-3, Economy, Biodiversity

Why in news?

  • There is a ban on local production and import of foods having genetically modified (GM) content in India still GM food has widely penetrated the Indian markets.
  • This has led to no real health or environmental consequences, which only supports the assertion that GM food is safe.

What are the drawbacks of the same?

  • “Centre for Science and Environment” (CSE) study indicated that as much as 32% of the processed foods marketed in India carry GM ingredients.
  • As GM imports are banned, importers have to currently make a declaration that their goods are free of GM components at the customs.
  • Yet, nearly 80% of the marketed foods that tested GM-positive in the CSE study were imported in contravention of the ban.
  • More significantly, some of the GM products falsely claimed on their labels to be GM-free, which is a clearly spiteful violation to deceive consumers.
  • All this reflects poorly on the country’s GM regulatory systems.

How much GM crop is permitted in India?

  • Currently, BT cotton is the only approved GM crop for commercial cultivation in India and it accounts for 90% of the cotton acreage now.
  • While no GM food crop has been permitted thus far, GM foods have already deeply penetrated into the Indian markets.
  • Notably, Cottonseeds (of BT-cotton), which bear GM DNA, are routinely fed to cattle whose milk is part of regular human diet.
  • In recent years, even cottonseed oil has begun to be used as a cooking medium individually or admixed with other edible oils.
  • This oil, if not properly refined, can retain remnants of GM DNA.

What the various opinions on GM?

  • The fundamental issue really is the impact that the genetically tweaked foods can have on health and environment.
  • If the vociferous anti-GM lobby argues that “GM Food” can pose wide-ranging hazards but most scientists disagree on this.
  • In fact, there has been no detectable incidence of health or environmental hazard due to GM crops in the past 2 decades (since GM trials began).
  • Also, several scientific studies conducted in the countries where GM crops are extensively farmed and consumed have not found any adverse effect.

What is the solution?

  • Poor regulations in India have resulted in careless sowing of BT-Cotton and the extensive penetration of GM foods into the markets.
  • Despite these serious lapses, hardly any harmful fallout has been observed until now, which is hence a vindication of safety of GM crops.
  • The government should, therefore, take note of these facts and lift the ill-advised embargo on the approval of new GM seeds.
  • The cutting-edge technology of genetic manipulation needs to be put to gainful use for the benefit of farmers, consumers and biotech-based industries.

Prevention of Atrocities Act, 1989

 

Relevancy

  • GS Mains Paper-2, Government Policies

Why in news?

  • Centre has decided to restore the original provisions of Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989.
  • This comes as a response to an earlier verdict of Supreme Court on the Act.

What was the Supreme Court’s verdict?

  • The Supreme Court had struck down some original provisions of the Act.
  • It issued some guidelines to protect people against arbitrary arrests under the Act.
  • It directed that public servants could be arrested only with the written permission of their appointing authority.
  • In the case of private employees, the Senior Superintendent of Police concerned should allow it.
  • A preliminary inquiry should be conducted before the First Information Report (FIR) was registered.
  • This was to check if the case fell within the ambit of the Act, and whether it was frivolous or motivated.

How did the dalit community respond?

  • The verdict faced sharp criticism from dalit leaders across the country and political parties.
  • Dalit groups claimed that the court’s order diluted the true spirit of the law.
  • Despite widespread opposition, the court refused to stay its ruling.
  • So dalit groups demanded an ordinance or an Amendment Bill to restore the provisions.
  • Following widespread protest, the Union Cabinet had given its nod to the Amendment Bill.

What does the Amendment Bill seek?

  • The Amendment Bill seeks to insert three new clauses after Section 18 of the original Act.
  • preliminary enquiry shall not be required for registration of an FIR against any person
  • arrest of a person accused of having committed an offence under the Act would not require any approval
  • provisions of Code of Criminal Procedure on anticipatory bail shall not apply to a case under this Act, “notwithstanding any judgment or order of any Court”
  • The Centre’s decision to amend the provisions of the Act appears both reasonable and unavoidable at this juncture.
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