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
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:
the Nuclear Suppliers’ Group (NSG)
Missile Technology Control Regime (MTCR)
the Australia Group
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.
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
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.