THE HINDU – CURRENT NOTE 04 APRIL
IISc tops national rankings, IIT-Madras comes second
IIMs come way down on list of 2995 institutions nationwide
•The Indian Institute of Science, Bengaluru, has been rated as the top higher educational institution of India across disciplines, as per the first-ever overall ranking of institutions released by the Centre on Monday.
•The seven top IITs, Jawaharlal Nehru University (JNU) and Benaras Hindu University (BHU) figure in the top 10 among the 2,995 institutions that participated in the National Institutional Ranking Framework (NIRF), 2017.
•IIT-Madras ranks second, while JNU ranks sixth in the all-India list.
•Releasing the rankings, Human Resource Development Minister Prakash Javadekar said the government would give more grants to the institutions ranked higher.
Out of favour
•However, the elite Indian Institutes of Management have not performed too well, with IIM-Ahmedabad, the top business school, standing 17th in the list. All other IIMs rank below 20.
•There are separate lists within disciplines for engineering, management and pharmacy, and for universities and colleges.
•This is how the first NIRF ranking, brought out last year, had ranked institutions, without combined ranks.
•Among engineering colleges, the IITs at Chennai, Mumbai, Kharagpur, New Delhi and Kanpur are among the top five. Among universities, the top five are IISc, JNU, BHU, Jawaharlal Nehru Centre for Advanced Scientific Research (Bengaluru) and Jadavpur University, Kolkata.
•Asked for his response to JNU’s high ranking given the government’s friction over the last one year, Mr. Javadekar said, “The high ranks of JNU and Jadavpur are for the research work they do, not for raising slogans for Afzal Guru.”
•Among management institutions, the IIMs at Ahmedabad, Bengaluru, Kolkata, Lucknow and Kozhikode are the top five.
•Among colleges, the top five were Miranda House, Delhi; Loyola College, Chennai; Shri Ram College of Commerce (SRCC), Delhi; Bishop Heber College, Tiruchirapalli; and Atma Ram Sanatan Dharm College, Delhi.
•With St Xavier's College in Kolkata ranked sixth and the prestigious Lady Shri Ram College for Women ranked seventh, the rankings took many by surprise.
•Asked why St. Stephens and Hindu College in Delhi figured nowhere, a senior official said: “The rankings are of only those colleges that participated. These may not have taken part at all.”
•The NIRF ranked the institutions on the basis of five parameters: teaching-learning resources (student strength, faculty-student ratio, faculty qualifications and experience, financial resources and utilisation); research and professional practice (publications, quality of publications, patents, projects); graduation outcomes (placement and higher studies, salary, Ph.D degrees awarded); outreach and inclusivity (diversity in student pool); and perception (among peers, employers and the public).
•A senior official told The Hindu that the rankings had sought to do justice to the diversity of courses.
•“When we look at graduation outcomes, for instance, we are not just looking at the pay packages. We are looking at how students progress,” the official said. “If a student becomes an influential official or academic, or even goes to pursue education in a top, global institution, we will see these as progress, just as we would look at a good pay package with a good firm as progress.”
Finally, action on bad loans?
Empowering managements and strengthening governance at public banks can resolve the bad loan problem
•After nearly three years of dithering on the part of the National Democratic Alliance government, there is hope now that we will see action in respect of Indian banks’ bad loans. The Finance Ministry and the Reserve Bank of India (RBI) have recently sent out signals to the effect that they are determined to take the bull by its horns. If they follow through, it will brighten the prospects of India’s growth rate moving to 8% in the medium term.
•Bad loans — or non-performing assets (NPAs) — were 9% of total loans of all Indian banks in September 2016. At public sector banks (PSBs), bad loans were 12% of all advances. Another 3% of loans in the aggregate (and 4% at PSBs) have been restructured. The Economic Survey (2016-17) quotes market analysts as saying that 4-5% of loans are bad loans that have not been recognised as such. Thus, total stressed assets — NPAs, restructured loans and unrecognised bad loans — would amount to a staggering 16% of all loans and nearly 20% of loans at PSBs.
The lending boom
•Today’s bad loan problem has arisen from the lending boom that India’s banks embarked on in the period 2004-08, a period that saw economic growth reach the 9-10% range. However, that by itself did not create a problem of the current magnitude. NPAs, which are 9% of all loans today, were only half that level a year before. It is the failure to resolve the bad loan problem over the past several years that has exacerbated the problem.
•Why has the bad loan problem remained unresolved for so long? Put it down to bad luck and serious policy errors.
•The best solution to a bad loan problem is to simply grow your way out of it. This can happen in two ways. One, banks keep financing projects that are not making repayments in full and would qualify as NPAs. They do so in the hope that, once growth revives, cash flows in the projects will improve. Two, banks grow their loan portfolio at a brisk rate. As the denominator in the ratio of bad loans to total loans grows, the bad loan problem automatically diminishes in significance.
•That’s how India’s banking sector came out of the bad loan problem in the early 2000s. Rapid growth in the world economy and the Indian economy provided a painless solution. This time around, however, luck has not favoured the Indian banking system. The global economy has been in a prolonged slump consequent to the financial crisis of 2007-08. The “financing” strategy of continuing to make loans to unviable projects has come unstuck.
•Serious policy errors have compounded the problem. The big policy error was the belief among policymakers that bad governance, bad management and even corruption at PSBs were primarily responsible for the problem. A committee appointed by the RBI and headed by P.J. Nayak argued as much in a report it submitted in late 2014.
•The committee seemed to think that majority government ownership of PSBs was the root cause of the bad loan problem as it meant political and bureaucratic interference with commercial decisions. Such an inference, which has been duly echoed by the media, is patently incorrect. As the Economic Survey of 2016-17 point outs, the bad loan problem is “an economic problem, not a morality play… the vast bulk of the problem has been caused by unexpected changes in the economic environment: timetables, exchange rates, and growth rate assumptions going wrong.” In other words, factors extraneous to bank management and governance are primarily responsible for the problem.
Plodding towards a solution
•How the bad loan problem is understood has crucial implications for policy. If you believe that majority ownership by the government is the primary cause, you would focus on reducing government ownership in banks to below 50%. You would seek to distance the government from making appointments to PSBs, as proposed by the Nayak committee. You would decide that some PSBs were hopelessly weak and seek to merge them with healthier ones. You would judge that PSBs were incapable of resolving bad loans on their own and set up a “bad bank” to which bad loans would be moved.
•These proposals are all politically difficult to handle, time-consuming or (as in the case of a “bad bank”) make impossible demands on financial and human resources. The NDA government seemed to have bought the faulty diagnosis but could not act on most of the prescriptions that followed. It chose to muddle along.
•The government appointed a Bank Board Bureau (BBB) as suggested by the Nayak committee and tasked it with appointing Chairmen and Managing Directors of PSBs. The BBB was also assigned the role of advising banks on restructuring and raising capital.
•The BBB has made little headway. Very few top appointments have happened. The bad loan problem and recapitalisation of PSBs remain unaddressed. This was only to be expected. The government cannot distance itself from key decisions on PSBs while being accountable for their performance. Creating the BBB has only added another layer to decision-making and slowed it down.
•Had the view now propagated by the Economic Survey (and articulated much earlier by the writer) prevailed, the government might have acted swiftly to resolve bad loans, provide the necessary capital to PSBs and strengthen governance at PSBs by revamping their boards. It would have judged that corrections must be made within the existing framework, not by overturning it.
•Realisation that the bad loan problem is not the result of some special villainy at PSBs but a matter of factors extraneous to management has finally dawned, if somewhat late in the day. The initiative has moved away from the BBB and back to the Finance Ministry and the RBI where it rightly belongs.
Empowerment and oversight
•There is clarity now that banks must be empowered to resolve the relatively small number of bad loans that account for a big chunk of the total in terms of value. In many cases, this would mean that banks write off a portion of the loans owed to them.
•Managements at PSBs have been reluctant to do so for fear of inviting action from the Chief Vigilance Commissioner, the Comptroller and Auditor General, the Central Bureau of Investigation and other bodies. To stiffen their spine, we need to put in place an authority that will vet loan settlement proposals put up to it. The BBB has constituted a two-person oversight committee but reports suggest that the committee will not take a view on write-offs. This is not helpful at all.
•We need a larger oversight committee or, as the Finance Ministry has proposed, multiple oversight committees to speedily vet loan write-offs. It makes sense to constitute a Loan Resolution Authority by an Act of Parliament.
•This must be complemented with other measures. Banks must develop the discipline of keeping thorough minutes of the proceedings related to resolution of bad loans. The rationale for particular decisions along with the pros and cons must be properly articulated. This will serve to give bank management a measure of protection.
•The government must provide adequate capital to the banks to cover write-offs and also facilitate fresh loan growth. It must end the delays in appointing Chairmen and Managing Directors of various PSBs. It must also revamp the boards of PSBs by bringing in independent directors of high quality.
•The solutions should have been clear enough long back. It is the misplaced condemnation of PSBs that has held up resolution of the bad loan problem. Doing away with majority ownership of government, mergers, creation of a bad bank — all these are non-starters. The way forward is to empower management and strengthen governance at PSBs.
Welcome assurance
Help in tackling the backlog of cases could radically improve executive-judiciary relations
•The importance of cooperation between the executive and the judiciary in dealing with the unacceptably high number of pending cases in the country cannot be overemphasised. For over a year, there were indications of an impasse over judicial appointments between the two branches of the state, mainly after the Supreme Court struck down legislation to establish a National Judicial Appointments Commission. That phase appears to be coming to an end. Prime Minister Narendra Modi’s assurance to the Chief Justice of India, J.S. Khehar, that his government would contribute its share in reducing the judiciary’s burden is a positive gesture that will be welcomed by the legal fraternity. Speaking at a function to mark the 150th anniversary of the Allahabad High Court, Mr. Modi gave the assurance after observing the pain behind the words of Justice Khehar over the increasing backlog of cases. Justice Khehar’s “ dil ki baat (talk from the heart)” on the problem underscored an institutional anguish that has gripped the judiciary over time. Successive Chief Justices have brought to the government’s notice the state of affairs with regard to both the alarming docket situation and the chronic shortage of judicial hands in the superior and subordinate judiciary. The previous Chief Justice of India, T.S. Thakur, had highlighted the point in public functions as well as during judicial hearings, once even wondering if the government wanted to bring the judiciary to a grinding halt by its reluctance to fill up vacancies. If the Prime Minister’s latest remarks represent a fresh resolve not to let such an impression gain ground, it will surely represent a new beginning in the executive-judiciary relationship.
•Mr. Modi did not spell out whether his assurance to contribute to the process meant his government would expedite the process of appointing judges, but there is no doubt that this will be the most significant contribution as well as the government’s responsibility. Official figures show there are as many as 437 vacancies in the High Courts alone as of March 1, 2017. It is incontestable that any effort to liquidate the arrears of cases would involve a significant increase in the speed at which judicial appointments are processed. Mr. Modi also spoke of the use of technology and digitalisation in the judicial system, a point that is of undoubted relevance when one considers the magnitude of the task of reducing the backlog. There is much that the use of technology can do in both liquidating arrears and expediting processes such as filing of documents and serving of notices. Meanwhile, reports suggest that the government and the Supreme Court Collegium may be close to agreeing on a new Memorandum of Procedure for judicial appointments. If differences that caused a prolonged stand-off are eliminated and a new procedure agreed upon, there cannot be better tidings for the institution.
Defence Ministry nod to buy Barak missiles
Council meet, led by Jaitley, clears various proposals
•The Defence Acquisition Council (DAC) of the Defence Ministry on Monday approved the purchase of Barak surface-to-air missiles (SAM) for the Navy among other proposals estimated at ₹860 crore.
•This was the first DAC meeting after Finance Minister Arun Jaitley took additional charge as Defence Minister following the sudden exit of Manohar Parrikar to take charge as the Chief Minister of Goa after the Assembly elections.
Navy warships
•Israeli-built Barak short-range SAMs are installed on most of the front-line warships, including the aircraft carrier INS Vikramaditya.
•The new missiles are urgently needed to replace the current ones which have completed their shelf life. A Ministry source said the procurement of Barak missiles was approved with a categorisation of “Buy Global” under the option clause from Rafael Advanced Defense Systems Ltd.
•The other deals include procurement of expendable Bathy thermograph systems for the Navy to detect temperature changes under water through the foreign military sales route from the U.S. and procurement of equipment to counter mines in the sea, a repeat order, worth ₹311 crore.
‘SASEC Group can add $70 bn. to GDP’
Will leverage natural resource-based industries to achieve the goal: members
•Finance Ministers of the member-countries of the South Asia Subregional Economic Cooperation (SASEC) grouping said the growing cooperation between them could generate an incremental $70 billion in GDP and additional employment of 20 million annually by 2025.
•The joint statement, made in Delhi following a meeting of the Finance Ministers from Bangladesh, Bhutan, India, Nepal, Maldives, and Sri Lanka, also welcomed Myanmar into the coalition.
•“We envision SASEC to be powering Asia in the 21st century,” the joint statement said. “We will accelerate and sustain the growth momentum of recent years by unlocking the hitherto untapped potential of the subregion’s natural resources, industry and infrastructure through subregional cooperation. “We believe that these synergies can generate annually, an estimated $70 billion in incremental GDP and 20 million in incremental aggregate employment by 2025,” the statement said.
•To do this, the countries will leverage natural resource-based industries by tapping into latent industrial demand in the subregion and promote subregional industry- to-industry links to develop regional value chains and enhance the area’s competitiveness.
•The Finance Ministers also committed to enhance the connectivity within the member countries and between them to improve productivity.
Myanmar’s role
•“We welcome Myanmar, which recently joined the SASEC family. We recognise Myanmar’s important role in linking South Asia, and Southeast and East Asia–a vital imperative in boosting economic activity in Asia in this time of subdued global growth,” the statement said.
•The Finance Ministers also reflected on the achievements of the grouping and the member-countries over the last 16 years.
