📰 Once hero, now ‘white elephant’
•She served the Indian Navy and the nation for over 36 years and could have become only the second submarine museum of the country. But since her decommissioning in 2010, the Russia-designed submarine INS Vagli has taken a tedious and uncertain course. She currently lies idle at the Chennai port.
•The submarine, which was to be the centrepiece of the maritime heritage museum planned by the Tamil Nadu government in the tourist town of Mamallapuram, was expected to be displayed on a 30-acre stretch of land near the Shore Temple of the UNESCO-declared World Heritage group of monuments.
•However, the inability of a contractor to mount the submarine on the intended site at Mamallapuram has forced the vessel to lie idle at the Chennai port.
•While government sources say on condition of anonymity that the project turned out to be a “white elephant” and that they have urged the Navy to “take back” the vessel, Navy sources deny having received any such proposal.
•An official of the Chennai Port Trust confirmed that the submarine was still lying on its premises. “Officials have been regularly paying the dues,” the official added.
Plan made in 2012
•The Tamil Nadu government, under Chief Minister Jayalalithaa had in June 2012 decided to set up the maritime museum with the submarine, and senior Navy officials handed over INS Vagli to it in April 2013.
•In November that year, the then Tourism Minister S.P. Shunmuganathan visited Visakhapatnam along with senior officials to study the museum there, housed in the decommissioned submarine INS Kursura.
•INS Vagli has since witnessed a series of incidents. In January 2014, a worker died of asphyxiation while trying to clean the submarine. He was attempting to retrieve his cellphone, which had fallen into the vessel. Two others were hospitalised in the incident.
•Later that year, in April, a company that was awarded a contract towed the vessel to Mamallapuram, only to find that the submarine could not be mounted on the intended platform at the historic town. In June that year, INS Vagli was towed back to Chennai port.
Petitioner moves court
•Meanwhile, in April 2015, a petitioner moved the Madras High Court, seeking to find an alternative site for the museum, contending that the submarine being a “huge piece of voluminous scrap” had the “potentiality of inviting lightning”. However, the petition was dismissed by the Madras High Court, which observed that the matter fell purely within the administrative domain.
‘Wasteful expenditure’
•A 2016 report of the Comptroller and Auditor General (CAG) of India questioned the process adopted by the government to move the submarine to Mamallapuram in one piece and observed that an “infructuous expenditure of Rs. 4.41 crore” was incurred due to a lack of proper planning.
•In December 2016, the submarine was almost damaged when Cyclone Vardah hit the Chennai coast.
•INS Vagli was commissioned into the Indian Navy at Riga in Latvia, which was part of the erstwhile Soviet Union in 1974, and was decommissioned at Visakhapatnam in December 2010.
📰 Spanish scientists develop ‘anti-Zika drug’
Compound previously used as antibiotic
•Researchers from a southeastern Spanish university announced the discovery of a molecule that could be used as a potential drug to fight the effects of a Zika virus infection.
•In a statement on Saturday, the San Antonio Catholic University of Murcia said that scientists belonging to its Bioinformatics and High-Performance Computing research group had found that a compound previously used as an antibiotic countered the symptoms of the mosquito-borne disease, Efe news reported.
•“It’s a drug that had been withdrawn from the market because it had lost its potency as an antibiotic, but we know it can be administered to humans,” said Jose Pedro Ceron, a member of the research team.
•The molecular structure of the proteins involved in the Zika virus’ replication process was first described only a year ago.
📰 Russia keen on selling MiG-35 jets to India
Official says talks on technical specifications are on
•Russia is keen on selling its new fighter jet MiG-35 to India with the MiG corporation’s chief saying the country has evinced interest in the aircraft and talks were on to understand its requirements.
•The Director-General of Russian Aircraft Corporation MiG, Ilya Tarasenko, said the MiG-35 was “the best” and definitely better than Lockheed Martin’s fifth-generation combat aircraft F-35.
•He claimed that the MiG-35 would beat the American jet in air-to-air combat.
•Mr. Tarasenko, while talking to presspersons on the sidelines of the MAKS 2017 air show here, said after having presented MiG-35 in January, the MiG corporation began to promote the aircraft in India and in other parts of the world actively.
•“We are proposing supply of the aircraft for tenders in India and we actively work with its Air Force in order to win the tender,” he said.
Multi-purpose jet
•The MiG-35 is Russia’s most advanced 4++ generation multipurpose fighter jet developed on the basis of the serial-produced MiG-29K/KUB and MiG-29M/M2 combat aircraft.
•Asked if India had expressed any interest in MiG-35, Mr. Tarasenko said, “Of course they have.”
•MiG aircraft have been used by India for almost 50 years.
📰 ‘India’s approach to U.S. and China differs’
Former Obama aide explains how
•India frequently and assertively tries to shape comments from the United States on Pakistan during crises, but it does not do so in the case of China, said Dr. Joshua T. White, a former White House and Pentagon official in the Barack Obama administration.
•“The U.S. is largely sympathetic to the challenge that India faces in dealing with a territorially assertive China. Given the nature of Sino-Indian disputes, India technically does not ask for our help because it does not need it. But it knows that Washington presents a sympathetic ear and that if there were to be wider a Sino-Indian crisis, we will have a totally different conversation,” Dr. White said in conversation with The Hindu .
•This is in complete contrast to the approach taken on issues concerning Pakistan, where New Delhi is quite keen for condemnation of Islamabad’s actions from Washington, he added.
•“It is understandable that India more frequently and assertively tries to shape U.S. comments on Pakistan, given the nature of the U.S. relationship with Pakistan and the ways in which the U.S. has, by default, served as an intermediary in a crisis,” Dr. White stated.
Doklam standoff
•India is presently engaged in a major standoff with China at Doklam near the India-Bhutan-China tri-junction. On the Western side, there has been a flare-up in tensions along the Line of Control (LoC) with Pakistan. While the India-China stand off began in June 16, the flare up on the LoC has been going on since the terror attack on the Army camp in Uri in September last year.
•In the early hours after Uri, India was quite assertive in wanting the U.S. government to label this incident as a cross border attack from Pakistan, said Dr. White, who is now an Associate Professor and Fellow at the Johns Hopkins University.
•While the U.S. was sympathetic to the Indian position, he said, “We wanted to do our own assessment of the attribution before we made a statement.”
📰 CAG flags delay in work on corvettes
‘Designs constantly modified resulting in inadequate systems, inflated costs of anti-submarine vessels’
•The Comptroller and Auditor-General (CAG) has faulted the Navy and Garden Reach Shipbuilders and Engineers Ltd. for delay in construction of anti-submarine warfare corvettes and hampering their capabilities because of delayed decisions.
•The report said the approved designs were amended 24 times till as late as last year.
Weapons not installed
•In the report presented in Parliament last week, the CAG, referring to specific equipment to be installed on two of the four ships delivered, said, “Against the 18 weapons and sensors to be installed on ASW corvettes, audit observed that the two ASW corvettes delivered were not fitted with ‘X’ weapon and sensor systems. Thus, ASW corvettes could not perform to its full potential as envisaged.”
•On the overall project, the report noted that while the Letter of Intent (LoI) was issued in March 2003, only a sketchy specification of the ship was made available to Garden Reach Shipbuilders and Engineers Limited (GRSE) and finalisation of system design as well as specification of equipment, weapon and sensor fit were to be undertaken by the Directorate of Naval Design.
•“The Directorate of Naval Design finalised the same only in the year 2006 and major modifications continued till 2008,” the audit report said.
•Due to the major design modifications, the cost went up from the original sanction of Rs. 3,051.27 crore to Rs. 7,852.39 crore.
•The first corvette was delivered to the Navy in July 2014 and the second in November 2015.
•According to the contract for the project, the third ASW corvette should have been delivered in July 2014 and the fourth one in April 2015.
•The auditor also noted that harbour acceptance trials (HATs) were still pending as of December 2016 in respect of the second ASW Corvette for over a year.
Trials incomplete
•In addition, Sea Acceptance Test (SAT) on six weapons and sensors in the first corvette and all weapons and sensors on the second one were pending satisfactory completion.
📰 Payments bank: for the informal sector
How is a payments bank different from a commercial bank?
•There are two kinds of banking licences that are granted by the Reserve Bank of India - universal bank licence and differentiated bank licence. Payments bank comes under a differentiated bank licence since it cannot offer all the services that a commercial bank offers. In particular, a payments bank cannot lend. It can take deposits upto Rs. 1 lakh per account and it can issue debit cards but not credit cards. Commercial banks in India like State Bank of India or ICICI Bank, do not have any such restrictions.
What is the objective of a payments bank?
•The main objective is to further financial inclusion by providing small savings accounts and payments/remittance services to migrant labour workforce, low income households, small businesses and other unorganised sector entities.
Besides remittance, can payments bank undertake any other activity?
•A payments bank can work as a business correspondent (BC) of another bank. They can also distribute simple financial products like mutual fund units and insurance products.
How many payments banks have commenced operations?
•Out of the 11 entities that received in-principle licence for opening payments bank, 7 entities received the final licence. Four payments banks have started operations — Airtel Payments Bank, India Post Payments Bank, Paytm Payments Bank and Fino Payments Bank.
What is the minimum capital requirement for a payments bank?
•RBI has mandated the minimum paid-up equity capital for payments bank at Rs. 100 crore.
Where can a payments bank deploy its deposits?
•Apart from maintaining Cash Reserve Ratio (CRR), these entities have to invest a minimum 75% of demand deposit balances in Statutory Liquidity Ratio (SLR)-eligible government securities or treasury bills with maturity of up to one year and hold a maximum of 25% in current and time/fixed deposits with other commercial banks for operational purposes and liquidity management.
Who all are eligible to set up a payments bank?
•RBI permits non-bank Prepaid Payment Instrument (PPI) issuers, individuals and professionals, non-banking finance companies (NBFCs), corporate business correspondents (BCs), mobile telephone companies, super market chains, companies, real sector cooperatives that are owned and controlled by residents and public sector entities to apply for a payments bank licence. Setting up of a joint venture by a promoter with an existing commercial bank is also allowed.
📰 MPC members to get Rs. 1.5 lakh per meet, must disclose assets
RBI panel will need to observe ‘silent period’ 7 days before and after rate decision
•The government appointees on the powerful Monetary Policy Committee will be paid Rs. 1.5 lakh per meeting along with air travel and other reimbursements, but will need to observe a “silent period” seven days before and after the rate decision for “utmost confidentiality”.
•The silent period and confidentiality requirements will also apply to the three RBI members, including the Governor, on the panel that has been deciding on policy rates since October last year, the central bank has said.
‘Conflict of interest’
•The members of the RBI Governor-chaired panel, which has to hold meetings at least four times in a year, are also required to be mindful of any conflict between their personal and public interest while interacting with profit making organisations and making personal financial transactions, the Reserve Bank said in its newly notified regulations for functioning of the committee.
•The six-member MPC, constituted in September 2016, has three persons appointed by the central government while the rest, including the Governor, are from the RBI.
•The members appointed by the government would “receive a remuneration of Rs. 1,50,000 for devoting time and work for each meeting of the committee... which they attend and other expenses relating to air travel, local transportation and accommodation as may be decided by the central board from time to time,” as per the regulations.
•The panel is required to meet at least four times in a year and the RBI has been convening a bi-monthly meeting of this committee.
•Chetan Ghate, professor at the Indian Statistical Institute, Pami Dua, director at the Delhi School of Economics and Ravindra H Dholakia, professor at the Indian Institute of Management, Ahmedabad are the three government-appointed members.
•Their appointment is for a period of four years or until further orders, whichever is earlier.
•Apart from RBI Governor Urjit Patel, Deputy Governor Viral V Acharya and Executive Director M.D. Patra are also part of the committee.
•The regulations do not mention whether any separate allowance would be given to the RBI members on the committee.
•Earlier this year, Mr. Patel and his deputies got a big pay increase with the government more than doubling their basic salary to Rs. 2.5 lakh and Rs. 2.25 lakh per month, respectively.
•The “basic pay of the Governor and Deputy Governors” have been revised retrospectively with effect from January 1, 2016, and marks a huge jump from Rs. 90,000 basic pay so far drawn by the Governor and Rs. 80,000 for his deputies.
•According to the Monetary Policy Committee and Monetary Policy Process Regulations, 2016, MPC members should also take adequate precaution to ensure utmost confidentiality of its policy decision before that is made public and preserve confidentiality about the decision making process,
•These regulations were notified by the RBI earlier this month.
•“While interacting with profit-making organisations or making personal financial decisions, they shall be mindful of, and weigh carefully, any scope for conflict between personal interest and public interest,” the regulations said.
•Each member of the MPC has one vote and in case the numbers are equal, the governor has the casting vote.
•The MPC, which has the responsibility of achieving a set inflation target, should submit a report to the government in case of failure to achieve the required target.
•In such instances, the report shall be sent to the central government “within one month from the date on which the bank has failed to meet the inflation target“.
•The regulations further said the schedule of the MPC meetings for the entire fiscal year needs to be announced in advance.
•At least 15 days of notice is required for convening a meeting ordinarily, but an emergency meeting can be called with 24 hours notice for each member and technology-enabled arrangements need to be made for even shorter notice period meetings.
Annual disclosure
•All members need to disclose their assets and liabilities and update this information once every year.
•“Members shall observe a silent or blackout period starting seven days before the voting/decision ray and ending seven days after the day policy is announced. During this period, they will avoid public comment on issues related to monetary policy other than through the MPC’s communication framework,” the RBI said.
•Also, members cannot reveal outside the committee any confidential information accessed during the monetary policy deliberations.
•After conclusion of MPC meeting, a resolution needs to be made public including on the policy repo rate and any other monetary policy measures at the discretion of the Chairperson while keeping in view the functioning and timing of financial markets.
📰 Forum concerned at ‘secret’ RCEP talks
Govt. should agree to a debate, says Yogendra Yadav
•Civil society organisations and trade experts on Sunday raised concern over the secrecy surrounding the negotiations regarding a proposed mega-regional Free Trade Agreement (FTA) involving 16 Asia Pacific nations including India and China.
•Technical level talks of the proposed FTA, officially known as Regional Comprehensive Economic Partnership (RCEP), are being held from July 18 to 28 at the Hyderabad International Convention Centre.
•The RCEP, among other things, aims to liberalise investment norms as well as boost trade by eliminating/drastically reducing import duties on goods and bringing down ‘barriers’ in the services sector. The 16 nations account for a combined GDP of close to $50 trillion (or about 40% of the world’s GDP) and are home to around 3.5 billion people.
•After a day-long meeting, the ‘People’s Resistance Forum against FTAs and RCEP’ — an umbrella body representing farmers, industrial workers and service sector employees, street vendors, HIV-positive persons, tribals, environmental activists and women’s organisations, among others — said in a statement that the RCEP would have wide-ranging impact on agriculture, services, access to medicines, investment and e-commerce. Therefore, the government should place the details of the negotiations before the public and hold extensive and meaningful consultations with all stakeholders including the states, it said. Or else, India should immediately withdraw from RCEP negotiations, it added.
•Yogendra Yadav of the Swaraj Abhiyan and the All India Kisan Sangharsh Coordination Committee — who participated in the meeting here to protest the secrecy surrounding the RCEP negotiations — told The Hindu that "the final agreement might have pluses and minuses, but we should not be waiting till then to know whether it benefits only the big corporates and if it harms the interests of the farmers and small enterprises.’’
•He said, “when you can have the draft texts of even nuclear disarmament treaties in the public domain, what is the need to hide the draft text relating to the RCEP talks?” Mr Yadav said the process of scrutiny of FTAs involving India, including the RCEP, was extremely weak in the country. He said the government should immediately agree to a debate in Parliament on the pros and cons of the RCEP. “The RCEP should not be allowed to come into force till it is ratified by Parliament,” Mr Yadav added.
•Biswajit Dhar, professor, Jawaharlal Nehru University, said the RCEP had the potential to eliminate the policy space of the government to address developmental concerns, and that the decisions could adversely impact future generations.
•He said, “according to the government’s promises, these FTAs are good for the country and will raise incomes. If that is so, then why aren’t the people allowed to see and understand what is going on in the FTA negotiations? Why is there such secrecy surrounding an FTA negotiation in a country which claims itself to be democratic?”
•According to the People’s Resistance Forum against FTAs and RCEP, among the apprehensions regarding the RCEP is the one that it might include patents on seeds paving the way for control of the seed sector by multinational companies. It could lead to elimination of duties on milk products and result in huge imports of such items from countries including Australia and New Zealand, the Forum said, adding that such a situation would hit small dairy producers in India. Besides, it could allow foreign investors to sue governments in secret international arbitration cases under an Investor-State Dispute Settlement mechanism, the Forum added.
📰 The boycott ban
Maharashtra’s law criminalising social ostracism is a template for other States
•Maharashtra’s new law prohibiting the social boycott of individuals, families or any community by informal village councils is a step in the right direction, given the pervasive nature of the problem. The progressive legislation, which received Presidential assent recently and was gazetted earlier this month, targets the pernicious practice of informal caste panchayats or dominant sections using ostracism as a means of enforcing social conformity. The Maharashtra Protection of People from Social Boycott (Prevention, Prohibition and Redressal) Act, 2016, may serve as a template for similar legislation in other States. The Act lists over a dozen types of actions that may amount to ‘social boycott’, which has been made a criminal offence punishable with imprisonment up to three years or a fine of Rs. 1 lakh or both. The practices it prohibits range from preventing the performance of a social or religious custom, denial of the right to perform funerals or marriages, cutting off someone’s social or commercial ties to preventing access to educational or medical institutions or community halls and public facilities, or any form of social ostracism on any ground. The law recognises the human rights dimension to issues of social boycott, as well as the varied forms in which it occurs in a caste-based society. Its progressive sweep takes into account discrimination on the basis of morality, social acceptance, political inclination, sexuality, which it prohibits. It even makes it an offence to create cultural obstacles by forcing people to wear a particular type of clothing or use a particular language.
•This is not the first law of its type. Bombay enacted a law against excommunication in 1949, but it was struck down by the Supreme Court in 1962 after the Dawoodi Bohra community successfully argued that it violated the community’s constitutional right to manage its own religious affairs. One hopes the latest Act will not be vulnerable to legal challenge. Article 17 of the Constitution and the Protection of Civil Rights Act outlaw untouchability in all its forms, but these are legal protections intended for the Scheduled Castes. In reality, members of various castes and communities also require such protection from informal village councils and gatherings of elders who draw on their own notions of conformity, community discipline, morality and social mores to issue diktats to the village or the community to cut off ties with supposedly offending persons and families. The case of a mountaineer from Raigad is somewhat notorious. He had conquered Mt. Everest but could not escape a social boycott in his village because his wife wore jeans and did not wear a mangalsutra. It is not a proud moment for a country when special legislation is required to prohibit social discrimination, ostracism and practices repugnant to human dignity. Yet, given the prevailing circumstances, any legislative assault on abhorrent social practices ought to be welcomed.
📰 Taming inflationary expectations
Who’d have thought under the MPC, the first case of deviation of the inflation rate would undershoot the target?
•The official inflation rate dipped to 1.5% last month, the lowest in almost two decades. Inflation is a politically more sensitive challenge than joblessness for the simple reason that it affects everyone, whether you have a job or not.
•India’s long-term record in managing inflation has been very impressive when compared with most developing countries. We have never had the bouts of hyperinflation experienced in many Latin American economies or seen even in countries such as Israel. The relatively high double-digit inflation experienced between 2010 to 2013 was an aberration, which had a political consequence. There have been very few instances of such persistent, multi-year, high inflationary episodes in our history. The credit for this goes to the vigilance of the political system and also to effective monetary management. Inflation is after all a monetary phenomenon — more money chasing fewer goods. So, controlling money supply is part of the strategy for controlling inflation.
Food prices as indicator
•But inflation is also an indicator of whether there is an excess demand or supply of goods. For instance, with a bumper crop of fruits and vegetables, prices plunge, even though money supply might be unchanged. Indeed, the recent drop in the inflation rate has been caused by a steep fall in the prices of vegetables (-17%) and pulses (- 22%). Conversely, and rather ironically, unseasonal rains in the north have destroyed a large part of the tomato crop causing prices to skyrocket. Food prices, especially of perishables, are notoriously volatile. High onion prices, even if temporary, have caused the downfall of governments in past elections. Food prices are a big component in the determinant of the overall inflation rate based on the consumer price index basket. Keeping them low and stable involves policies such as public procurement and a minimum support price regime. Inflation control thus involves a combination of monetary management along with measures to increase supply of goods (in the medium term) as also anti-hoarding measures or the release of stocks from government warehouses.
•Even though price stability is an important goal of government policy, it is now an exclusive mandate given to the Reserve Bank of India (RBI). Last year, in a landmark reform of monetary management, the government officially gave an inflation target to the RBI. Prior to this, the central bank had multiple objectives which included enhancing growth and reducing unemployment, although price stability was undoubtedly paramount. The new paradigm, called the “flexible inflation targeting” framework, aims for a numerical target given by the government. The main tool to achieve it is by setting the benchmark interest rate. This decision is now taken by the six-member monetary policy committee (MPC), chaired by the Governor. The current inflation target is 4% plus or minus 2%. The MPC is deemed to have failed if for three consecutive quarters the inflation rate falls outside the band.
Low inflation pointer
•Who would have imagined that in the new MPC regime, the first instance of deviation of the inflation rate would undershoot, not overshoot the target? Of course, technically, the MPC has not failed, for the June inflation rate of 1.5%, which is below 2%, may be transitory. However, there are strong indications and forecasts by many economists that point to low inflation in the coming months. Those numbers may be in the range of 2 to 4%.
•How did we get to this low inflation scenario? Partly it must be because the money supply has been kept “dear”, or tight. Thus, the benchmark rate (called the repo rate, or the rate at which the RBI gives money to banks) at 6.25% may be too high. Interest rates are the “price” of money, so if they are too high, money becomes scarce. If it is lowered, then there will be more money in circulation, more loans given out. But low inflation is also because of a steep fall in prices of fruits, vegetables and pulses, none of which was caused by high interest rates. These steep falls are highly seasonal. We have also benefited from low and stable crude oil prices, which are a crucial determinant of transport and energy costs.
•All eyes will now be on the MPC which meets again in less than two weeks. There is a strong feeling that high interest rates have deterred big industrial investments, or housing finance. High rates are crippling borrowers who try to come out of near-bankruptcy and are preventing a restructuring of stressed bank loans. India’s real interest rates, i.e. net of inflation, are quite high even compared to other developing countries. Much of the developed world has ultra-low rates, with some countries such as Sweden, Switzerland and Japan even having negative interest rates. India needs much lower rates for higher GDP growth.
•But the job of the MPC won’t be easy. This is mainly because its task is to target future inflation, not the past. The future has some troubling portents. The short run impact of the Goods and Services Tax (GST) is bound to be inflationary. That’s because a bulk of India’s GDP is in services whose tax rate has moved from 15% to 18%. Besides, while sellers wait for their refund, i.e. input tax credit under the GST, their cost of capital locked up might go up. Many State governments have introduced additional levies to counter their apprehension of a loss of revenue under the GST. Besides the GST, there is the impact of the award of the Seventh Pay Commission to government employees. This effect will cascade to public sector organisations and State-level employees as well, and put pressure on prices. A third factor could be the loan waivers announced in some States which can cause fiscal stress. High deficit spending is not compatible with lower interest rates. A fourth factor is the uptick in commodity prices worldwide as metals and food prices are looking up.
•The last, and probably the most important, factor weighing on the MPC’s mind would be inflation expectations. Household surveys conducted by the RBI indicate that people are expecting inflation to be close to 10% , not the 1.5% as is reported now. You may say that these expectations are irrational, but they do affect behaviour. In this season of salary increments, try giving someone a raise of 2%, as is common in the developed world. Workers will howl. Even their official dearness allowance is much higher. The real challenge is to slay this inflation expectations monster. In much of the western world, they are fighting disinflation if not outright deflation. But in India we are still struggling with inflationary conditions and expectations.
•In English the verb for inflation is inflate. It refers to rising prices. But in most Indian languages, the equivalent word in usage is “ mehengaai ”, which refers to affordability and cost of living. Not all inflation is unwelcome. So if stock prices go up, that is good cheer. But “ mehengaai ” is hated by all. A low and stable inflation rate is a perquisite for sustained high economic growth. Mehengaai is antithetical to it. In the medium term, the growth impact of the GST, the improving ease of doing business — and hence increasing supply of goods — and a strong domestic currency, will all help keep inflation low. But the short run challenge is to temper inflationary expectations and keep them tethered.
