📰 India, U.K. resolve to lower trade barriers
Modi offers to discuss freetrade agreement
•India and the U.K. on Wednesday decided to build on the recommendations of a joint trade review to reduce barriers. At his meeting with his British counterpart Theresa May, Indian Prime Minister Narendra Modi pledged that there would be no dilution in the importance of the U.K. to India post-Brexit.
•Mr. Modi said India was ready to commence negotiations on a free trade agreement based on “mutual benefit.”
•In an oblique reference to the cases of Vijay Mallya and Lalit Modi, the Prime Minister also discussed “consular issues including the issue of economic offenders” with Ms. May, an MEA statement said.
•However Foreign Secretary Vijay Gokhale refused to comment on whether Mr. Modi had received any assurances on sending back the absconding businessmen now settled in the U.K.
•The two sides also signed a statement of shared values, emphasising support for a “global outlook and commitment to a rules-based international system.”
📰 Still using chemical weapons
On the latest suspected attack in Douma, Syria
What is the OPCW?
•The Organisation for the Prohibition of Chemical Weapons (OPCW) is a Hague-based intergovernmental body that works for the elimination of chemical weapons. It was formed after the Chemical Weapons Convention — an arms control treaty that bans the production, stockpiling and use of chemical weapons — entered into force in 1997. The OPCW is the implementing body of the Convention. All its 192 member states are required to destroy their existing stockpiles of chemical weapons and stop large-scale production. These actions are subject to verification by the OPCW. According to the OPCW, over 96% of the world’s declared chemical weapons stockpiles have been destroyed. The OPCW has the powers to inspect chemical production facilities. Israel has signed the agreement but is yet to ratify it. The countries that have not signed it are Egypt, South Sudan and North Korea.
What is its mission in Syria?
•A team of inspectors from the OPCW recently arrived in Damascus, the Syrian capital, to probe a suspected chemical weapons attack in the neighbouring town of Douma. Rebels and monitors say chemical weapons were used in the rebel-held town on April 7, killing at least 70 people, while the Syrian regime as well as its Russian backers say the attack was fabricated. The OPCW inspectors will investigate if chemical weapons were actually used in Douma. They will interview witnesses and doctors and collect environmental and biomedical samples from the survivors. Earlier, OPCW had concluded that chemical weapons were used in Syria’s Eastern Ghouta (2013) and Khan Sheikhoun (2017).
Can the OPCW prevent further attacks?
•After the Eastern Ghouta attack, the U.S. and Russia joined hands to take Syria’s chemical weapons out of the country. The operation was carried out under the OPCW’s watch. The organisation’s chief, Ahmet Üzümcü, announced in The Hague in June 2014 that the last of Syria’s declared chemical weapons had been shipped out of the country for destruction. But Syria continued to see chemical attacks, which have been blamed both on the regime of President Bashar al-Assad and the rebels, raising questions on whether Syria has indeed got rid of its arsenal. The Douma attack underscores this fear. The main problem is that even the OPCW has only limited access to Syria. Even with the Douma investigation, there are allegations that Russia has tampered with evidence on the ground. In theory, the OPCW should be allowed to destroy Syria’s entire chemical weapons stockpiles.
📰 Modi and May resolve to reduce barriers
Prime Minister offers to discuss free trade agreement on the basis of ‘mutual benefit’; talks cover Vijay Mallya and Lalit Modi
•India and the U.K. on Wednesday decided to build on the recommendations of a joint trade review to reduce barriers.
•At a meeting with his British counterpart, Theresa May, Prime Minister Narendra Modi pledged that there would be no dilution in the importance of the U.K. to India post-Brexit. Mr. Modi said India was ready to commence negotiations on a free trade agreement based on “mutual benefit”.
•In an oblique reference to the cases of Vijay Mallya and Lalit Modi, the Prime Minister discussed “consular issues including the issue of economic offenders” with Ms. May, an External Affairs Ministry statement said. However, Foreign Secretary Vijay Gokhale refused to comment on the specifics of the conversation and whether Mr. Modi had received any assurances on sending back the absconding businessmen now settled in the U.K.
•The two sides also signed a statement of shared values, emphasising support for a “global outlook and commitment to a rules-based international system”.
•Brexit and the potential to increase trade figured in discussions between Mr. Modi and Ms. May during the first of two bilateral meetings here on Wednesday, ahead of the Commonwealth Heads of Government Meeting.
New partnership
•Britain and India agreed to forge a new India-U.K. Trade Partnership, building on the trade review carried out over the past year, focussing on life sciences, IT, food and drink. A U.K.-India Tech Partnership, and research partnership was also agreed upon.
•“We share a global outlook and commitment to a rules-based international system that strongly opposes unilateral actions that seek to undermine that system through force or coercion,” said the joint statement from the Prime Ministers.
•Downing Street said that Ms. May offered reassurances that the transition period to leaving the EU, set for the end of 2020, would give Indian firms and investors the visibility they needed up to this period.
•“Prime Minister Modi said there would be no dilution in the importance of the U.K. to India post-Brexit,” said Downing Street in a statement. The chemical weapon attacks in Syria and Salisbury were discussed. The issues raised included the release of the Chennai Six - former British soldiers released by Indian authorities last year.
📰 The soft power of India
A mere wish to be praised as a global or regional power should not be allowed to guide our foreign policy
•There is a lot of talk these days, not so much among government circles as among the ‘strategic community’, about India being a major or even global power, with the capability, even responsibility, to play an ‘important role’ on the world stage as a balancing power between major powers and as a ‘security provider’ to others. We need to temper this rhetoric, be more realistic and less ambitious. The dividing line between national pride and national ego can be thin.
Nehru’s vision
•India’s first Prime Minister Jawaharlal Nehru was convinced that India was bound to play an increasing and beneficent part in world affairs. He had developed a zeal for diplomacy that was not backed by the needed military and economic hard power. He was banking on our moral high ground because he and the nation were proud of the non-violent manner in which we had achieved our independence. As early as 1948, he declared: “India had already become the fourth or fifth most influential country in the United Nations.” This was a strange claim; just a year earlier, we were forced to withdraw our candidature for the Security Council when Ukraine, which was contesting the same seat, secured more votes than us in seven successive ballots in a single day. We have been afflicted with this malady ever since.
•Over the decades, no doubt influenced by our experience in the early years in Kashmir and China, the idealist strain has diminished and eventually disappeared altogether; national interest alone would guide our policy. This is not necessarily an undesirable thing. The only caveat is that we have to be realists and check the inexplicable urge to play a big role in international relations.
•We have to ask ourselves: What kind of role do we want to play? Where and how do we want to play the role? Do we have the means to play such role?
Status and responsibility
•Leaders everywhere look for a role for themselves. They believe, perhaps genuinely, that an increased prestige for themselves will translate into more votes domestically and ipso facto bring benefits to their countries. The driving factor is prestige, status. Often the leaders do not realise that playing a role carries with it responsibilities which we may not be able or keen to accept but which we might be dragged into. These responsibilities would be defined by others and would invariably involve us into tasks and areas which we may not wish to get involved in.
•Are we clear about the kind of role we wish to play internationally? Do we have a role model for it? Do we wish to emulate what Vladimir Putin’s Russia is doing in West Asia? Or, what the Soviet Union did in Afghanistan in the 1980s or what America did in Iran in 1953, in Indo-China in the 1950s and 1960s, and frequently in Central and South America? All those operations lacked legitimacy and for the most part cost the countries concerned dear in human and material terms. Nor did they bring them glory. One will look in vain for an example when such a role was played with benign intentions.
Regional aspirations
•If not global, what about a regional role, in our neighbourhood? Experts seem unanimous that India is certainly a regional power. But is it? Recent events do not lend support to that view and the government was right in not paying heed to that rhetoric. India is without doubt the pre-eminent power in South Asia. However, given our firm commitment not to use force and to non-interference in internal affairs in other states, our neighbours do not feel threatened by us. (We do not rule out strong measures when we have to.) We did make a huge effort in Sri Lanka to bring peace and stability to that country and we did so at the request of its lawful government. The venture ended in failure and eventually cost the life of a former prime minister. Small-scale interventions in the Maldives and the Seychelles in the 1980s were successful in stabilising legitimate governments. To that extent, India was able to play a positive role in the region. In these examples, the motivating factor was not prestige, there were domestic factors at play. The resulting increase in our prestige was incidental. If intervention does not succeed, as in Sri Lanka, the ensuing loss of prestige more than offsets whatever prestige we might have gained in the other operations. Often, when a country gets involved in what might be assessed as a low cost foreign adventure, it remains bogged down even when the going gets tough precisely because it apprehends loss of face or prestige. It is easy to get in but difficult to get out.
The real goals
•Apart from protecting our people from adverse external factors and interventions, the principal criterion in the conduct of foreign policy for India ought to be lifting the poor from poverty. Whatever brings concrete benefits to our people should be encouraged. A mere wish to be praised as a global or even regional power should not be allowed to guide the policy. When other countries flatter us by describing us as a major power, it is invariably because they want to rope us into some schemes of their own. It is best not to get too entangled in the chess moves of other countries. The principal interest of most of them is to sell very expensive military hardware to us. Our single minded focus should be on economic development. Without the necessary economic strength, we cannot strengthen our military. We do need a strong military but for that we need undisturbed double digit economic growth for a generation. Prime Minister Vajpayee’s seasoned adviser Brajesh Mishra’s advice was sound: do not provoke nor get provoked for two decades, concentrate on building the economy. Since we do have to think critically about allocating our scarce resources among alternative uses, and since we are a democratic polity with a multi-religious and multi-ethnic society with a large number of poor, we have to think more than twice about defence spending. Even when at some stage we acquire credible hard power, we must not allow ourselves to be seduced by the flattering and mostly insincere talk of others about India playing a global role.
•When I used to visit West Asia on behalf of Prime Minister Manmohan Singh, my interlocutors expressed their admiration, not so much for our economy or military, but for the orderly manner in which power was transferred from one party to another and for the largely harmonious and peaceful, integrated manner in which people of different faiths lived together. An internally divided India cannot play any role externally. The ‘strategic community’ should concentrate on reinforcing this real soft power of India which is what the rest of the world appreciates and not lose time and resources in peripheral ventures that bring no lasting benefit.
📰 China stresses on ties with Nepal, India
Beijing seeks common ground with New Delhi for the Himalayan nation’s growth
•China on Wednesday proposed an understanding with India on Nepal, to help develop a trilateral partnership, which would include setting up a trans-Himalayan economic corridor.
•China’s Foreign Minister and State Councilor Wang Yi said during a press conference with his Nepali counterpart Pradeep Kumar Gyawali, “Nepal’s development should be a common understanding between China and India.” “I believe that China, Nepal and India are natural friends and partners. We are neighbours connected by the same mountains and rivers,” Mr. Wang said. “As we say in China, family members and neighbours wish each other well.”
•Mr. Wang’s appeal for a trilateral bonhomie came at a time when India and China are trying to impart buoyancy to their post-Doklam ties. In parallel, India-Nepal ties are also in the reset mould, highlighted by a red carpet welcome that was accorded to Nepal’s Prime Minister K.P. Sharma Oli during his visit to New Delhi last week.
•India-Nepal ties had been earlier hit following New Delhi’s unofficial blockade of essential supplies to its Himalayan neighbour, prompting Nepal’s outreach to China via Tibet.
Benefits for neighbours
•“As two major emerging economies, China and India shall deliver benefits to their neighbours, Nepal included” Mr. Wang said, stressing that China’s big plans to develop connectivity and infrastructure were part of the Belt and the Road Initiative.
•But once these projects were complete, it could further yield the emergence of a trans-Himalayan corridor, which could benefit China, India and Nepal.
•He highlighted that that China and Nepal had agreed on a “long-term vision of a multi-dimensional trans-Himalaya connectivity network”, under the BRI. These projects would cover seaports, railways, highways, aviation, power, and communication sectors.
•“We believe that such a network when well-developed can also provide conditions for an economic corridor connecting China, Nepal and India. We hope that such cooperation will contribute to the development and prosperity of all three countries.”
•In an apparent signal to India, Mr. Wang pointed to Nepal’s geography — its linkages with both China and India — as the basis of trilateral cooperation. “Nepal on its part wants to leverage its geographical advantage and connect China and India for greater development. And Nepal stands as a natural beneficiary from sound cooperation from China and India… I think it should be supported by both China and India.”
📰 Make BCCI a public body: law panel
Commission also wants the cricket board to be brought under RTI Act for scrutiny by any citizen
•The 90-year-old Board of Control for Cricket in India (BCCI) should be declared a public body. The board and all its member cricket associations should be brought under the Right to Information law regime, the Law Commission of India recommended to the government on Wednesday.
•The board’s monopolistic activities, directly and indirectly, affect the fundamental rights of citizens, players, and other functionaries.
•A private citizen should be able to move the highest court against the BCCI for any violation of his fundamental rights, the Law Commission led by former Supreme Court judge, Justice B.S. Chauhan, said in its 128-page report handed over to Union Law Minister Ravi Shankar Prasad.
•The commission said the board has been “flying under the radar of public scrutiny and encouraged an environment of opacity and non-accountability.”
Corruption concerns
•It has created “an impression in the minds of the general public that corruption and other forms of malpractices are adversely affecting one of the most popular sports played in India.”
•“The BCCI should be held accountable, under all circumstances, for any violations of basic human rights of the stakeholders,” the commission recommended to the government. The commission, which is the government’s highest law advisory body, concluded that the BCCI exercises ‘state-like’ powers in the regulation of cricket, and thus, comes under the definition of ‘state.’
•The BCCI virtually acts as a National Sports Federation (NSF). The commission recommended that the Ministry website should explicitly mention BCCI in the list of NSFs. This would automatically bring it within the purview of the RTI Act, the commission said.
•Listing some of the reasons why it concluded that the BCCI is a “limb of the state”, the commission pointed out how the cricket board, as an entity, is permitted de facto by the state to represent the country at the international stage.
•It selects the Indian cricket team. The selected players wear the national colours and are the recipients of Arjuna awards. The ICC recognises BCCI as the ‘official’ body representing India and neither the government, nor BCCI have ever challenged, discussed or changed the status.
•The commission highlighted the political significance wielded by the BCCI.
📰 Minority institutions panel gets court relief
NCMEI has jurisdiction to determine minority status: SC
•The Supreme Court on Wednesday held that the National Commission for Minority Educational Institutions (NCMEI) has original jurisdiction to determine which institution should be granted minority status.
•A Bench of Justice A.K. Goel said the Constitution granted a fundamental right to all minorities, whether based on religion or language, to establish and administer educational institutions of their choice.
•The wide power given to an independent forum like the NCMEI to declare an institution as a minority educational institution furthered the fundamental right guaranteed under Article 30.
•Justice Nariman, who authored the judgment, said the NCMEI Act empowered the Commission “to decide all questions relating to the status of an institution as a minority educational institution and to declare its status as such.”
•“Section 11(f) would include the declaration of the status of an institution as a minority educational institution at all stages,” the judgment agreed with the submissions made by senior advocates Sanjay Hegde, C.U. Singh and advocate Romy Chacko.
•The court held that the NCMEI had the power to decide any question that might arise, which relate directly or indirectly, with respect to the status of an institution as a minority educational institution.
‘At all stages’
•The Supreme Court held that the NCMEI could declare an establishment as a minority educational institution “at all stages.”
•Justice Nariman said the 2006 amendments to the NCMEI Act introduced a “sea change” to the Commission’s powers. The 2006 amendments even conferred powers of appeal against orders of the competent authority to the NCMEI. A power of cancellation was also vested in the NCMEI to cancel a certificate granted either by an authority or the NCMEI.
•The apex court overruled a Calcutta High Court judgment which set aside the NCMEI decision to grant minority status to Cluny Women’s College.
📰 More to cash crunch than supply issues
Currency in circulation has grown slower in the past 2 years than GDP growth; digitisation has not helped cut the demand
•The unusual cash crunch situation in several States has thrown up a conundrum. Is this due to an unmet demand in cash supply or an unusual drop in the circulation of currency due to high withdrawals that have dried up ATMs? A look at data related to cash in circulation and GDP growth shows that there are both supply and demand issues that have resulted in the cash crunch in some States.
•Partly these issues are a consequence of the demand related issues that have lingered since demonetisation, exacerbated by specific local considerations related to elections. Partly, these are related to the government’s desire to keep the cash-GDP ratio low, one of the justifications for demonetisation.
Peak and trough
•A look at cash in circulation in February 2018 shows that it has peaked, increasing steadily after hitting a trough in December 2016 (after demonetisation) [Graph 1]. The rise in cash use has resulted in an increase in the cash-GDP ratio to 10.7% in the present year from a low of 8.8% for FY 2016-17. But it is still lesser than the 11.6% before demonetisation.
•A look at the growth rates in GDP and cash in circulation every two years since 2012 [Table 1] shows that the latter has grown slower than the GDP rates hinting at a possible unmet demand in cash. If the cash-to-GDP ratio did not precipitously decline due to the artificial withdrawal of cash during demonetisation and had remained more or less intact, the cash requirements should have been much higher for the economy.
•One argument that the government has used since demonetisation is that there has been a significant increase in digital transactions of money which has mitigated the need for cash in the economy. A look at PoS transactions shows that there has not been an appreciable growth. Combined with mobile wallet payments (which went up but remained low - Rs. 131 billion), this is not enough to mitigate the unmet cash demand.
•The RBI in its statement responding to the cash crunch issues, said that there was no shortage of currency and that there was sufficient cash to meet the demand. The economic affairs secretary, on the other hand, pointed to a slew of possible reasons, including the lack of adequate deposits of Rs. 2,000 due to hoarding. Hoarding could not only be a cause for the unmet demand but could also be a consequence of it, as people tend to hoard if they perceive that it is difficult to access or withdraw money. Despite the RBI’s denial of a cash crunch, the Secretary’s statement about printing new Rs. 500 notes suggests that there is indeed a case of an unmet demand in cash, which is acute in some States such as Karnataka, Andhra Pradesh, Telangana, Madhya Pradesh and Bihar.
•Karnataka has elections scheduled next month and cash use has been known to be high during polls. A.P., Telangana, Rajasthan and Madhya Pradesh also have elections scheduled later this year or within a year from now. Bihar figuring in this list must have to do with the fact that it has the lowest ATM density among major States; this means a relative lack of supply to a large population.
Supply issues
•Beyond reasons of demand, there is also the fact that the RBI has either halted or slowed down its supply of Rs. 2,000 notes and has instead supplied lower denomination notes to meet cash requirements.
•The break-up of currency notes in circulation as of now is unavailable, but Rs. 2,000 notes constituted close to 50% of the total value of cash in March 2017. Since April 2017, more than 48% of the new notes supplied have been of lower denominations, according to a reply by the Ministry of Finance in the Lok Sabha.
•The Rs. 2,000 notes were themselves printed to quickly replace the loss of the old Rs. 500 and Rs. 1,000 notes (which together constituted 86% of the value of currency before demonetisation). If Rs. 2,000 notes are being hoarded, this explains why the supply of lower denomination notes are not enough to meet cash requirements.
•An investigation by the data portal Factly into the cash crunch in Telangana by looking into the supply of notes to currency chests of the State Bank of India in the State bears this out.
•Between October and December 2017, there was a drastic fall in the supply of Rs. 500 and Rs. 2,000 notes to SBI, the largest public sector bank in India and which has the highest number of currency chests in the country. It is not a surprise that the government has been left with no option but to increase the cash flow by printing more Rs. 500 notes immediately.
•The cash crunch seems a consequence of both demand and supply issues.
📰 People have lost trust in banks: Chidambaram
Former Finance Minister says the ghost of demonetisation has come back to haunt the government and the RBI
•Commenting on the cash crunch reported from various parts of India, the former Finance Minister P. Chidambaram said on Wednesday that it could be a sign of “loss of confidence” in the banking system because of the bank scams. He said the “ghosts of demonetisation has come back to haunt” the government and the RBI.
•“I suspect ordinary people are withdrawing cash and not putting back into banks their surplus cash. It is possible that there is some loss of confidence in the banking system, thanks to the bank scams,” Mr. Chidambaram said as he diagnosed the cash situation in a series of tweets.
•“The ghost of demonetisation has come back to haunt the Govt/RBI. Why are ATMs still being re-calibrated even 17 months after demonetisation? After demonetising 500 and 1000 rupee notes, Govt printed Rs 2000 notes! Now, Govt is complaining that Rs 2000 notes are being hoarded!! We always knew that Rs 2000 notes were printed only to help hoarders,” he said.
•Finance Ministry sources, however, said the situation had improved with better coordination with the RBI and the cash logistics companies that feed currency into ATMs.
•Government sources said close to 80% of the two lakh ATM machines were dispensing cash on Wednesday to ease the situation substantially. Sources in the Finance Ministry said it had also “started collecting data of cash withdrawals to examine if there was a pattern to them”.
•While several theories are doing the rounds on what caused the crunch – from harvest festivals on April 13 to crop procurement to the need for cash for the impending elections in Karnataka – the shortage of Rs. 2000 notes seem to indicate that people may be stocking up cash.
SBI research
•SBI Research said cash withdrawals in the second half of the the financial year 2017-18 was 12.2% higher than that in the previous six months. It put the shortfall in cash by Rs. 70,000 crore.
•In the past couple of months, Andhra Pradesh, Telangana, Uttar Pradesh, Madhya Pradesh, Bihar, Gujarat, West Bengal, Delhi and poll-bound Karnataka have seen a spike in demand for cash.
•“Sir, with due respect the cash shortage in Banks & ATMs is neither sudden nor temporary. I’ve been hearing complaints for over 3 months repeatedly in Hyderabad. Pls have RBI & Fin Min team dig deeper & not brush away an issue that is eroding people’s confidence in banking system,” tweeted K.T. Rama Rao, Telangana’s Minister of Information Technology.
•Mr. Chidambaram blamed the RBI of miscalculating the cash situation to deal with the post-harvest season. “I also suspect that RBI seriously miscalculated demand for cash in the post-harvest season. Is it correct that currency in circulation has increased by only 2.75% since demonetisation? If so, I maintain that Govt/RBI are not allowing money supply to grow at the same rate as the nominal GDP,” he said.
📰 Centre proposes relaxation of coastal regulation zone norms
States to get leeway in developing tourism, industrial infrastructure
•The Centre has allowed India’s coasts to be made more accessible to tourism and industrial infrastructure and given individual States considerable leeway to decide how they should plan such development, according to a draft version of the proposed modification to India’s coastal regulation zone plan made public on the Environment Ministry website on Wednesday.
•The coastal regulation zone, or CRZ, 2011, refers to regions in the proximity of India’s 7000-km-long shoreline where buildings, tourism facilities, industrial projects, residential facilities etc are highly regulated. In most cases it begins from the high tide line (HTL) to about 500 metres towards the landward side. The zone is subdivided into regions, with varying leeway for infrastructure development, depending on population and ecological sensitivity.
•The CRZ-1, for instance, includes the most ecologically sensitive areas and according to current laws is off-limits for tourism activities and infrastructure development except for defence, strategic and rare public utilities projects.
•According to the new CRZ, 2018 notification “..nature trails and eco-tourism activities..” may be permitted in CRZ-1 regions provided they conform to state-approved coastal zone management plans.
•The current law, called the CRZ, 2011 also defines as ‘coastal zone,’ the region from the HTL to 100 m of the creek along ‘tidal-influenced bodies’ such as bays, estuaries, rivers, backwaters, lagoons and ponds etc. that are connected to the sea. The proposed laws relax this to 50 metres.
•Earlier, rural habitations or relatively undisturbed areas close to the shore, called CRZ-II, possessed a 200 metre ‘no development zone’. This has now been reduced to 50 metres, provided the area has a population density exceeding 2161 per square kilometre as per the 2011 Census.
•Environmentalists say that the new regulations have been framed without a transparent public consultation process.
•A committee headed by Shailesh Nayak, former secretary, Ministry of Earth Sciences, had framed a report to reconsider the limits of the existing coastal zone regulations.
•The report however wasn’t made public by the Environment Ministry. “It was only after several Right to Information requests that the policy was made available and that too, after pressure from the Central Information Commissioner,” said Kanchi Kohli, researcher at the Centre for Policy Research.
📰 Is the Indian economy really that strong?
The improving fundamentals owe more to favourable external circumstances than to domestic policy choices
•The Indian economy is currently growing at about 7%, after dipping below 6% following demonetisation. It is projected to grow over 7% this year. That is faster than China’s growth rate and makes India effectively the fastest-growing economy in the world.
•The Indian economy’s foundations have also been strengthened in the last few years. Inflation has come down to the 4-5% range. Trade balances with the rest of the world have improved, and the current account deficit has come down to about 1.5% of GDP. India has also systematically built up its foreign exchange reserves — now a comfortable $420 billion.
•These figures appear to tell the story of a dynamic economy. But is it truly that rosy a picture? Deeper analysis indicates that growth may be overstated and the economy prone to significant vulnerabilities.
Kinks to iron out
•In order for growth to be both high and sustainable, investment has to be strong. Investment is the act of adding to our productive capacity — building infrastructure, factories, and enhancing the skill of the workforce. However, the striking fact about India is the weakness in investment, reflected in the sharp decline in the rate of investment in recent years. The rate of investment has come down from 34% of GDP in 2014 to about 30% currently. Compared to earlier years, the decline is even more precipitous: the investment rate is now at the lowest level in about 15 years. A decline in investment of this magnitude is difficult to reconcile with a 7% growth rate. Should investment continue to decline in the future, it would be incompatible with high growth.
•The other kink to the strong growth story is the weakness in industrial production. It was growing at around 6% in 2016, but plummeted to 2% by mid-2017 following demonetisation. While there has been a pick-up in industrial production in the fourth quarter of 2017, that is exaggerated in comparison to the last quarter of 2016 when activity literally froze up. That is, it is again difficult to reconcile strong overall growth of the economy with weak industrial performance.
•Bank financing is important for growth in India. This is particularly true of small and medium-sized enterprises and parts of the agricultural sector where the bulk of the labour force is employed. When there are stresses in the banking system, growth invariably suffers.
•The pace of bank lending has been coming down sharply in the last five years. During 2014-16, bank lending grew at a 10% pace. It is now growing at about 6% following demonetisation. The main reason for the slowdown is the rise in non-performing loans. These have doubled from about 5% of gross loans outstanding in early 2015 to 10% currently, as the Reserve Bank of India (RBI) has forced banks to classify loans stringently. Consequently, banks are now more hesitant to lend. This sharp decline in the growth of bank lending is again not compatible with an economy growing at 7%.
•If these consistency checks indicate an economy growing at much less than 7%, does it imply that the published growth numbers are made up? I do not believe that the growth numbers are being tampered with to show a strong performance. Our statisticians are doing an honest job in compiling what is clearly a difficult job of calculating GDP.
•However, initial estimates of growth are calculated from the more timely data on the formal corporate sector. The economic growth numbers invariably get revised over the subsequent year or two when less timely data from the informal sector become fully available. Demonetisation and the introduction of the Goods and Services Tax, which is a long-term positive for the Indian economy, had far greater adverse effects on the informal rather than the formal sector. Therefore, the initial growth figures, calculated mainly from estimates of the performance of the formal sector, tend to inflate the figures of overall growth of the economy. These will no doubt be revised down in due course. The main point of the consistency checks is to emphasise the need for caution before getting triumphalist about growth. Demonetisation has paradoxically shown initial growth estimates to be higher rather than lower.
•As noted above, there have been improvements in the foundations of the Indian economy through declining inflation, improving trade performance, and strengthening foreign exchange reserves. Moreover, despite the electoral cycles, Central government budget deficits have been broadly under control.
On slippery ground
•However, the improving fundamentals are on slippery ground. While policy measures have helped control inflation, the decline in inflation has largely been driven by extraneous factors. Food and energy prices are important components of the consumer price index and the decline in commodity prices has had a large role in bringing inflation down. Should food and energy prices revert to an increase in the future, it would be difficult for the RBI through its monetary policy actions to bring inflation under control.
•Oil, gold and coal constitute almost 50% of total imports in India. Over the past few years, India’s trade has gained significantly from steep declines in the prices of these commodities. Rather than strong exports, India’s trade improvement reflects the extraneous factor of declining commodity prices. The trade balances would come under renewed pressure should commodity prices, over which India has little control, turn higher.
•Lower oil prices have also benefited the Central government budget through reduced spending on energy-related subsidies. Focus generally tends to be on the Central government budget. However, what is more important is the general government budget — the combined budgets of the Central and State governments. This deficit is still a large 6.5% of GDP. Moreover, India’s debt is a relatively high 70% of GDP and, unlike in a number of emerging market economies, it has not really come down in the last five years. The fiscal position in India constitutes a hidden vulnerability.
•There have been improvements in the Indian economy in recent years. However, the current published growth rate exaggerates underlying strength. The improving fundamentals owe more to favourable external circumstances than to hard domestic policy choices.
📰 Building trust among real estate buyers
Stopping short of implementing the Real Estate Act will adversely affect State governments and builders
•The Real Estate (Regulation and Development) Act, 2016, mandatorily requires promoters to register all real estate projects with the Real Estate Regulatory Authority (RERA) in their respective States. This registration is vital for any real estate project, because even the marketing of a project without this registration is illegal. Naturally, the existence of the RERA and the rules which govern its procedure are important prerequisites to such registration. Almost two years have passed since the enactment of the Act, but there are still some States which are yet to put in place these basic requirements. In Kerala, for instance, there is only an authority and no rules, while in West Bengal, the draft rules haven’t been notified yet.
•The period set for States and Union Territories to establish the RERA and notify the rules lapsed on July 31, 2017. In States which are yet to establish the RERA or notify the rules, a potentially massive legal conundrum has come to exist with respect to the marketing and sale of real estate projects, which have been ongoing or have been initiated after the Act came into force. Since no registration of these projects can be done in the absence of an authority or rules dictating its procedure, a shadow of illegality is cast over the projects for no apparent fault of either the builder or the buyer.
Utilising Section 91
•There is, however, an opportunity to regularise these projects by utilising the powers granted to the Union government by Section 91 of the Act, which states: “If any difficulty arises in giving effect to the provisions of this Act, the Central Government may... make such provisions not inconsistent with the provisions of this Act as may appear to be necessary for removing the difficulty: Provided that no order shall be made under this section after the expiry of two years from the date of the commencement of this Act.”
•This provision can be utilised by the Ministry of Housing and Urban Affairs. The Ministry can issue an order regularising the marketing and sale of real estate projects in States where the regulatory authority or the rules under the Act are yet to be enacted. Any such order regularising these unregistered real estate projects will have to be laid before each House of Parliament immediately after it has been made. However, the time to avail of this opportunity for a preemptive solution is running out. Section 91 can be availed of only for two years from the date of commencement of the Act, i.e. May 1, 2016. This means that the window for using this option will come to a close on April 30.
•Squandering this opportunity will prove costly as buyers and builders will be the immediate sufferers. Revenue losses and stuck investments aside, the courts will be left to ponder a legal technicality which could in turn require amendments to the Act. Needless to say, doing the rounds of courts and waiting for Parliament to make suitable amendments is going to pummel a sector which had only begun to see an upturn. The biggest loss in this melee will be the diminishing buyer sentiment in the sector, something that the Act was brought in to remedy.
•State governments have devised ways of reducing the scope of the legislation by tweaking definitions, moved court to stall the implementation of the Act, and even put off the implementation of the Act entirely. The reluctant implementation in many States has been widely attributed to the builder-politician nexus.
•Stopping short of implementing the Act will adversely affect State governments and builders in the long run. Using remedies like Section 91 to regularise these projects cannot replace a secure regulatory environment in building the trust of buyer.
📰 ‘Bank credit: can’t be business as usual’
RBI’s Vishwanathan says stressed asset norms aimed at changing behaviour of lenders and borrowers
•The Reserve Bank of India’s latest norms for the resolution of stressed assets are aimed at warding off further risks to the banking sector from lending operations, according to RBI Deputy Governor N.S. Vishwanathan.
•Speaking at the National Institute of Bank Management on Wednesday, Mr. Vishwanathan defended the new norms announced by the RBI in February, asserting that the rules were outcome-oriented and provided flexibility to banks on deciding the contours of resolution.
•“Some concerns have been expressed that the 1-day default clause is onerous,” Mr. Vishwanathan said in his speech titled ‘It is not business as usual for lenders and borrowers,’ the text of which was posted on the RBI’s website.
•“These concerns are not well founded. Let me tell you why. For cash credit account, the 30-day trigger has been retained. For term loans, where the repayment schedules are pre-determined, borrowers need to and indeed have enough notice to arrange funds in time. It is a behaviour change in repayment of credit that has to come about,” he said.
•The new norms mandate banks to start the resolution process even if there is a payment default for one day. In many cases, banks have to increase provisioning if the resolution is implemented. In the wake of this, banks have represented to the central bank to ease the norms. They are also lobbying with the finance ministry to convince RBI to relax the norms.
•Observing that data showed a large number of borrowers, even some highly-rated ones, failing on the 1-day default norm, Mr. Vishwanathan stressed that this had to change.
‘Early warning’
•“If borrowers fail to pay on the due date because of a cash flow problem, banks should see that as an early warning indicator warranting immediate action. If borrowers with ability to pay on the due date delay it routinely or because they see other arbitrage options, that must change too,” he said.
•Commenting that one had to note that ‘default’ in payment was a lagging, not leading, indicator of financial stress of a borrower, Mr. Vishwanathan said lenders needed to be proactive in monitoring their borrowers and being able to identify financial stress using a combination of leading indicators and renegotiation points in the form of loan covenants rather than waiting for a borrower to default. “The new resolution framework seeks a fundamental change for the better in the behaviour of lenders and borrowers, for it can’t be business as usual.’’
📰 National portal to share research facilities soon
Easy access to expensive equipment
•Soon researchers in any college or institution and research organisations can check, reserve and have easy access to even expensive research equipment and facilities anywhere in India, thanks to the efforts by the Centre for Nano Science and Engineering (CeNSE) at the Indian Institute of Science, Bengaluru.
•The centre is in the process of collating information about scientific and research equipment and facilities available at academic institutions and research organisations across the country.
•Online reservation
•The portal — Indian Science, Technology and Engineering Facilities Map (I-STEM) — will soon become operational. The government green signalled the project last month.
•The institutions and organisations that have the equipment and facilities will provide access to researchers for both academic and non-academic work through an online reservation system.
‘Many benefits’
•“This initiative will have many benefits. It will provide access to researchers to any equipment or facility that has been procured using public funds, the equipment will be better utilised and it will avoid duplication of expensive equipment as much as possible,” says Dr. Sanjeev Kumar Shrivastava of CeNSE and one of the two researchers who came up with this idea. “Sharing expensive equipment can bring down the cost of doing research in India.”
•Putting to rest the fear that this initiative may come in the way of premier institutions which are just coming up from procuring essential equipment, Prof. Navakanta Bhat, chairman of CeNSE and the principal investigator of the I-STEM project, says: “Each institute will need certain equipment that is absolutely necessary and essential for regular use. It is not at all the intent of this initiative to stop such institutes from procuring equipment but to ensure that each instrument is better used.”
•“We are trying to replicate the Indian Nanoelectronic Users Programme (INUP) model at CeNSE and IIT Bombay that has been in operation since 2008 to provide access to sophisticated device fabrication and analytical equipment to any academic researcher in the country. I-STEM is inspired by our positive experience with INUP,” says Dr. S.A. Shivashankar, visiting professor at CeNSE and the other person who is the brain behind this initiative.
•The idea of starting a national network was shared with Dr. R. Chidambaram, former Principal Scientific Adviser.
•The proposal was formally sent to the government in November last year.
📰 No pollution-reduction targets in Central plan
Environmentalists surprised by omission in draft
•In a strange move that is unlikely to impress anyone concerned over the worsening air quality in our cities, the government has refrained from specifying pollution-reduction targets in its draft National Clean Air Programme (NCAP).
•This is despite the fact that Environment Minister Harsh Vardhan had earlier said the programme would aim to reduce pollution in specific cities by “50% in five years.” The NCAP was conceived as a detailed strategy to ensure that cities across the country meet specified air quality norms.
•The draft NCAP will be open to public comments until May 17. It envisions setting up 1,000 manual air-quality-monitoring stations (a 45% increase from the present number) and 268 automatic stations (triple the current 84). It also, for the first time, plans to set up pollution-monitoring stations in rural areas.
•The NCAP follows from the Environment Ministry’s submissions to the Supreme Court on March 8, 2018.
•In a strange move that is unlikely to impress anyone concerned over the worsening air quality in our cities, the government has refrained from specifying pollution-reduction targets in its draft National Clean Air Programme (NCAP).
•This is despite the fact that Environment Minister Harsh Vardhan had earlier said the programme would aim to reduce pollution in specific cities by “50% in five years.”
•The NCAP was conceived as a detailed strategy to ensure that cities across the country meet specified air quality norms.
•The draft NCAP will be open to public comments until May 17.
•It envisions setting up 1,000 manual air-quality-monitoring stations (a 45% increase from the present number) and 268 automatic stations (triple the current 84). It also, for the first time, plans to set up pollution-monitoring stations in rural areas.
•The NCAP follows from the Environment Ministry’s submissions to the Supreme Court on March 8, 2018.
📰 Olive Ridleys return for rare mass nesting
More than 5,000 turtles reach Odisha coast where mass hatching of egg is still on
•In a rare occurrence, Olive Ridley turtles turned up for mass nesting for the second time at the Rushikulya rookery on the Odisha coast in the early hours of Wednesday, where mass hatching of eggs of these endangered marine turtles is still continuing.
•This is for the first time that such a phenomenon has occurred at this major nesting site on the Indian coast, said Berhampur divisional forest officer (DFO) Ashis Behera.
•More than 5,000 mother turtles came out of the sea from 4.30 a.m. onwards to dig nests in the sand and lay eggs in them. They nested on the stretch between Gokharkuda and Podampeta villages.
‘Needs study’
•Though sporadic nesting of a few Olive Ridley turtles was observed at the coast, a recurrence of mass nesting was never expected.
•As per past records, mass nesting had never occurred during the month of April on the Odisha coast. The reason behind this late recurrence of mass nesting should be studied by wildlife experts, said the DFO.
•This year, 4,45,091 Olive Ridley turltles laid eggs at Rushikulya rookery coast during the week-long mass nesting that ended on February 27. The mass hatching of eggs started from April 14 night.
•In 2006, the Rushikulya rookery witnessed two phases of mass nesting of Olive Ridley turtles, but at short intervals. A similar event occurred in 2009 when mass nesting took place in February as well as in March. But in both cases, the second phase of mass nesting occurred when eggs laid by the first group of turtles were incubating under the sand. Mass nesting had never occurred during mass hatching on this coast.
