📰 Health benefit package under Ayushman Bharat revised
Package on black fungus treatment added in PM-JAY
•The National Health Authority (NHA), the apex body for implementing Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB PM-JAY), has revised the Health Benefit Package (HBP) Master under the scheme.
•In the revised version of Health Benefit Package (HBP 2.2), rates of some packages have been increased by 20 per cent to 400 per cent under the PM-JAY. Rates of around 400 procedures have been revised and one new additional medical management package related to black fungus has also been added, according to a release issued by the Health Ministry on Tuesday.
•The HBP 2.2 is expected to be rolled out from November this year.
•Health Minister Mansukh Mandaviya said HBP 2.2 would enable the empanelled hospitals to provide better services to the beneficiaries under Ayushman Bharat PM-JAY. “The revised packages for oncology will enhance cancer care for the beneficiaries in the country. Addition of new packages related to black fungus will be a huge relief to the beneficiaries. The rationalised HBP will further improve the uptake of schemes in private hospitals leading to reduced out-of-pocket expenditure for the beneficiaries,” he added.
•Dr. R. S. Sharma, CEO, National Health Authority (NHA), said new packages had been added to cover more disease conditions and regular rates of the packages were being revised to provide better healthcare services.
•The NHA has undertaken rate revision in categories including radiation oncology procedures, medical management procedures for dengue, acute febrile illness etc., surgical package treatment for black fungus and other procedures such as right/left heart catheterisation, arthrodesis, cholecystectomy and appendicectomy.
•Under medical management procedures, rates for ICU with ventilator support have been revised by 100 per cent, rates for ICU without ventilator by 136 per cent.
•Currently, Ayushman Bharat PM-JAY covers 1,669 treatment procedures out of which 1,080 are surgical, 588 medical and one unspecified package.
This will be in addition to the e-mail, postal modes of communication
•The Directorate General of Civil Aviation (DGCA) has introduced a web-based system for voluntary reporting of incidents that pose a potential threat to flight safety.
•It said that to encourage voluntary safety reporting, besides e-mail and postal mode, web-based reporting had been introduced on the eGCA platform, which made the reporting mechanism more accessible to persons engaged in aviation related activities.
•However, the Voluntary Safety Reporting System was not a substitute for Mandatory Safety Reporting System that would continue to function.
•As part of the state safety programme, the DGCA had voluntary safety reporting system to facilitate collection of information on actual or potential safety deficiencies that may not be captured by the mandatory safety reporting system.
Non-punitive
•The DGCA said that the reporting system would be non-punitive and would protect the source of the information.
•Anyone witnessing or involved or having knowledge of an occurrence, hazard or situation which he or she believes possesses potential threat to flight safety could report the same through the system on eGCA or email or postal mode the contact details made available on the official website of the DGCA, it said in a circular.
•The information collected through voluntary safety reporting system would be handled in a manner so as to prevent its use for purposes other than safety and shall appropriately be safeguarded.
•The confidentiality about the identity of the person making the report would be maintained. While anonymous reports would be accepted, the person may disclose his/her identity to enable contact if any part of the report needed clarification, the DGCA said.
📰 Moody’s upgrades India outlook to ‘stable’ from ‘negative’
In June 2020, Moody’s had downgraded India’s sovereign rating to Baa3 from Baa2 with a negative outlook.
•Rating agency Moody’s Investors Service has upgraded India’s sovereign rating outlook to ‘stable’ from ‘negative’ citing an ebbing of the risks from COVID-19 and the negative feedback between the real economy and financial system.
•While it retained India’s rating at Baa3, reflecting the lowest investment grade rating, Moody’s said it expects real GDP to surpass pre-pandemic levels of 2019-20 this year itself, as the ongoing economic recovery is picking up steam with activity upticks broadening across sectors. It expects 2021-22 to record 9.3% growth in GDP, followed by 7.9% next year.
•In June 2020, Moody’s had downgraded India’s sovereign rating to Baa3 from Baa2 with a negative outlook. On Tuesday, it said that downside risks to growth from subsequent coronavirus infection waves are mitigated by rising vaccination rates and more selective use of restrictions on economic activity, as seen during the second wave.
•Moreover, higher capital cushions and greater liquidity suggests banks and non-bank financial institutions pose much lesser risk to the sovereign than Moody’s previously anticipated.
•“While risks stemming from a high debt burden and weak debt affordability remain, Moody’s expects that the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile,” the agency said.
•Over the medium term, Moody’s expects real GDP growth to average around 6%, reflecting a rebound in activity to levels at potential as conditions normalize. “The growth projections take into account structural challenges, including weak infrastructure, rigidities in labour, land and product markets that continue to constrain private investment and contribute to post-pandemic economic scarring,” it explained.
•The normalisation of growth levels will enable a ‘gradual fiscal consolidation and stabilisation of the government’s debt burden, albeit at high and above pre-pandemic levels’, the rating agency said.
•However, Moody’s said the higher debt burden and weaker debt affordability compared to pre-pandemic times is expected to persist, which is a key factor in its rationale for retaining the Baa3 rating as it would contribute to ‘lower fiscal strength’.
•This would offset India’s recent strong points such as narrower current account deficits and historically high foreign exchange reserves that have reduced the country’s vulnerabilities to external shocks.
•“India’s main credit challenges, its low per capita income and its weak fiscal position, which has been exacerbated by the coronavirus shock. India’s general government debt burden increased sharply from 74% of GDP in 2019 to an estimated 89% of 2020 GDP, significantly higher than the
•Baa median of around 48%. Meanwhile, interest payments are about 26% of general government revenue, the highest among Baa-rated peers and more than three times the Baa median of 8%,” it pointed out.
•“Looking ahead, Moody’s expects the debt burden to stabilize at around 91% over the medium term, as strong nominal GDP growth is balanced by a gradually shrinking, but still sizeable, primary deficit,” the agency said in a statement.
•The upgrade in outlook to ‘stable’, Moody’s said, was driven by the ‘lower susceptibility’ to event risk from ‘a negative feedback loop between the financial sector and the real economy’.
•“Solvency in the financial system has strengthened, improving credit conditions which Moody’s expects to be sustained as policy settings normalize. Bank provisioning has allowed for the gradual write-off of legacy problem assets over the past few years. In addition, banks have strengthened their capital positions, pointing to a stronger outlook for credit growth to support the economy,” it averred.
•For an upgrade in the country’s rating, Moody’s said India’s economic growth potential would have to increase ‘materially beyond its expectations, supported by effective implementation of government economic and financial sector reforms that resulted in a significant and sustained pickup in private sector investment’.
•“Effective implementation of fiscal policy measures that resulted in a sustained decline in the government’s debt burden and improvements in debt affordability would also provide support to the credit profile,” it emphasised.
•The agency also flagged high negative risks for India on environmental and social considerations, stressing that a weak government balance sheet with relatively low income levels affect the sovereign’s capacity to mitigate such risks.
•“Exposure to social risk is Highly Negative, driven by risks related to low and unevenly distributed incomes, unequal access to high-quality education, strains on housing, healthcare and basic services provision. While the government has invested in improving access to basic services, with demonstrated progress in sanitation and running water, around 15% of the population is undernourished and early-age mortality remains relatively high,” it pointed out.
📰 Nobel physics prize goes to 3 for climate discoveries
The winners — Syukuro Manabe, Klaus Hasselmann and Giorgio Parisi — were announced by Goran Hansson, secretary-general of the Royal Swedish Academy of Sciences
•The Nobel Prize for physics has been awarded to scientists from Japan, Germany and Italy.
•Syukuro Manabe (90) and Klaus Hasselmann (89) were cited for their work in “the physical modeling of Earth’s climate, quantifying variability and reliably predicting global warming”.
•The second half of the prize was awarded to Giorgio Parisi (73) for “the discovery of the interplay of disorder and fluctuations in physical systems from atomic to planetary scales.”
•The panel said Mr. Manabe and Mr. Hasselmann “laid the foundation of our knowledge of the Earth’s climate and how humanity influences it".
•Starting in the 1960s, Mr. Manabe demonstrated how increases in the amount of carbon dioxide in the atmosphere would increase global temperatures, laying the foundations for current climate models.
•About a decade later, Mr. Hasselmann created a model that linked weather and climate, helping explain why climate models can be reliable despite the seemingly chaotic nature of the weather.
•He also developed ways to look for specific signs of human influence on the climate.
•Mr. Parisi “built a deep physical and mathematical model” that made it possible to understand complex systems in fields as different as mathematics, biology, neuroscience and machine learning.
•After the announcement, Mr. Parisi said that “it’s very urgent that we take very strong decisions and move at a very strong pace” in tackling climate change.
•“It’s clear for future generations that we have to act now,” he added.
•The winners were announced on October 5 by Goran Hansson, secretary-general of the Royal Swedish Academy of Sciences.
•Last year, the prize went to American Andrea Ghez, Roger Penrose of Britain and Reinhard Genzel of Germany for their research into black holes.
•The prestigious award comes with a gold medal and 10 million Swedish kronor (over $1.14 million). The prize money comes from a bequest left by the prize’s creator, Swedish inventor Alfred Nobel, who died in 1895.
•On Monday, the Nobel Committee awarded the prize in physiology or medicine to Americans David Julius and Ardem Patapoutian for their discoveries into how the human body perceives temperature and touch.
•Over the coming days prizes will also be awarded for outstanding work in the fields of chemistry, literature, peace and economics.
📰 Detail in relief: On SC order on financial assistance to kin of COVID-19 families
The SC order on payment to kin of COVID-19 victims is a recognition of their plight
•The most welcome feature of the Supreme Court of India’s order detailing the modalities for payment of ex gratia financial assistance to the families of those who died of COVID-19 is the stern caveat that no State shall deny the benefit solely on the ground that a person’s death certificate did not specify the cause of death as due to the novel coronavirus disease. Thanks to the Court’s assertiveness, the Union government shed its initial wariness about incurring the financial burden of compensating the next of kin of the over 4.49 lakh people officially recorded as having died due to the virus infection. The National Disaster Management Authority issued guidelines last month, specifying that ₹50,000 be paid for each death. While the primary requirement to avail of this assistance is that the death should be certified as having been caused by COVID-19, the Court has rightly ruled that the cause mentioned in the death certificate would not be conclusive by itself, and that if other documents are provided, the family shall be entitled to the ex gratia payment. Experience over the last year-and-a-half has shown that hospitals tend to attribute some deaths to co-morbidities rather than the infection; and many died after testing negative during a spell of hospitalisation or after discharge. It has now been made clear that deaths occurring within 30 days from the date of testing or from the date of being clinically determined a COVID-19 case shall be treated as eligible for the aid, “even if the death takes place outside the hospital/in-patient facility”.
•Given the fact that independent data analysis has revealed a possibly huge undercount in the official COVID-19 toll maintained by the State governments and the Centre, the view that only a certified COVID-19 death should be eligible for compensation has been rightly discarded. Of course, some documentary evidence will still be required to establish the cause, but once it is submitted, the payment should be disbursed within 30 days. It is a matter of consolation to those likely to have their claims rejected or disputed that the Court has created an appeal mechanism in the form of Grievance Redressal Committees at the district level. These panels can issue amended official documents to certify COVID-19 deaths, as well as the power to call for records or information from the hospitals where the deceased were admitted. To buttress the need for a humane approach, the Court has included those who took their own lives under the shadow of the pandemic in the ambit of the scheme. It has also advised the authorities to avoid technicalities in processing claims. The assistance will be welcomed by those affected, not because it will be enough to address the adverse impact that numberless families have suffered due to the pandemic, but as a sign that there is some recognition of their plight and immediate succour available.
📰 The Met on the mat
A new culture of ethics, not deterrent punishments alone, can transform the conduct of the police
•The Metropolitan Police of London are in the news for the wrong reasons. The gruesome murder of a teacher, Sabina Nessa (28), when she was walking through a park in south-east London to meet her friend at a pub, has caused outrage. The police have been accused of negligence yet again. An Albanian garage worker has been held as a suspect.
Diminishing trust in the police
•According to the media, since the death of Sarah Everard, a 33-year-old marketing executive, in March this year, at least 81 women have been killed in the U.K. where the suspects are men. Many critics bemoan the fact that women are not being protected despite the Met being led by a woman Commissioner, Dame Cressida Dick.
•What has added fuel to the fire is that a Met police officer, Wayne Couzens, was arrested for raping and murdering Everard. Couzens falsely arrested Everard on the charge of violating COVID-19 restrictions, forced her into a hired car, drove far away, raped her, strangled her and then burnt the body. Couzens had planned his barbaric crime for several weeks. Everard was a random target — a lone young woman negotiating a poorly lit area. It is appalling that despite being linked to two previous allegations of indecent exposure, Couzens had gone unpunished. This was culpable indifference on the part of senior officers. It is difficult to believe that this despicable behaviour had not been escalated to more senior officers.
•One is reminded of the senseless deaths of a father and son in Sattankulam in Tamil Nadu. They were arrested allegedly for keeping their shop open and thus violating lockdown restrictions. They later died in hospital, after being tortured by the police in custody. The police in the U.S. have a similar inglorious record. One cannot forget how in May 2020, a black man, George Floyd, was pinned to the ground by three police officers in Minneapolis until he died of suffocation. His crime was that he had bought cigarettes with a counterfeit bill at a convenience store.
•Two points emerge from these and other episodes, some of which are reported and many of which are buried stealthily. Police organisations in several parts of the world are not trusted for civilised and lawful behaviour. This is despite the many mechanisms that are in place that do not permit clandestine police actions against crime suspects. The numerous controls that have been established have not had the desired effect.
•A few unscrupulous and overzealous policemen are responsible for this sorry situation. Blame sometimes also lies at the door of a few in the political executive who misuse their authority to settle personal scores with their adversaries. The judiciary has tried to set right this distortion in the criminal justice system, but success has been marginal. The Chief Justice of India recently gave expression to his misgivings on police conduct. But deterrent punishments are not the answer; only a new culture of ethics can bring about visible transformation. Bringing about such a change will take decades and requires enlightened police as well as political leadership. Merely upgrading police technology, such as compulsory body cameras on patrol policemen and video recording of police station proceedings, without a corresponding change in mindset will not be enough.
•Perhaps most painful is the popular impression that women are easy prey to marauding policemen. It is unfortunate that the whole force gets a bad name because of a few deviants such as the senior officer in Tamil Nadu who is facing trial for sexual harassment of a female colleague. This is no justification, however, for showing any latitude to the police leadership or police officers.
A possible example for all chiefs
•Met Commissioner Dick is a doughty warrior. She is the first woman to occupy this position. It is a travesty that a force headed by a distinguished woman officer is being accused of gender insensitivity. She has been facing calls to resign ever since the murder of Everard. But she has never shown inclination to step down. She apologised for the Met’s failure in recognising the danger posed by Couzens and said she would do everything in her power to ensure that the force has learned from “one of the most dreadful events” in its history. Her resolve to make London safer is impressive and could set an example for police chiefs everywhere.
•Many good choices have been made in several Indian cities. Commissioners are being credited with striking innovations in the area of response to distress calls from the public, especially women and the elderly. The pursuit of speed and professionalism in this regard is a never-ending challenge. Enormous government funding for additional infrastructure — both manpower and technology — can help shape a sleek and humane police force. But only marginally.
📰 The challenge of going back to school
Guidelines on re-opening schools focus more on health measures than on addressing learning difficulties
•After one and a half years of being shut, schools are re-opening in most States. A majority of the children enrolled in school before the pandemic have most likely had limited or no structured learning opportunities during this period. That reality is all the more jarring because the more privileged sections, representing a minority, were able to ensure continuity of education through online classes provided by schools, support from family, and increased spending on tuition and tutoring apps.
Leaving no child behind
•Despite the scale of the shock to the education system, a review of the State governments’ Standard Operating Procedures/guidelines on school re-opening shows that the emphasis is on health and sanitation measures. There is very little discussion on the practical approaches required to ensure that every child returns to school and to address the learning difficulties that children will face.
•Across the world, guidance on school re-opening centres around certain principles. The first is a strong focus on equity. Special efforts must be made for children from disadvantaged backgrounds, who were disconnected during the pandemic, so that they can return to school in an environment that fosters belonging. The second is effective and regular communication with parents. The third is to support student’s socio-emotional development. The fourth is to re-organise the curriculum to reinforce core academic skills, focusing on language learning and mathematics, especially in the elementary years. The fifth is to extend learning time and hire additional teachers where needed. The sixth is to enhance training and regular support for teachers. And finally, to secure additional funding to address the crisis.
•Let us start with the issue of additional funding for education. A recent study by the World Bank and UNESCO shows that, for a sample of 29 high-income, lower-middle-income and low-income countries across the world, the average annual education budgets not only increased post-COVID-19 but increased at a higher rate than before COVID-19 (4% post-COVID-19 compared to 1.1 % before the pandemic). In the group of 14 lower-middle-income countries to which India belongs, five countries (Bangladesh, Morocco, Nigeria, the Philippines, and Ukraine) increased their spending substantially. Three countries (Egypt, Pakistan and Tanzania) held their spending constant or reduced it marginally. Four countries (Kenya, Kyrgyz Republic, Myanmar and Nepal) reduced their spending by between 1% and 6%. India reduced its spending by over 9 %, along with Uzbekistan. This comes on top of a 2% decline in education spending in India in the previous year. The share of spending on education in the overall budget also declined to 2.6%, while most countries either maintained or increased this share. It is difficult to envisage how an emergency of the scale and depth seen in India can be addressed with fewer resources.
•Even the task of bringing every child back to school in India is a herculean one and requires detailed planning. First, millions of migrant children saw their education disrupted. Their numbers are not known – how many went back to their home States, how many rejoined schools there, or how many returned. Many of these children may now be working to support families who have lost their livelihoods. Second, close to 40% of school students in India are in private schools. Most of them are in ‘low-cost’ schools for the poor, which have been buffeted by the crisis. Over 60% of government and private school principals in India stated that their schools suffered from dropouts and face financial challenges, according to a recent survey (Global School Leaders and Alokit, report forthcoming). The School Children’s Online and Offline Learning (SCHOOL) survey covering 15 States and Union Territories, conducted in August 2021, revealed that over 25% of children who had previously been enrolled in private schools had switched to government schools. If this ratio is approximately correct for the country, we might expect a transfer of about 20 million children from private to government schools.
•On the academic front, many States have announced short ‘bridge courses’, sometimes as short as 45 days. The goal is to resume the textbook-based syllabus of the current grade of the child as soon as possible. Examination timetables are being drawn up, as if nothing happened. These unrealistic expectations are being framed in the face of overwhelming evidence of the devastating learning losses suffered by children, especially disadvantaged groups (see research brief of the National Coalition on Education Emergency, for example). The SCHOOL survey showed that 42% of students in grades 3-5 in villages and urban bastis could only read a few letters. Only 55% of students in grades 6-8 could fluently read a simple conversational sentence. The required knowledge of academic language in the upper primary/lower secondary grades would be all but lacking.
•Language learning, especially reading with comprehension, is critical for ensuring progress in all subjects. While children are struggling to read in their native language, in many States, the majority of children are studying in English-medium schools, both government and private. Learning in a second language is difficult in the best of circumstances. In the majority of the English-medium schools, teachers are not proficient in English and the students have no home exposure to the language. Research from the U.S. during the early stages of the pandemic showed that the proportion of ‘English language learners’ (i.e., those with limited proficiency in English) obtaining ‘failing grades’ increased dramatically within just a few months of school closures and despite the provision of structured online learning. Imagine the situation for tens of millions of children in India who had limited or no exposure to English – their language of instruction – for months.
•The loss in mathematics skills can be even more precipitous. Studies from other countries show that learning losses over the summer break of about two months are more severe in mathematics compared to reading (in the native language). Over such short periods, the loss may involve forgetting mathematics procedures rather than general concepts. But much deeper losses in conceptual understanding can be expected after a loss of structured instruction over a 18-month period.
Support for teachers
•The guidance and support to teachers and schools, especially in elementary education, has to be to focus on language learning, core mathematical competences and socio-emotional learning. Teaching should not be driven by the sequence of chapters in the textbooks or the subjects in the syllabus. It would be necessary to restructure the ‘daily timetable’ to focus on these areas and provide additional instructional time. Support to teachers must be practical and regular, adopting a ‘coaching’ model, instead of mass teacher training programmes. This support must include additional learning materials and formative assessment tools and techniques. It may be necessary to mobilise retired teachers and volunteers also. All this requires long-term commitment, resources and organisational effort.
📰 With AUKUS, India must keep its head above water
The security grouping spells opportunities but also possible unique challenges which New Delhi can ill-afford to ignore
•The announcement by the United States of a trilateral ‘enhanced security partnership’ involving Australia, the United Kingdom and the United States (AUKUS) has taken everyone by surprise, competitors and allies alike. With close partners on both sides, India has maintained an ambiguous stand on the issue. A lot of commentary since has talked of how this is a welcome step for India to access technologies, build complementarities and so on. While it does present opportunities, the flip side is that AUKUS represents a threshold breach and could pose unique challenges for India, depending on how China responds to it, and the issue spiralling.
A different game now
•The decision by the U.S. to make a very rare exemption, even for its allies, to supply nuclear-powered attack submarines (SSN) takes the whole issue of arms transfers and containing China’s expansion to a new level. Submarines are the most potent and secretive military platform to asymmetrically counter an adversary and an SSN represents the pinnacle. The entry barrier for acquiring these is very steep, proven by how few countries possess them; and once that is breached, there is no technological leap to counter it but only incremental measures to negate it, which would nonetheless be another expensive endeavour.
•The U.S. has now set a precedence to this and how it unfolds and how long it remains an exception has to be seen. The next question is how will China, which has sharply reacted to the announcement of AUKUS, respond to this? Will it resort to further proliferation, in any manner, as it has done in the past, and likely involving its closest partner, Pakistan?
•If so, the only country in the region which will face the real implications of this is India; for the others, it is more of stated positions and rules-based order which are a matter of convenience and not of survival. The whole Pakistani missile and nuclear weapons programme and its proliferation trail are proof of it.
Data leak
•The China threat notwithstanding, this development is as much, if not more, about the tussle between arms industries of the two sides which collectively dominate the global arms industry. A case in point is the leak, in 2016, of 22,000 pages of secret data on the capabilities of six Scorpene submarines being built for the Indian Navy by the French Naval Group (then DCNS) barely months after DCNS was declared the winner in the Australian tender, only to be thwarted by the U.S. five years later.
•While the real intention (of the leak) and those responsible may never be known, the fallout, though likely coincidental, was on India. The Naval Group had then said that it may have been the victim of “economic warfare.”
India’s stand, China factor
•Another tangent that needs to be observed as the initiative takes shape is whether AUKUS is an attempt by the U.S. to position Australia as a ‘Net Security Provider’ in the Indo-Pacific. This is especially so given India’s reluctance to add a military dimension to the Quadrilateral grouping comprising India, Australia, Japan and the U.S.
•The Quad — as a grouping of major democracies in the Indo-Pacific — has seen momentum in terms of engagement in the last two years especially in the backdrop of a violent stand-off between India and China along the disputed boundary in Eastern Ladakh last year which is yet to be resolved. However, India has reiterated on several occasions that it sees the Quad as a platform for consultations at the political and diplomatic level but does not see a military dimension to it. So, with Australia and Japan being U.S. allies, the limiting factor for deepening military engagement for the Quad as a grouping, beyond a point, is India.
•Incidentally, the current Chief of the Naval Staff, Admiral Karambir Singh, since he assumed charge of the force in May 2019, had stated his reluctance in using the term ‘Net Security Provider’ and instead propagated the phrase, ‘Preferred Security Partner’.
•Probably the best articulation of this was put forward in May 2018 by his predecessor and then Chief of the Naval Staff, Admiral Sunil Lanba, while delivering a talk at the Vivekananda International Foundation. Responding to questions, he stated that there were “dependencies” for group members on China and also the “uncertainty” of America when push comes to shove. He said, “So I don’t think there is [a] need for a military dimension to Quad… We are not going down that route. And I don’t think there is [a] need to go down that route.”
•Admiral Lanba further said, “What do you think a military dimension will achieve? India is the only country in the Quad with a land border with China. In case of conflict... nobody will come and hold your hand.” The validation for this observation manifested itself in 2020 in the Himalayan ranges with a new normal now on the ground along the Line of Actual Control (LAC) and the trust between India and China along with the agreements that held it in tatters.
•More recently, on several occasions External Affairs Minister S. Jaishankar, while terming the Quad as a platform that looks at the future, has also echoed similar views.
•Speaking at the Raisina Dialogue in April, he categorically stated that Quad will not be an ‘Asian NATO’ and added that “people need to get over this....” He had also highlighted 10 broad subjects of cooperation including vaccine collaboration, climate action, emerging technologies, resilient supply chains, semiconductors, disinformation, counterterrorism and maritime security among others.
The Quad versus AUKUS
•The outcome of the first ever in-person meeting of Quad leaders in the U.S. on September 24 only reinforces this trend. The Quad countries have outlined cooperation in several important areas including high technology; military cooperation and a mention of China were conspicuous in their absence. Essentially, the Quad is taking shape as an organisation of broader cooperation among the four countries, while AUKUS, for now, remains an organisation for high-end military trade. This only gives further credence that the U.S. may be preparing Australia for a greater military role in the Indo-Pacific.
•Afghanistan has shown that New Delhi cannot depend on or tag along with anyone to protect its national interests. Given the surprise and setback India received with the sudden exit of the U.S., the country can ill-afford to lower its guard by taking AUKUS at face value. While working with AUKUS through other platforms and advancing its own strategic cooperation with each of the countries, India also needs to offset any fallout of the development which will only unfold in the long term.
📰 Crackdown in China, hope in India
China’s sweeping overhaul of its tech sector could benefit India in the near future
•Last year, China stopped Ant Group’s blockbuster initial public offering. This came as a shock to the world as Ant Group, Alibaba’s fintech arm, was on track to raise $37 billion and its valuation was reportedly nearing more than $300 billion. This episode was perceived as an attempt to rein in the successful entrepreneur, Jack Ma. Prior to this incident, he had committed one of the cardinal sins in modern China, which was to publicly criticise the government’s tech policy for stifling innovation.
Clampdowns galore
•A year since, hardly a week goes by without the world hearing of yet another high-profile crackdown on a Chinese tech company. China has foisted sweeping regulations, antitrust and anti-monopoly lawsuits, cyber security probes, and algorithm controls on the entire tech segment, ranging from e-commerce websites, search engines, ride sharing and food delivery apps to e-learning portals. These clampdowns are estimated to have wiped off over $1.5 trillion of value from Chinese tech stocks.
•China’s obsessive efforts to ensure that no private entity gains enough data to ever be in a position to even remotely challenge Chinese Communist Party-led state dominance, and that no competing country gains access to the citizen database through any unforeseen means, drive much of this overhaul.
•We should not overlook the fact that these efforts are limited only to the consumer tech sector. State support to manufacturing and ‘hard’ tech industries, which are perceived to be of higher value, including 5G/6G, semiconductor chips, artificial intelligence, biotechnologies, batteries, aviation and space tech, has only increased.
•We are witnessing a conscious redirection of efforts to areas that would maximise China’s geopolitical and geo-economic gains. It would not be surprising to see more state-owned enterprises like ZTE and state-supported heavyweights like Huawei focus on strategic high technology and attempt to be pioneers in the global market.
•These developments could be beneficial for India. The rate of digitisation accelerated during the pandemic in India. Start-ups here raised a record $10.46 billion in the first half of this year alone. India’s tally of unicorns has crossed 60. This trajectory and India’s projected growth will make the country the first destination of the funds fleeing Chinese stocks during these crackdowns. However, mirroring the U.S. start-up ecosystem, India’s emphasis too is on consumer tech, from which China is tactically distancing itself. Not to be forgotten, the U.S. also has a far-reaching system for research and development of strategic technology.
•The recently concluded Modi-Biden talks as well as the Quad summit emphasised technological cooperation. The U.S. undoubtedly remains China’s lone rival in the high tech space, and the extent of this partnership will be important for India. U.S. interests will more likely be inclined towards the possibilities of market entry and penetration of its firms. India should strive to move beyond this to complementary collaborations.
Open to partnerships
•India should also remain open to partnerships with friendly nations, keeping the enhancement of its internal capacity as the objective. An example would be the ongoing talks with Taiwan to bring in a semiconductor chip manufacturing plant to India. If successful, this could drive next-generation industries, including 5G devices and electric vehicles.
•The strides India has made in sectors including biotech and space tech have shown that with the right political will and private participation, India could be self-sufficient and also reach global competitiveness. Similar concerted efforts to develop indigenous manufacturing and hard technology are vital if India is to retain its strategic autonomy and securely reach its stated goal of being among the largest three economies by the later stages of this decade.
📰 RBI microfinance proposals that are anti-poor
The proposed guidelines will favour private credit institutions at the cost of public sector banks
•In June 2021, the Reserve Bank of India (RBI) published a “Consultative Document on Regulation of Microfinance”. While the declared objective of this review is to promote the financial inclusion of the poor and competition among lenders, the likely impact of the recommendations is unfavourable to the poor. If implemented, they will result in an expansion of microfinance lending by private financial institutions, in the provision of credit at high rates of interest to the poor, and in huge profits for private lenders.
The recommendations
•The consultative document recommends that the current ceiling on rate of interest charged by non-banking finance company-microfinance institutions (NBFC-MFIs) or regulated private microfinance companies needs to be done away with, as it is biased against one lender (NBFC-MFIs) among the many (commercial banks, small finance banks, and NBFCs). It proposes that the rate of interest be determined by the governing board of each agency, and assumes that “competitive forces” will bring down interest rates. Not only has the RBI abandoned any initiative to expand low-cost credit through public sector commercial banks to the rural poor, the bulk of whom are rural women (as most loans are given to members of women’s groups), but, in addition, it also proposes to de-regulate the rate of interest charged by private microfinance agencies.
•According to current guidelines, the ‘maximum rate of interest rate charged by an NBFC-MFI shall be the lower of the following: the cost of funds plus a margin of 10% for larger MFIs (a loan portfolio of over ₹100 crore) and 12% for others; or the average base rate of the five largest commercial banks multiplied by 2.75’. In June 2021, the average base rate announced by the RBI was 7.98%. A quick look at the website of some Small Finance Banks (SFBs) and NBFC-MFIs showed that the “official” rate of interest on microfinance was between 22% and 26% — roughly three times the base rate.
Crucial for rural households
•Microfinance is becoming increasingly important in the loan portfolio of poorer rural households. In a study of two villages from southern Tamil Nadu, done by the Foundation for Agrarian Studies, we found that a little more than half of the total borrowing by households resident in these two villages was of unsecured or collateral-free loans from private financial agencies (SFBs, NBFCs, NBFC-MFIs and some private banks).
•There was a clear differentiation by caste and socio-economic class in terms of source and purpose of borrowing. First, unsecured microfinance loans from private financial agencies were of disproportionate significance to the poorest households — to poor peasants and wage workers, to persons from the Scheduled Castes and Most Backward Classes. Second, these microfinance loans were rarely for productive activity and almost never for any group-based enterprise, but mainly for house improvement and meeting basic consumption needs.
•Our data showed that poor borrowers took microfinance loans, at reported rates of interest of 22% to 26% a year, to meet day-to-day expenses and costs of house repair. How does this compare with credit from public sector banks and cooperatives? Crop loans from Primary Agricultural Credit Societies (PACS) in Tamil Nadu had a nil or zero interest charge if repaid in eight months. Kisan credit card loans from banks were charged 4% per annum (9% with an interest subvention of 5%) if paid in 12 months (or a penalty rate of 11%). Other types of loans from scheduled commercial banks carried an interest rate of 9%-12% a year. As even the RBI now recognises, the rate of interest charged by private agencies on microfinance is the maximum permissible, a rate of interest that is a far cry from any notion of cheap credit.
A loan breakup, violations
•The actual cost of microfinance loans is even higher for several reasons. First, on account of the method of repayment: a loan of, say, ₹30,000 from an NBFC-MFI has to be repaid in 24 equal monthly instalments of ₹1,640. Every month, a principal of ₹1,250 and an interest of ₹390 is repaid. In the first month, the simple interest on this loan is 15.6% per annum but by the end of the first year, the interest rate is 31%. This is because every month the principal is reduced (by ₹1,250) but the interest charge is the same. In short, an “official” flat rate of interest used to calculate equal monthly instalments actually implies a rising effective rate of interest over time.
•In addition, a processing fee of 1% is added and the insurance premium is deducted from the principal. As the principal is insured in case of death or default of the borrower or spouse, there can be no argument that a high interest rate is in response to a high risk of default.
•Does the borrower understand this mechanism? In line with RBI regulations, we found that all borrowers had a repayment card with the monthly repayment schedules. On their regular visit, the loan collector would tick off the instalment paid. This does not mean that borrowers understood the charges.
•Further, contrary to the RBI guideline of “no recovery at the borrower’s residence”, collection was at the doorstep. Note that a shift to digital transactions refers only to the sanction of a loan, as repayment is entirely in cash. Many borrowers said the debt collector used bad language in a loud voice, shaming them in front of their neighbours.
•If the borrower is unable to pay the instalment, other members of the group have to contribute, with the group leader taking responsibility. In our survey, there was no organic connection of microfinance to any group activity or enterprise. As an agent of a NBFC-MFI told us, “we have used the groups formed earlier for other activities solely to show that we lend to a group”.
The shift now
•While microfinance lending has been in place since the 1990s, what is different about the recent phase of growth of financial services is that the privately-owned for-profit financial agencies are “regulated entities”. In fact, they have been promoted by the RBI. Lending by small finance banks (SFBs) to NBFC-MFIs has been recently included in priority sector advances. And, post-COVID-19, the cost of funds supplied to NBFC-MFIs was lowered, but with no additional restrictions on the interest rate or other parameters affecting the final borrower.
•In the 1990s, microcredit was given by scheduled commercial banks either directly or via non-governmental organisations to women’s self-help groups, but given the lack of regulation and scope for high returns, several for-profit financial agencies such as NBFCs and MFIs emerged. By the mid-2000s, there were widespread accounts of the malpractices of MFIs (such as SKS and Bandhan), and a crisis in some States such as Andhra Pradesh, arising out of a rapid and unregulated expansion of private for-profit micro-lending.
•The microfinance crisis of Andhra Pradesh led the RBI to review the matter, and based on the recommendations of the Malegam Committee, a new regulatory framework for NBFC-MFIs was introduced in December 2011. A few years later, the RBI permitted a new type of private lender, SFBs, with the objective of taking banking activities to the “unserved and underserved” sections of the population.
•Today, as the RBI’s consultative document notes, 31% of microfinance is provided by NBFC-MFIs, and another 19% by SFBs and 9% by NBFCs. These private financial institutions have grown exponentially over the last few years, garnering high profits, and at this pace, the current share of public sector banks in microfinance (the SHG-bank linked microcredit), of 41%, is likely to fall sharply.
•The proposals in the RBI’s consultative document will lead to a further privatisation of rural credit, reducing the share of direct and cheap credit from banks and leaving poor borrowers at the mercy of private financial agencies. This is beyond comprehension at a time of widespread post-pandemic distress among the working poor. The All India Democratic Women’s Association, in its response to this document, has raised concerns about the implications for women borrowers and demanded that the rate of interest on microfinance not exceed 12% per annum. To meet the credit needs of poorer households, we need a policy reversal: strengthening of public sector commercial banks and firm regulation of private entities.
