UPSC Online Editorial Analysis
Title: A world to win
Written by: Sudheendra Kulkarni (The writer was an aide to former Prime Minister Atal Bihari Vajpayee)
Topic in the syllabus: Important International institutions, agencies. | Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests. (GS-2)
Analysis about: This articles talks about why do we need a new democratic governing body (at global level) to address chaos caused by myopic national governments.
- Many nations have been severely polarised. Corrosive social and political divisions are also apparent in US, India, Pakistan, France, Turkey, Brazil, Ethiopia — indeed, in every country to a lesser or greater degree.
- The antidote to polarisation is reform of government and state institutions in a way that they work for all citizens without discrimination and injustice. Societies are healed when governance becomes fair and compassionate.
Why do we need a new democratic governing body at global level?
- Negative reasons-
- There are fears of a new cold war breaking out if US-China relations grow icier.
- China and India — have been engaged in a tense standoff for the past seven months.
- Nuclear-armed countries — India and Pakistan — have remained in an endless state of confrontation.
- West Asia has seen four externally instigated civil wars in Syria, Iraq, Libya and Yemen.
- A “hot war” of a different kind is being waged by the greedy and reckless rulers in Brazil, who have literally set on fire parts of the Amazon forest.
- There is a crisis looming over nuclear disarmament.
- The US-Russia — the New Strategic Arms Reduction Treaty — which is set to expire on February 5, 2021.
- Without effective global governance, the world faces the real danger of lurching towards more disorder, divisions and even wars.
- Positive reasons-
- Ensuring affordable availability of the COVID vaccine to the entire global population;
- Making the world economy inclusive, equitable and sustainable, with complete eradication of poverty as the foremost goal;
- Achieving time-bound climate action to protect the planet;
- Stopping the militarisation of oceans, outer space and other global commons.
What are necessary steps to be taken?
- The concept of establishing a democratic world government must be brought to the centre of global discourse and action.
- In the age of globalisation, we must embrace the virtues of shared sovereignty, in which connectivity (physical, digital, cultural and people-to-people) takes priority over the fetish of territoriality.
- Militarisation of international disputes must be criminalised under the new laws of global governance.
- World community must compel all nations, especially big and powerful ones, to not only destroy all their weapons of mass destruction but also steeply reduce their military expenditures.
- United Nations must be reformed and strengthened to gradually evolve into a future world government body.
- Permanent membership of its security council must be abolished as it is repugnant to the tenet of equality of all nations.
- Nations that wage offensive wars or have failed to resolve disputes with their neighbours should stand disqualified/suspended from UNSC membership.
- There is a strong case for making governance more broad-based and participatory.
- Empowered participation of artists, cultural workers, educators, media persons, writers, scientists, innovators, entrepreneurs, professionals, environmentalists, young people, women and other previously disempowered communities, peace activists and spiritual seekers in global governance will be helpful.
- And ending the monopoly of professional politicians, in global governance is a must.
- This is the idea that our globalised human family needs a new democratically governing body to address the chaos and troubles caused by myopic, self-centred and unaccountable national governments.
- Bringing such a body into existence is not going to be easy. But then which transformative human endeavour has ever succeeded easily?
Title: No Minister, the trade agreement pitch is flawed
Written by: Puja Mehra (A Delhi-based journalistand author of ‘The Lost Decade (2008-18):How India’s Growth Story Devolved intoGrowth Without a Story’.)
Topic in the syllabus: Indian Economy and issues relating to planning, mobilization, of resources, growth,
development and employment (GS-3)
Analysis about: This articles criticises the anti-globalisation speech of our external affairs minister.
- REER – The real effective exchange rate (REER) is the weighted average of a country’s currency in relation to an index or basket of other major currencies. The weights are determined by comparing the relative trade balance of a country’s currency against each country within the index.
- NEER – The nominal effective exchange rate (NEER) is an unadjusted weighted average rate at which one country’s currency exchanges for a basket of multiple foreign currencies. The nominal exchange rate is the amount of domestic currency needed to purchase foreign currency.
- The nominal effective exchange rate is measured with the nominal parts (therefore without taking account of the differences in purchasing power between the two currencies), while the real effective exchange rate includes price indices and their trends.
- If a countries real exchange rate is rising, it means its goods are becoming more expensive relative to its competitors. An increase in the real exchange rate means people in a country can get more foreign goods for an equivalent amount of domestic goods.
What did external affairs minister say?
- The Minister believes that the economic growth that has accrued from globalisation is not a good enough outcome for India. An “honest” self-assessment of this trade and economic performance
is necessary to show what costs India has paid for its economic success:
- That if globalisation, especially trade, is assessed in the broader context of its overall impact on society, the costs could be shown to have set off the gains considerably.
- That one such cost is “deindustrialisation”. That “employment challenge” was created by trade.
- That trade agreements have made India “over dependent on imports”.
Why trade agreements cannot be blamed? & What are the real causes of low export according to the writer?
- India’s exports growth has lost momentum in recent years. Government’s “strong rupee” approach is among the chief causes that have been shown to have slowed down exports.
- The real effective exchange rate has appreciated by about 20% since 2014.
- If imports — such as of holidays and higher education overseas — have leapt, it is because the exchange rate has made them more affordable.
- Government’s “strong rupee” approach led to the surge in imports of goods and services preferred by non-rich Indians, and a measurable loss of competitiveness in labour intensive exports.
- At the same time, the disadvantages Indian exporters have long struggled against — the substantially higher logistics and other costs — remain as burdensome.
- Studies of trade agreements by NITI Aayog show that Indian exporters suffer logistics, compliance and transaction costs twice as high in other countries.
- This low ease of doing business relative to other exporting countries has further eroded the competitiveness of Indian exports.
- In sectoral causes, the damage to the reputational advantage of India’s pharmaceutical exports after malfeasance fraud was exposed at some manufacturers, has hurt exports.
How openness to trade is in fact one of the few channels available to India for generating employment in the post COVID19 world?
- The financial positions of households, government and banks are too weak to support the economy.
- After the 2008 global financial crisis, China vacated about $140 billion in exports in unskilled labour
intensive sectors, including apparel, clothing, leather and footwear. But India did not take advantage of the opportunity.
- India is exporting about $60 billion of low skill exports annually less than it can if the underlying problems are addressed.
Why there is inefficient decision making of India in global trade?
- Economic arguments are playing an ever shrinking role in formulation of trade negotiating positions and growth strategies, with curtailed roles for the Departments of Economic Affairs and Commerce, and the Ministry of External Affairs taking over much of the economic diplomacy.
Why trade openness & globalisation is necessary?
- Between 1995 and 2018, India’s manufacturing exports (in dollars) grew on average by 12.1%, nearly twice the world average.
- During this period, India’s manufacturing export growth ranked within the top 10 among the 50 major exporters.
- Between fiscal years 2006 to 2012, manufacturing sector GDP grew by an average of 9.5% per
- India’s trade openness was at its peak during these years of high growth that also overlaps with the period when the highest number of Indians in recorded history exited poverty.
- Trade openness versus import substitution is the one policy debate where policymakers need to
look no further than India’s own pre1991 experience of inferior, low-quality products on the one hand and low growth rates on the other.
- Great examples of how responsible globalisation can solve problems are the multiple COVID19 vaccines being readied across the world. They are in fact India’s only hope of safeguarding the population.
Title: Paying for poison
Written by: Jessica Seddon, Ashok Gulati (Seddon is Fellow, Chadha Center for Global India at Princeton University, and Gulati is Infosys Chair Professor for Agriculture at ICRIER)
Topic in the syllabus: Agriculture issues | Conservation, environmental pollution and degradation. (GS-3)
Analysis about: This articles talks about the reasons behind stubble burning and reforms needed to tackle this problem.
A less focused reason behind the pollution in Delhi:
- Atmospheric ammonia, which comes from fertiliser use, animal husbandry, and other agricultural practices, combines with emissions from power plants, transportation and other fossil-fuel burning to form fine particles.
- The precise share of these “second particulates” has not been extensively studied for Indian cities but findings from China with similar emission patterns suggest that they can account for a quarter to a third of particulate matter pollution even in urban settings.
How agriculture is a victim of pollution?
- Particulate matter and ground-level ozone (formed from industrial, power plant, and transportation emissions among other ingredients) cause double-digit losses in crop yields.
- Ozone damages plant cells, handicapping photosynthesis, while particulate matter dims the sunlight that reaches crops.
- Agriculture scientist Tony Fischer’s 2019 estimates of the two pollutants’ combined effect suggest that as much as 30 per cent of India’s wheat yield is missing (Sage Journals, Outlook on Agriculture).
- Earlier, B Sinha et al (2015), in Atmospheric Chemistry and Physics Discussions, found that high ozone levels in parts of Haryana and Punjab could diminish rice yields by a quarter and cotton by half.
What are the reasons behind stubble burning?
- Our current system of subsidies is a big reason that there is stubble on these fields.
- Free power — and consequently, “free” water, pumped from the ground — is a big part of what makes growing rice in these areas attractive.
- Open-ended procurement of paddy, despite the bulging stocks of grains with the Food Corporation of India, adds to the incentives.
- Subsidies account for almost 15 per cent of the value of rice being produced in Punjab-Haryana belt.
- The roots of rising ammonia pollution lie in the way fertiliser is used. Fertiliser, particularly urea in granular form, is highly subsidised.
- It is one of the cheapest forms of nitrogen-based fertiliser, easy to store and easy to transport, but it is also one of the first to “volatilise,” or release ammonia into the air.
- This loss of nitrogen, the main point of fertilising in the first place, then leads to a cycle of more and more fertiliser being applied to get the intended benefits for crops.
What are the necessary steps to be taken?
- An important element to correct in the policy matrix is the policy of subsidies on power, fertilisers and procurement.
- We need to shift the nature of support to farmers from input subsidies to investment subsidies, say for the conversion of paddy areas in this belt to orchards with drip irrigation, vegetables, corn, cotton, pulses and oilseeds, that consume much less water, much less power and fertilisers and don’t create stubble to burn.
- A diversification package of, say, Rs 10,000 crore spread over the next five years, equally contributed by the Centre and states, may be the best way to move forward in reducing agriculture-related pollution.
- States’ savings on power subsidies and from reducing water table depletion could pay for most of the package.
- Instead of massive subsidisation of urea to the tune of almost 75 per cent of its cost, it would be better to give farmers input subsidy in cash on per hectare basis, and free up the prices of fertilisers completely.
- This would be in a crop-neutral way that would make agriculture demand-driven and also save the country from high costs of carrying excessive stocks of rice and wheat.
- Government procurement of paddy from farmers burning stubble in their fields may also be restricted.
- These measures could double farmers’ incomes, promote efficiency in resource use, and reduce pollution — a win-win solution for all.
- The government has already undertaken bold agri-marketing reforms. It is time to reform the input subsidy regime and stop paying for poison.
Title: Many more banks
Topic in the syllabus: Indian Economy and issues relating to planning, mobilization, of resources, growth,
development and employment (GS-3)
Analysis about: This articles talks about the recent RBI panel proposal to allow large NBFCs to convert to banks & necessity of more banks in India.
- Recent recommendations by Internal Working Group:
- It has recommended raising the cap on promoters’ stake in private sector banks to 26% in the long run (15 years). The holding is currently mandated at 15% of the paid-up voting equity share capital of the bank.
- Large corporate or industrial houses be allowed as promoters of banks only after necessary amendments to the Banking Regulation Act, 1949 (to prevent connected lending and exposures between the banks and other financial and nonfinancial group entities).
- Strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision.
- Well-run nonbanking financial companies (NBFCs), with an asset size of ₹50,000 crores and above, including those owned by a corporate house, may be considered for conversion into banks subject to completion of 10 years of operations.
- As regards non promoter shareholding, it has suggested a uniform cap of 15% of the paid up voting equity share capital of the bank for all types of shareholders.
- The panel also recommended that for Payments Banks intending to convert to a Small Finance Bank (SFB), their track record of three years should be considered sufficient.
- Small Finance Banks and Payments Banks may be listed within ‘6 years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks’ or ‘10 years from the date of commencement of operations’, whichever is earlier.
- The minimum initial capital requirement for licensing new banks be enhanced from ₹500 crores to ₹1,000 crores for universal banks, and be raised to ₹300 crores from ₹200 crores for SFBs.
What are the issues with banking sector in India?
- Public sector banks (PSBs), in the last five years, have seen their share in total advances and deposits fall from 74-76 per cent to 60-65 per cent. But these are still far too high and also worrying, given the accumulation of bad loans, both past and prospective.
- The Centre cannot keep recapitalising PSBs. While there are well-run private sector banks, they cannot pick up the slack from the vastly reduced lending capacity of PSBs.
What is the solution?
- India today needs more banks. It is in this context that the recommendation by a Reserve Bank of India (RBI)-appointed internal working group to allow non-banking financial companies (NBFC) with asset size of Rs 50,000 crore or more to convert to banks, is welcome.
What will be the benefits of this move?
- If the panel’s suggestions are accepted, many NBFCs — like Bajaj Finserv, Aditya Birla Capital, L&T Finance, M&M Financial Services and Cholamandalam Investment & Finance — would qualify. Their lending books are already bigger than many banks.
- The integrity and reputation of the promoters in these cases, too, isn’t under question. If becoming banks gives them greater access to low-cost public deposits and thereby enables more lending, that is good for the economy’s growing credit requirement.
How converting established NBFCs into banks is different from permitting large corporate/industrial houses in general to set up banks?
- The RBI panel has rightly adopted a cautious approach in this regard. Banking as a business involves deploying others’ money.
- India’s past history is replete with instances of business houses using banks as captive fund pools for financing other group entities and related parties.
The way forward:
- Banking regulations should ensure adequate safeguards against “connected lending”, though one mustn’t forget that recent scams have been more about PSBs and so-called professional-promoted entities (Yes Bank and Global Trust Bank).
- The need for better supervision mechanisms is as urgent as the need for more banks, small and big.