DAILY MAINS NEWSLETTER FOR UPSC | 16 APR 2021 | RaghukulCS

Daily Mains Newsletter For UPSC
| RaghukulCS

16 APRIL 2021

Index

Mains Value Addition

Mains Analysis

Topic No

Topic Name

Source

1

Why less may be more for India and China

The Hindu

2

Scale it up, Roll it out

Indian Express

Mains Value Addition

No annuity rider, NPS subscribers get ₹5 lakh exit option

Syllabus– GS 3: Indian Economy

Analysis: –

  • For Indian savers, National Pension System (NPS), a retirement saving instrument first set up in 2004, brings some powerful advantages.
  • It is low-cost, allows exposure to equity (up to 75% of the corpus) and is reasonably tax-efficient. NPS is compulsory for government employees who joined service after 2004 and it was opened to the private sector in 2009.
  • Despite its many advantages, a set of key limitations have prevented it from realizing its full potential as a market-oriented retirement product.
  • In this piece, we explain the advantages and limitations of NPS and how savers can integrate it into their retirement planning.

NGT directs setting up national task force for air pollution monitoring in 124 cities

Syllabus– GS 3: Environment: Conservation

Analysis: –

  • The National Green Tribunal (NGT) has directed the constitution of an eight-member national task force to oversee air quality monitoring of 124 non-attainment cities (NACs) in the country.
  • Headed by the environment secretary, the task force will have members from ministries of housing and urban development, road transport, petroleum, power, agriculture, health, and chairman of the Central Pollution Control Board.
  • The task force will monitor remedial steps to improve air qualities in the NACs — places where air quality has generally remained poor and breached pollution parameters for five years — consistent with action plans already prepared, and also oversee compliance of noise control norms.
  • Air pollution can lower children’s IQ, hurt their test scores and increase the risks of autism, epilepsy, diabetes and even adult-onset diseases. Severe air pollution is leading to diseases and irreversible damage to health.
  • Grim situation is affecting right to education, work, health and ultimately, the right to life of the citizens,” the bench, headed by chairperson Justice Adarsh Kumar Goel, said in the order.

Governance: Putting the 'G' in ESG

Syllabus– GS 4: Ethics

Analysis: –

  • Not too long ago, the success of a company was determined purely by its financial performance.
  • Its profit and loss account, balance sheet statements, share price, ROI, ROE — these were the metrics that set a successful business apart from a failing one. That no longer holds entirely true.
  • A business still has to be profitable, it still has to have the right level of leverage, a healthy return on invested capital.

Mains Analysis

A multi-polarity, scripted by the middle powers

Why in News: –

The acrimony between the United States and Chinese delegations at the Anchorage conclave on March 19, followed by U.S. President Joe Biden referring to Russian President Vladimir Putin as a “Killer” and Mr. Putin’s sharp riposte.

Syllabus: -GS 2: International Relations

A China-India-U.S. “strategic triangle” model would provide an elegant way to simplify and explain rivalries in Asia.

However, the evidence suggests that such a model is problematic, for at least two reasons:

  1. India is now neither willing nor able to compete with China or the United States in East Asia, and the economic and military gap between China and India is predicted to continue to widen.

A new term, the “Indo-Pacific,” has been coined in Washington, both to capture economic and diplomatic trends slowly linking India to East Asia and to encourage India to play a greater role in East Asia.

However, this term anticipates a possible future more than it reflects current reality.

At most, an argument can be made that a “triangular dynamic” has an erratic and unpredictable impact on several South Asian and global issues.

  1. The current weak “triangular dynamic” functions in a region that includes many other important countries,which are all bound together economically, thus diminishing its relevance.

Asia’s dense and integrated supply and production networks constrain an individual country contemplating attempts to employ economic leverage to influence its neighbours. China’s geopolitical weight is increasingly felt along an arc from India to Southeast Asia to Japan.

However, in response, most East Asian countries and India are not accommodating China but, instead, they are cautiously “hedging” against China. Assertiveness is counterproductive, and thus often moderated.

New Cold War

  • S. continues to view China as its principal adversary on the world stage and that it will use the Quad to challenge China in the Indo-Pacific, possibly as part of a “New Cold War”.
  • The U.S.’s hostility for Russia goes back to the latter’s war with Ukraine and the occupation of Crimea in 2014, followed by allegations of Russian cyber-interference in the U.S. presidential elections of 2016. Mr. Biden continues this hostility for Russia.
  • S. animosity has encouraged China and Russia to solidify their relations.
  • The two countries have agreed to harmonize their visions under the Eurasian Economic Union sponsored by Russia and China’s Belt and Road Initiative (BRI).
  • This idea has now been subsumed under the ‘Greater Eurasian Partnership’ to which both are committed.
  • Both have condemned the Quad for “undermining global strategic stability”.
  • Thus, the new Cold War is now being reflected in a new geopolitical binary — the Indo-Pacific versus Eurasia.
  • The final shape of this divide will be determined by four nations, namely Japan, Iran, Turkey and India, which, as “middle powers”, have the capacity to project power regionally, build alliances, and support the strategies of international powers pursuing their interests in the region.
  • On the face of it, their alignments are already in place:
  • Japan and India are deeply entrenched in the Quad and have substantial security ties with the U.S.
  • Iran, on the other hand, has for long been an outcaste in western eyes and has found strategic comfort with the Sino-Russian alliance.
  • Turkey, a NATO member, has found its interests better-served by Russia and China rather than the U.S. and its European allies.
  • The main reason of uncertainty is that, despite the allure, the four nations are not yet prepared to join immutable alliances.

Reluctant allies

  • Japan has an ongoing territorial dispute with China relating to the Senkaku islands in the East China Sea.
  • Thus, the security treaty of 1951 with the U.S. has been crucial for Japan’s interests.
  • But there is more to Sino-Japanese relations:
  • In 2019, 24% of Japanese imports came from China, while 19% of its exports went to China
  • Japan depends too much on the U.S. for its security and too much on China for its prosperity
  • The eight-year Prime Ministership of Shinzo Abe has instilled in Japan greater self-confidence so that it can reduce its security-dependence on the U.S. and pursue an independent role in the Indo-Pacific.
  • Hence its $200 billion ‘Partnership for Quality Infrastructure’ that funds infrastructure projects in Asia and Africa, though Japan is also willing to work on BRI projects on a selective basis.
  • India’s ties with China have been caught in a vicious circle:
  • As threats from China at the border and intrusions in its South Asian neighborhood and the Indian Ocean became sharper, it moved closer to the U.S.
  • India’s expanding defense ties with the U.S. from 2016, consisting of massive defense purchases and agreements on inter-operability and intelligence-sharing and frequent military exercises, as also the elevation of the Quad to ministerial level in September 2019, signalled to China that India was now irreversibly in the U.S. camp.
  • With the border stand-off at Ladakh, China is perhaps reminding India that its security interests demand close engagement with China rather than a deepening alignment with its global rival.

China has a point:

  • While the Quad has made India a valuable partner for the U.S. in the west Pacific, neither the U.S. nor the Quad can address the challenges it faces at its 3,500-kilometre land border with China.
  • The ‘revenge of geography’ and concerns relating to the U.S.’s intrusive approach on human rights issues ensure that India will need to manage its ties with China largely through its own efforts, while retaining Russia as its defence partner.
  • The crippling sanctions on Iran and the frequent threats of regime change make it a natural ally of the Sino-Russian axis.
  • The “neo-Ottomanism” of President Recep Tayyip Erdo?an — celebrating Turkey’s glory through military and doctrinal leadership across the former territories of the Ottoman empire — has been achieved through a steady distancing from its western partners and increasing geopolitical, military and economic alignment with Russia and China.
  • Its “New Asia” initiative, for instance, involves strengthening of east-west logistical and economic connectivity backed by western powers and China.

Defining characteristic

  • The four middle powers, whose choice of alignment will impart a political and military binary to world order, are reluctant to make this a reality.
  • While Cold War advocates in home capitals and in the U.S. will continue to promote ever-tighter alliances, these nations could find salvation in “strategic autonomy” — defined by flexible partnerships, with freedom to shape alliances to suit specific interests at different times.
  • These four middle powers will thus make multi-polarity, rather than a new Cold War, the defining characteristic of the emerging global order.

Way Forward: –

  • India and the U.S. should continue to strengthen their broader relationship (and each other); this will, in and of itself, shape China’s perception and options. But they should also continue to engage with Beijing—this can benefit all three countries and demonstrate the advantages of cooperation.
  • The two countries should continue their consultations on China. The need to balance the imperatives of signaling Beijing, while not provoking it might mean that publicly India and the U.S. continue to couch these official discussions in terms of the Asia-Pacific (or sometimes the Indo-Pacific), but privately the dialogue needs to be more explicit. Both countries’ regional strategies aren’t all about China, but it features significantly—a fact that needs to be acknowledged.
  • The U.S. should continue to support the development of India’s relationships with its allies and countries in Southeast Asia. But while nudging and, to some extent participating in, the development of these ties, Washington should let them take shape organically. Relationships driven by—and seen as driven by—Delhi and Tokyo or Delhi and Canberra will be far more sustainable over the long term rather than partnerships perceived as driven by the U.S.

Question: –

China and, to a lesser extent, India are recognised as

Asia’s rising powers, probably destined to emerge later this century, at least within Asia, as peer competitors to the United States. Their competition and cooperation, with each other and with the United States, is expected to shape Asia’s future. Discuss.

Bringing the promoter back

Why in News: – 

The recent amendment in IBC is a step to address some structural weakness in India’s resolution architecture through the introduction of pre-packs for MSMEs.

Syllabus: – GS3: Indian economy &issues, Banking

  • Many MSMEs have been impacted by the coronavirus pandemic and experts opined that the latest amendment, which comes less than two weeks after the suspension of certain IBC provisions ended, is a welcome move.
  • The suspension — wherein fresh insolvency proceedings were not allowed for a year starting from March 25, 2020 — was implemented amid the coronavirus pandemic disrupting economic activities.

 

  • According to the ordinance — whereby the pre-packaged resolution process has been introduced — it is considered necessary to urgently address the specific requirements of MSMEs relating to the resolution of their insolvency due to the unique nature of their businesses and simpler corporate structures.
  • Generally, under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before submitting the plan to NCLT for formal approval.
  • All resolution plans under the IBC need to be approved by the National Company Law Tribunal (NCLT).
  • As per the ordinance, it is considered expedient to provide an efficient alternative insolvency resolution process MSMEs to ensure a quicker, cost-effective and value maximising outcome for all stakeholders, in a manner which is least disruptive to the continuity of their businesses and which preserves jobs.

What is Pre-Packaged Insolvency for MSMEs?

  • The pre-packaged framework which is part of the IBC framework that involves a privately negotiated contract between the promoters of a financially distressed firm & its financial creditors to restructure the company’s obligations, but before the commencement of insolvency proceedings.
  • After the creditor’s approval, the plan must be presented to the National Company Law Tribunal (NCLT) for approval.
  • Before the amendment, the firm’s promoter could have submitted a resolution plan even after insolvency proceedings but subject to restrictions imposed under Section 29A.

The difference in the new framework:

  • Under the IBC, upon the insolvency proceedings initiation, control of a firm is seized from its existing promoters, & a resolution professional takes over the management of the company affairs during the process.
  • With the amendment, the arrangement is completely restructured, where the promoter through the pre-pack, retains control over the firm.
  • Effectively it has transitioned from a “creditor-in-control” model of resolution to a “debtor-in-control” model of restructuring.
  • The restructuring arrangement moves away from the open bidding process such as during the resolution phase.
  • It does not always require the approval of a court.

Significance of the Amendment:

  • Wresting control from the “errant” promoter seems appealing but it is unfair to lay all the blame at the doorstep of the promoter because
  • It is highly probable that many businesses that are struggling now, had been viable & profit-making in the past.
  • In times of crisis, pushing all genuine struggling firms through the IBC process, which is a liquidation bias process, would lead to significant value destruction.
  • The amendment addresses the above lacuna in IBC, creating a framework for restructuring, without the promoter losing control over the firm.
  • For promoters, the amendment is an attractive proposition because it gives control over their firms & exits the process with more manageable obligations.
  • For creditors, as long as the value of the restructured obligation is greater than the liquidation value, it is a good option to them because of heightened economic distress periods lacks buyers of stressed assets in the market.
  • Further, the entire process lacks outside the ambit of RBI’s restructuring framework & it also encompasses all financial creditors’ not just banks alone.
  • Moreover, the judicial approval seal douses concerns of questions being raised y investigative agencies in the future.
  • The pre-pack offer enables a faster resolution, preserves & maximizes value & increases the possibility of resolution.
  • Retention of control over the firm to existing promoters avoids the cost of disruption of the business & continues to maintain the status quo in its operations.
  • The pre-pack-based resolution reduces the litigations involving courts in its process.
  • The absence of a group resolution mechanism in many areas leads to distressed insolvency for a company, in this regard pre-packs help in avoiding distressed insolvency where group resolution is unavailable.

Challenges: –

  • The key limitation of pre-packaged insolvency is the lack of transparency due to the absence of an open bidding process.
  • The issue with an errant debtor-in control regime may lead to fraudulent activities & asset stripping.
  • The questions over price discovery where operational creditors raise issues of fair treatment when financial creditors reach an agreement to reduce the liabilities of the distressed company.
  • The pre-packaged insolvency does not consider the future viability of the new company

Way Forward: –

  • The Insolvency and Bankruptcy Board of India (IBBI) is a key institution in implementing the IBC.
  • Broadly, Section 29 of the IBC seeks to prevent defaulting promoters from taking back their companies under the resolution process.
  • Pre-packs will help corporate debtors to enter into consensual restructuring with lenders and address entire liability side of the company. Government needs to further augment the NCLT’s infrastructure so that pre-packs can be implemented in time-bound manner.

Questions: –

Operationalizing Pre-packaged Insolvency is a first step in opening it up for the entire corporate universe. This new mechanism brings greater certainty to the entire process & once the creases are ironed out, it creates a permanent mechanism for restructuring debts. Explain.

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