Daily Mains Newsletter for UPSC 23 Dec 2021

Daily Mains Newsletter For UPSC
| RaghukulCS

23 Dec 2021 - Thrusday

Index

Table of Contents

Asset Reconstruction Companies

  • Over the last five years, considerable progress has been made in resolving and recovering the bad debts of banks.
  • The National Asset Reconstruction Company (NARCL) incorporated under the Companies Act, 2013 offers hopes for the faster clean-up of lenders’ balance sheets.
  • But addressing the fundamental problem of accumulation of elevated and recurring NPAs (Non-Performing Assets)generation is also crucial.

ARCs in India

  • Of the 28 ARCs (private sector) in operation the top 5 ARCs account for over 70% of the asset under management (AUM) and nearly 65% of the capital.
    • Even private sector ARCs have not done well in the sale of zombie assets, hardly 13.9% of the assets acquired are actually sold and nearly one-third of debts are rescheduled.
    • Over the last three decades, there have been several institutional and policy measures to resolve the bad debts. The institutional measures include:
      • Board for Industrial and Financial Reconstruction (BIFR), 1987
      • Lok Adalat
      • Debt Recovery Tribunal (DRT), 1993
      • Corporate Debt Restructure, 2001
      • Securitization and Reconstruction of Financial Assets and Enforcement, (SARFAESI Act), 2002
    • However, the resolution for these is 6.2%, 4.1%, and 26.7% for Lok Adalat, DRT, and SARFAESI respectively.
    • The RBI has also launched a slew of measures during 2013-14 to resolve, reconstruct and restructure stressed assets.
  • Establishment of NARCL: 
  • The National Asset Reconstruction Company (NARCL) has been incorporated under the Companies Act, 2013, and has applied to the Reserve Bank of India for a license as an Asset Reconstruction Company (ARC).
    • NARCL (first in the public sector), offers hopes for the faster clean-up of lenders’ balance sheets.
    • Its securitized receipts (SRs) carry sovereign assurance.
    • It would initially focus on large accounts with debts over Rs 500 crore and is expected to free the banks from the tortuous recovery process.
  • Progress of IBC: The Insolvency and Bankruptcy Code (IBC), 2016 was landmark legislation and marked a welcome departure from the earlier measures, with a legally time-bound resolution.
    • Qualitatively, it has instilled a sense of fear in mischievous corporate borrowers who have siphoned off funds and dethroned them. It nearly put an end to evergreening.

Challenges Faced in Clearing Bad Loans

  • Lack of Adequate Infrastructure in NCLT: 
  • Over 50% (34 out of 63) of NCLT benches were bereft of regular judges.
  • Over 13,170 cases involving distressed debt of Rs 9.2 lakh crore are languishing with the NCLT.
  • Delayed Recognition and Resolution: 
  • 47% of the cases referred to the IBChave been ordered for liquidation.
    • Over 70% of these cases were languishing at the now-defunct BIFR for years and decades.
    • Against the aggregate claims of the creditors of about Rs 6.9 lakh crore, the liquidation value was estimated at a meager Rs 0.49 lakh crore.
  • Anchoring Bias Close to Liquidation Value: 
  • Tendency to make decisions on the basis of first available information is called “anchoring bias”.
  • This information in bidding for distressed assets is the cost of acquisition to ARCs.
      • In the case of the IBC process, it is the liquidation value determined by the IBBI (Insolvency and Bankruptcy Board of India) valuers.
  • These distressed assets may be taken over by NARCL at 20%.
      • This low cost of acquisition would suffer from the anchor effect and bias.
      • Potential bidders would quote prices nearer to this anchor.

Way Forward

  • Judicial and Regulatory Reforms
    • Lenders and regulators need to address the issue of delayed recognition and resolution.
      • Incentivising lenders for more flexible provisioning requirements would encourage them to recognise early.
      • Business stress and/or financial stress needs to be recognized even prior to regulatory norms on NPA (Non-Performing Asset) classification.
  • Mitigating Anchor Bias: Nobel Laureate Daniel Kahneman has argued that “the anchoring effect is not a laboratory curiosity and can be just as strong in the real world”. This may be mitigated by “opposite thinking”.
    • He suggests a three-step process to mitigate anchor bias:
      • Acknowledging the bias.
      • Seeking more and new sources of information.
      • Dropping your anchor on the basis of new information.
        • Anchor bias needs to be mitigated by better extrinsic value discovery.
  • Measures for the New ARC: The IBC has made considerable progress in bringing about behavioral change in errant and wil ful defaulters.
    • The NARC should uphold this principle and not dilute it.
    • Also, it should have a sunset clause of three to five years to avoid the perpetuation of moral hazard and also encourage expeditious resolution.
  • Limiting the Accumulation of NPAs: The NARCL is a welcome initiative, but, keeping the accumulation of NPAs below 2% is critical.
  • ARCs should be allowed to set up alternate investment funds for the purpose of bringing in capital and competencies for reconstruction.

RevisitingForest Rights Act

The Forest Rights Act (FRA) has been in existence for 15 years but many forest dwellers across India are in vulnerable condition due to improper implementation of FRA.

What is Forest Rights Act?

  • The Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 or FRA was landmark legislation that sought to restore the rights of forest dwellers over land, community forest resources and habitats, and the governance and management of forests.
  • The Act grants legal recognition to the rights of traditional forest-dwelling communities, partially correcting the injustice caused by the forest laws.

What is the significance of FRA?

  • The community forest titles enable all the villagers, including landless people, to access, use and sell minor forest produce and use other forest resources contributing to their livelihood.
  • The FRA has the potential to restore the rights of forest dwellers over at least 100 million acres of forest land in one-fourth of the villages across the country.
  • There is evidence that after the recognition of community forest rights, the household incomes from bamboo harvesting have increased.
  • There are possibilities of reverse migration and reduced forest fires due to regular patrolling and monitoring by the villagers and promotes the sustainable management of forests.

What is the implementation status of FRA?

  • The Supreme Court ordered the eviction of Scheduled Tribes (STs) and Other Traditional Forest Dwellers (OTFDs) across 16 States, whose claim as forest-dwellers has been rejected under the Forest Rights Act.
  • The forest land claims of these tribes and forest-dwellers are mostly rejected by the States.
  • Being poor and illiterate, living in remote areas, they do not know the appropriate procedure for filing claims.
  • The order was stayed by the Supreme court after the Centre moved the apex court to modify the former order.
  • The Ministry of Tribal Affairs is the implementing agency whereas the role of the Forest Department in granting titles is crucial because the lands claimed are under its jurisdiction.
  • As of April 30, 2020, out of 42,50,602 claims (individual and community), 46% were distributed to the applicants.

What are the issues in implementation?

  • Non-compliance with the procedure:
  • The process of the constitution of a Forest Rights Committee is not followed in many places and was mostly constituted by the Panchayat Secretaries upon directives of DM at short notice.
  • The nominations for members for the taluk-level and district-level committees were not transparent.
  • Women’s Rights: On the ground level, women hardly get their rights ensured under FRA Act.
  • Proofs of evidence – There was an insistence on satellite images as evidence while other admissible proofs were ignored e.g., Gujarat.
  • Non- expansion of other welfare schemes– Various welfare and developmental schemes of the Rural Department were not extended to the tribal people.
  • Poor awareness levels among the tribal people.
  • The biggest challenge throughout the country has been a lack of coordination between tribal, forest, and revenue departments at the local level.
  • Myths of the disappearance of tigers- The number of tigers has only gone up after the FRA came into the picture.
  • For example, after giving forest titles to the Soliga tribal community in the BRT Hills of Karnataka, a 2013 government estimate shows tiger density to be 11.3 tiger/100 sq km, making it second only to Kaziranga.

What is the way forward?

  • The involvement of NGOs is needed, as, in the Dang district of Gujarat, NGOs made a difference by hand-holding the beneficiaries at every step.
  • The livelihoods of the locals would improve if horticulture practices are promoted.
  • A popular recommendation is medical and ecotourism along the lines of the Kerala model.
  • Provision of skill-based education with assured jobs on a large scale in proportion to the demand would prevent the migration of youths to urban areas.
  • It is critically important for the state machinery to create a favourable for the Gram sabhas to exercise rights recognised under the FRA.
  • The MoTA database can be upgraded to build a consistent, uniform, and transparent implementation of FRA.
  • Induct people who are sensitive to the cause of tribal people in the decision-making process at every stage.

Revisiting Forest Rights Act

The Forest Rights Act (FRA) has been in existence for 15 years but many forest dwellers across India are in vulnerable condition due to improper implementation of FRA.

What is Forest Rights Act?

  • The Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 or FRA was landmark legislation that sought to restore the rights of forest dwellers over land, community forest resources and habitats, and the governance and management of forests.
  • The Act grants legal recognition to the rights of traditional forest-dwelling communities, partially correcting the injustice caused by the forest laws.

What is the significance of FRA?

  • The community forest titles enable all the villagers, including landless people, to access, use and sell minor forest produce and use other forest resources contributing to their livelihood.
  • The FRA has the potential to restore the rights of forest dwellers over at least 100 million acres of forest land in one-fourth of the villages across the country.
  • There is evidence that after the recognition of community forest rights, the household incomes from bamboo harvesting have increased.
  • There are possibilities of reverse migration and reduced forest fires due to regular patrolling and monitoring by the villagers and promotes the sustainable management of forests.

What is the implementation status of FRA?

  • The Supreme Court ordered the eviction of Scheduled Tribes (STs) and Other Traditional Forest Dwellers (OTFDs) across 16 States, whose claim as forest-dwellers has been rejected under the Forest Rights Act.
  • The forest land claims of these tribes and forest-dwellers are mostly rejected by the States.
  • Being poor and illiterate, living in remote areas, they do not know the appropriate procedure for filing claims.
  • The order was stayed by the Supreme court after the Centre moved the apex court to modify the former order.
  • The Ministry of Tribal Affairs is the implementing agency whereas the role of the Forest Department in granting titles is crucial because the lands claimed are under its jurisdiction.
  • As of April 30, 2020, out of 42,50,602 claims (individual and community), 46% were distributed to the applicants.

What are the issues in implementation?

  • Non-compliance with the procedure:
  • The process of the constitution of a Forest Rights Committee is not followed in many places and was mostly constituted by the Panchayat Secretaries upon directives of DM at short notice.
  • The nominations for members for the taluk-level and district-level committees were not transparent.
  • Women’s Rights: On the ground level, women hardly get their rights ensured under FRA Act.
  • Proofs of evidence – There was an insistence on satellite images as evidence while other admissible proofs were ignored e.g., Gujarat.
  • Non- expansion of other welfare schemes– Various welfare and developmental schemes of the Rural Department were not extended to the tribal people.
  • Poor awareness levels among the tribal people.
  • The biggest challenge throughout the country has been a lack of coordination between tribal, forest, and revenue departments at the local level.
  • Myths of the disappearance of tigers- The number of tigers has only gone up after the FRA came into the picture.
  • For example, after giving forest titles to the Soliga tribal community in the BRT Hills of Karnataka, a 2013 government estimate shows tiger density to be 11.3 tiger/100 sq km, making it second only to Kaziranga.

What is the way forward?

  • The involvement of NGOs is needed, as, in the Dang district of Gujarat, NGOs made a difference by hand-holding the beneficiaries at every step.
  • The livelihoods of the locals would improve if horticulture practices are promoted.
  • A popular recommendation is medical and ecotourism along the lines of the Kerala model.
  • Provision of skill-based education with assured jobs on a large scale in proportion to the demand would prevent the migration of youths to urban areas.
  • It is critically important for the state machinery to create a favourable for the Gram sabhas to exercise rights recognised under the FRA.
  • The MoTA database can be upgraded to build a consistent, uniform, and transparent implementation of FRA.
  • Induct people who are sensitive to the cause of tribal people in the decision-making process at every stage.

Ethics / Paper -IV – Terms

Ergonomics:

  • Ergonomics (or human factors) is the scientific discipline concerned with the understanding of interactions among humans and other elements of a system, and the profession that applies theory, principles, data, and methods to design in order to optimize human well-being and overall system performance.
  • Ergonomics is defined as the study of how people work in their environment.
  • An example of ergonomics is a study of how people who primarily sit in their offices get work-related back injuries.

Teleology:

  • theory of morality that derives duty or moral obligation from what is good or desirable as an end to be achieved.
  • Also known as consequentialist ethics, it is opposed to deontological ethics (from the Greek Deon, “duty”), which holds that the basic standards for action are being morally right is independent of the good or evil generated.
  • Teleology is an account of a given thing’s purpose.
  • For example, a teleological explanation of why forks have prongs is that this design helps humans eat certain foods; stabbing food to help humans eat is what forks are for.

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