DAILY NEWS ANALYSIS (UPSC) |19 Jan 2021| RaghukulCS

Comptroller and Auditor General

Context:The off Budget borrowingsmade by the Kerala Infrastructure Investment FundBoard (KIIFB) for critical infra projects have bypassedthe limits set on governmentborrowings under Article 293(1) of the Constitutionand such borrowings do nothave legislative approval,the Comptroller and Auditor General (CAG) of Indiahas said.

Topic in syllabus:Prelims – polity

What is article 293?

  • Article 293 of the Indian Constitution mandates that the State Governments in India can borrow only from internal sources. Thus the Government of India incurs both external and internal debt, while State Governments incur only internal debt.

About CAG:The Comptroller and Auditor General (CAG) of India is the Constitutional Authority in India , established under Article 148 of the Constitution of India.

He is empowered to Audit all receipts and expenditure of the Government of India and the State Governments, including those of autonomous bodies and corporations substantially financed by the Government.

The CAG is also the statutory auditor of Government-owned corporations and conducts a supplementary audit of government companies in which the Government has an equity share of at least 51 percent or subsidiary companies of existing government companies.

The reports of the CAG are laid before the Parliament/Legislatures and are being taken up for discussion by the Public Accounts Committees (PACs) and Committees on Public Undertakings (COPUs), which are special committees in the Parliament of India and the state legislatures.

Article 148 – 151 of the Constitution of India deal with the institution of the CAG of India.

The CAG is ranked 9th and enjoys the same status as a sitting judge of Supreme Court of India in order of precedence.

The CAG can be removed only on an address from both houses of parliament on the ground of proved misbehaviour or incapacity. The CAG vacates the office on attaining the age of 65 years or 6 year term, whichever is earlier or by impeachment process.

Duties of the CAG: the audit of the following

  • Receipts and expenditure from the Consolidated Fund of India and of the State and Union Territory having a legislative assembly.
  • Trading, manufacturing, profit and loss accounts and balance sheets, and other subsidiary accounts kept in any Government department; Accounts of stores and stock kept in Government offices or departments.
  • Government companies as per the provisions of the Companies Act, 2013.
  • Corporations established by or under laws made by Parliament in accordance with the provisions of the respective legislation.
  • Authorities and bodies substantially financed from the Consolidated Funds of the Union and State Governments. Anybody or authority even though not substantially financed from the Consolidated Fund, the audit of which may be entrusted to the C&AG.
  • Grants and loans given by Government to bodies and authorities for specific purposes.
  • Entrusted audits e.g. those of Panchayati Raj Institutions and Urban Local Bodies under Technical Guidance & Support (TGS).

Creamy layer

Context:The Supreme Court onMonday asked AttorneyGeneral K.K. Venugopal tocompile the various issuesbeing raised by States withregard to the application ofa Constitution Bench judgment of 2006 in M. Nagarajcase, which had upheld theapplication of creamy layerprinciple to members ofthe Scheduled Caste/Scheduled Tribe communitiesin promotions.

Topic in syllabus:Prelims – Polity

What is creamy layer?

  • Creamy layer is a term used in Indian politics to refer to some members of a backward class who are highly advanced socially as well as economically and educationally. They constitute the forward section of that particular backward class – as forward as any other forward class member.
  • They are not eligible for government-sponsored educational and professional benefit programs. The term was introduced by the Sattanathan Commission in 1971, which directed that the “creamy layer” should be excluded from the reservations (quotas) of civil posts.
  • The Supreme Court has said that the benefit of reservation should not be given to OBC children of constitutional functionaries—such as the President, Judges of the Supreme Court and High Courts, employees of central and state bureaucracies above a certain level, public sector employees, and members of the armed forces and paramilitary personnel above the rank of colonel.
  • Those from scheduled castes (SCs) and in scheduled tribes (STs) are exempt from this classification, and always receive the benefits of reservation regardless of family income.
  • The children of persons engaged in trade, industry and professions such as a doctor, lawyer, chartered accountant, income tax consultant, financial or management consultant, dental surgeon, engineer, computer specialist, film artists and other film professional, author, playwright, sports person, sports professional, media professional or any other vocations of like status whose annual income is more than 800,000 (Rs 8 lakh) for a period of three consecutive years are also excluded.

Import duty

Context:India is considering raisingimport duties by 5%-­10% onmore than 50 items including smartphones, electroniccomponents and appliancesin the upcoming budget,three government sourcesprivy to the discussions toldReuters on Monday.

Topic in syllabus:Prelims – Economy

What is import duty?

  • Import duty is a type of tax levied on the import and specific exports of a nation’s customs authorities. The value of goods will generally decide the amount of import duty that will be imposed. Sometimes, import duty is also referred to as customs duty, import tax, import tariff, or tariff.

Effects of import duty:

  • Since an import duty increases the import price of the taxed item (the extent of which depends upon various factors including its demand and supply elasticities), it has a protective effect in the form of shielding domestic suppliers from the competition from imports.
  • Import duties may also enable the domestic industries to have higher production costs. Thus, due to the protection, the domestic industries are able to expand their output.
  • The increase in price of the taxed commodity usually reduces the consumption capacity of the people if the import duty causes an increase in the price of domestically produced goods, it amounts to redistribution of income between the consumers and producers in favour of the producers.
  • Moreover, a part of the consumer income is producers. An import duty means increased revenue of the government (unless, of course, the rate of tariff is so high that it completely stops the import of the good) in the sense of protecting the domestic industries from foreign competition which may enable the domestic producers to gain a monopoly power in the domestic industry.
  • Import duty by reducing the volume of imports, may help the imposing country to improve its balance of payment position.

Important news in short

  • The Supreme Court on Monday said the Union government and the Delhi Policeshould take a call on whether or not protesting farmerscould hold tractor or vehiclemarches on Republic Day inthe national capital.
  • The task force set up to takea re­look at the age of marriage for women has submitted its report to the PrimeMinister’s Office and the Ministry of Women and ChildDevelopment, it is reliablylearnt. A government sourcesaid the report was submitted either “late December orvery early in January”.

Examples related to Ethics (GS-4) in today’s newspaper

  • The Central Vigilance Commission (CVC) has directedall Ministries/Departments of the Union government tostrictly adhere to the time limits for various stages of disciplinary proceedings in vigilance cases sinceunexplained delay was causing undue advantage or harassment to the charged
    officials. (against probity and duty boundedness)

Editorial Analysis

(The Hindu & The Indian Express)
Being tethered to bars during a pandemic

Source:The Hindu

Written by:Gopalkrishna Gandhi (formeradministrator, diplomat and governor)

Topic in syllabus:Governance – prison reforms, health (GS-2)

Analysis about:This editorial talks about issues associated crowded prisons and the pandemic.

  • Adistance of two yards — do ghazhkiduri– we are enjoined to maintain betweenoneself and anyone else.But there is a category of persons by which the injunction cannot be observed — prisoners. By
    the very nature of their situation,the physical limits of their confinement, they are obliged to stay in
    poorly ventilated and over­crowded cells. Being holed up in thatcondition almost seems to formpart of the punishment.
Experience of the U.S., the U.K:
  • By September, 44 of 50 COVID­19 clusterswere found to be located in prisons. In Texas, the virus had, bythen, killed more than 230 peoplein jails and prisons, 80% of whomhad not been convicted of a crime.
  • The United KingdomMinistry of Justice figures showedthat prisoners testing positive in September stood at 883 By October the number rose to 1,529, withfive deaths.
Ignorance of the situation in India:
  • Criminal justice has ‘activists’ in the United States observing with a sharp eye, prison conditions. We
    do not. At least not in the same numbers or with the same capacity to influence policy.
  • In the United States and inthe U.K., pandemic control in prisons is being driven by enlightened public opinion. Not so in India. When we hail an ‘unlocking’,we are not thinking of our lockups.
The plight of the prison system &Violation of rights:
  • Of the 4.5 lakh prisoners that ourcorrectional homes hold, according to the National Crime Records
    Bureau’s report for 2019about 3.3 lakh are ‘under trial prisoners’, againstwhom investigation or trial is supposed to be ‘in progress’.
  • 3 lakh ‘under­trial prisoners’have been detained under Section167 of the Code of Criminal Procedure (CrPC) which provides for“Procedure when investigationcannot be completed in 24 hours”.
  • The original CrPC of 1898 specifiedthe period of detention as 15 days.This has, by amendments, beenextended to periods that can go upto 90 days and, in some exceptional situations, even indefinitely.
  • D. Sharma, a former Head ofCorrectional Services in West Bengal, describes their condition thus: “This huge violation ofthe basic human rights of UTPs insuch large numbers is made further unbearable by overcrowding,poor living conditions, inadequatehealthcare facilities and torture by
    other rowdy prisoners (which often occurs with the connivance ofjail staff) in our prisons.”
  • And hehighlights the huge injusticecaused to the families of the ‘under trial prisoners’ “languishing in
    prisons for long years particularlytheir children who are denied anormal childhood, proper education, and are exploited by cruelsections of the society in variousway especially the girl childrenand many of whom are forced totake to the path of crime”.
  • There is a wrong perception in India that all prisoners are by definition bad.majority of them are and are likely tobe found to be innocent. Theirs isa case of innocence in jail and injeopardy — the jeopardy of a potentially fatal infection contractedwhile in detention.
Past effort of Prison reform:
  • Through a salutary amendment,the Code of Criminal Procedure (Amendment) Act, 2005, a much needed Section 436­A has been introduced in the CrPC.
    • Excludingoffences for which capital punishment is envisaged, it provides foran under trial to be released on apersonal bond, with or without sureties if the period spent in detention by the under trial has been formore than half the maximum period of imprisonment prescribedfor that offence.
    • The 2005 amendment had twoaims: one, de­congestion and two,fairness. Today, in our COVID­19times, if congestion is per se heldto be dangerous, de­congestion inprisons through a prescribed legalprocedure becomes not just a desirability but a duty.
What is to be done?
  • The virus gives cause for an immediate review of all prisoners’vulnerability to the epidemic,starting with that of ‘under trialprisoners’ who are suffering twoprivations — one, being immobilised, most probably unjustly, andtwo, being tethered to the risk ofinfection.
  • This review has to comprise100% and repeated testing procedures in all prisons, especially sub jails, which form the biggest category among them and the least‘equipped’ and an arrangementfor the isolating and hospitalisation of those testing positive.
  • Noprisoner who has tested positivecan be allowed to remain withinthe crowded confines of that venue without transmitting the disease to a progressively rising concentric circle of inmates.
  • But above all, the population ofprisons has to be vigorouslybought down.
  • The 2005 amendment tothe CrPC be activated on a nationwide and urgent basis as a state dutyand a human right. And whiletheir release is being actuated, italso follows that even as anyone ina state hospital may rightly expectto be vaccinated on a priorityagainst the virus.


  • While ‘Prisons’ is in the ‘StateList’, as is ‘Public Health’, the Constitutional responsibility of handling infectious and contagiousdiseases figures in the ConcurrentList. It is the Centre that mustshow the States its concern in thisand lead from the front.
Mining in India equals selling the family gold

Source:The Hindu

Written by:Rahul Basu (Research Director at theGoa Foundation and a member of ‘TheFuture We Need’, a global movement tomake intergenerational equityfoundational for civilisation beginningwith minerals)

Topic in syllabus:Governance (GS-2) | Economy, Environment (GS-3)

Analysis about:This editorial talks about issues associated with unsustainable mining in India.


  • The principle that the economymust be “sustainable” – ­we cannot compromise the ability of future generations tomeet their needs — is beyond question.
  • Climate change and high levels of consumption already threaten to rob future generations of a
    planet that is liveable.
  • The principle of Intergenerational Equitywould make it imperative for us toensure future generations inheritat least as much as we did.
How it is unsustainable? (Mining)
  • India’s National Mineral Policy2019 states: “natural resources, including minerals, are a shared inheritance where the state is thetrustee on behalf of the people toensure that future generations receive the benefit of inheritance.”
  • The extraction of oil, gas andminerals is effectively the sale ofthis inheritance, with royaltiesand other proceeds being the consideration paid in exchange for themineral wealth extracted.
  • Unfortunately, governments everywhere treat the mineral sale proceedsas revenue or income, a crucial error which hides the real transaction — a sale of inherited wealth.
  • This results in governments selling minerals at prices significantlylower than what they are worth,driven by lobbying, political donations and corruption.
  • Any loss is effectively a hidden per head tax whichmakes a few extractors and their
    cronies super rich. Inequalitygrows sharply. This is the economics of loot.
  • Worse still, the trifles receivedby the government are treated as“revenue” and happily spent, leaving neither the minerals nor theirvalue for future generations to inherit. This is just not sustainable.
  • There is also growing evidencefrom the International MonetaryFund that many governments ofresource rich nations, includingthe United Kingdom and Norway,face declining public sector networth, i.e., their governments arebecoming poorer. It indicates unsustainable mining.
  • Naturally theextractors are keen to extract asquickly as possible and move on.Trees, tigers and tribal are labelled as anti­development or anti­national.
  • If ₹5 is received for allowingmining, doubling mining wouldresult in ₹10. Politicians and votersperceive more mining equals moregovernment revenue equals good.
What lies ahead?
  • It is important to understandthat as long as the Government Accounting Standards AdvisoryBoard does not correct this errorin the standards for public sectoraccounting and reporting for mineral wealth, politicians and voterswill advocate increasing extraction.
  • This will lead to every bit ofmineral being extracted if thereare no moral or legal safeguardsagainst such wanton loot.
How to manage it?
  • Since minerals are a shared inheritance held in trust for the peopleand future generations, our foremost duty is to maintain the valueof our children’s inheritance byavoiding theft, loss, waste or consumption.
  • Therefore, if we extract and sellour mineral wealth, the explicitobjective must be to achieve zero
    loss in value; the state as trusteemust capture the full economicrent.
  • Like Norway, the entire mineralsale proceeds must be saved in aFuture Generations Fund. The Future Generations Fund could bepassively invested through the National Pension Scheme framework.
  • Setting a global judicial precedent, in 2014 the Supreme Court ordered the creation of a Goa IronOre Permanent Fund, which already has a corpus of around ₹500 crores.
  • The real income of a fund of thisnature may be distributed only asa citizens’ dividend, equally to all
    as owners. Future generationswould benefit from the dividend intheir turn.
Benefits of sustainable mining:
  • It leads to lower inequality, lower inequality leads tohigher economic performance,and as budgets no longer have easy mining money, public investment, and tax administration willbecome more effective and efficient. This is a six-fold economic boost.


  • These principles of fair miningare fully constitutional, promotingjustice, liberty, equality, and fraternity. They are moral, ethical,fair, right and sustainable. The reduction in losses would limit corruption, crony capitalism andgrowing inequality. They fulfil ourduties to our future generations.
Lending a hand | Explained: Balance sheet of a bad bank

Source:The Indian express

Topic in syllabus:Economy – NPA issues(GS-3)


  • The idea of setting up a bad bank to resolve the growing problem of non-performing assets (NPAs), or loans on which borrowers have defaulted, is back on the table.
  • With commercial banks set to witness a spike in NPAs, or bad loans, in the wake of the contraction in the economy as a result of the Covid-19 pandemic, Reserve Bank of India (RBI) Governor Shaktikanta Das recently agreed to look at the proposal for the creation of a bad bank.
What’s a bad bank and how does it work?
  • A bad bank conveys the impression that it will function as a bank but has bad assets to start with.
  • Technically, a bad bank is an asset reconstruction company (ARC) or an asset management company that takes over the bad loans of commercial banks, manages them and finally recovers the money over a period of time.
  • The bad bank is not involved in lending and taking deposits, but helps commercial banks clean up their balance sheets and resolve bad loans.
  • The takeover of bad loans is normally below the book value of the loan and the bad bank tries to recover as much as possible subsequently.
How serious is the NPA issue in the wake of the pandemic?
  • Bad loans in the system are expected to balloon in the wake of contraction in the economy and the problems being faced by many sectors. The RBI noted in its recent Financial Stability Report that the gross NPAs of the banking sector are expected to shoot up to 13.5% of advances by September 2021, from 7.5% in September 2020, under the baseline scenario, as “a multi-speed recovery is struggling to gain traction” amidst the pandemic.
  • The K V Kamath Committee, which helped the RBI with designing a one-time restructuring scheme, also noted that corporate sector debt worth Rs 15.52 lakh crore has come under stress after Covid-19 hit India, while another Rs 22.20 lakh crore was already under stress before the pandemic. This effectively means Rs 37.72 crore (72% of the banking sector debt to industry) remains under stress. This is almost 37% of the total non-food bank credit.
Do we need a bad bank? What does experts say?
  • Viral Acharya, when he was the RBI Deputy Governor, had said it would be better to limit the objective of these asset management companies to the orderly resolution of stressed assets, followed by a graceful exit.
  • Acharya suggested two models to solve the problem of stressed assets. The first is a private asset management company (PAMC), which is said to be suitable for stressed sectors where the assets are likely to have an economic value in the short run, with moderate levels of debt forgiveness.
  • The second model is the National Asset Management Company (NAMC), which would be necessary for sectors where the problem is not just one of excess capacity but possibly also of economically unviable assets in the short to medium terms.
Arguments in favour:
  • As the Covid-related stress pans out in the coming months, proponents of the concept feel that a professionally-run bad bank, funded by the private lenders and supported the government, can be an effective mechanism to deal with NPAs.
  • The bad bank concept is in some ways similar to an ARC but is funded by the government initially, with banks and other investors co-investing in due course. The presence of the government is seen as a means to speed up the clean-up process.
  • The Economic Survey 2016-17 had also argued in favour of setting up a “Public Sector Asset Rehabilitation Agency” to help tackle the problem of bad loans.
  • Such an institution, by taking over the stressed loans off their balance sheets, will leave the banks unencumbered to lend — reviving credit growth is after all critical for a sustainable economic recovery.
  • And as loans of a stressed entity are often held across several banks, aggregating them into a single entity may pave the way for a quicker, more effective restructuring of the loans.
  • Setting up a bad bank will free lenders from the repercussions of their actions.
  • And if allowed, there may not be any incentive for banks to focus on the quality of credit extended, or for them to monitor loans, and guard against ever-greening.
Arguments against:
  • The idea of setting up a bad bank may sound appealing, this once in a generation crisis must not be used to paper over the inherent problems in the banking system. A bad bank does not address the structural weaknesses in public sector banks. Neither does bank recapitalisation. The larger systemic issues need to be attended.

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