UPSC Current Affairs June 01 2016 | Comprehensive News Analysis

All criminal acts should not be construed as racial attacks said the External Affairs Minister after meeting a delegation of African nationals and diplomats

2. Panel wants central body to settle dual citizenship casesTopic: Polity

Category: Citizenship

Location: Indian Express

Key points:

In a bid to resolve the dual citizenship issue in Goa(Portugal recognises dual citizenship, India does not), a high-level inter-ministerial committee set up by the Centre in January 2015 has recommended that the matter be decided in accordance with Indian citizenship laws on a case-to-case basis by an authority designated by the Centre

If any question arises as to whether, when or how any Indian citizen acquired citizenship of another country, it should be determined by the authority in accordance with “Section 9 (2) of the Citizenship Act, 1955, that is further clarified by Rule 40 of the Citizenship Rules, 2009, as well as rules of procedures specified in Schedule III of the Citizenship Rules, 2009”

3. Gujarat govt’s 10% quota ordinance challenged in HCTopic: Governance

Category: Reservation

Location: The Hindu

Key points:

The Gujarat High Court on Tuesday refused to stay the Ordinance promulgated by the State Government providing 10 per cent quota in education and jobs for the economically backwards among the upper castes

The petition said “any special provision providing quotas based on economic criteria is not tenable under the law as the constitution does not permit the same.”

According to it, the Ordinance promulgated on May 1 was in “direct conflict” with the Supreme Court judgement which said a State cannot provide more than 50 per cent reservation, and that reservation could only be allowed on “ground of social and educational backwardness and not poverty per se”

The petitioner contended that the government had issued the Ordinance without collecting necessary data on economic backwardness among the upper castes who don’t enjoy benefits of quota

C. GS3 Related

Standard operating procedures violated

Topic: Disaster and Accidents

Category: Fire safety

Key points

Army begins investigation into the deadly fire at its most important ammunition depot at Pulgaon in Maharashtra

It is clear that there has been a deviation from the Standard Operating Procedures (SOPs) in the installation where there is no room for errors

The CAG said ammunition depots faced the “risk of fires” as the firefighting equipment was not in order

Army_depot_fire_gr_2876249a

‘Don’t make binding concessions for APEC’

Topic: Economy

Category: APEC

Key points

The Commerce Ministry has cautioned the Ministry of External Affairs (MEA) against ceding to demands that India offer binding concessions to secure an Asia-Pacific Economic Cooperation (APEC) membership

Among the binding concessions being sought from India are an agreement to reduce industrial tariffs to very low levels or eliminate them over a specified time period, an early deal on a Bilateral Investment Treaty with the U.S., and its participating in negotiations for a proposed Investment Facilitation Agreement at the World Trade Organisation-level

India had applied for APEC membership in 1991 on the basis of its geographic location, potential size of the economy and degree of trade interaction with the Asia-Pacific

GDP growth accelerates to 7.9 %

Topic: Economy

Category: GDP

Key points

India’s gross domestic product (GDP) grew 7.9 per cent in the fourth quarter of 2015-16, increasing overall growth for the entire year to 7.6 per cent and help maintain its position as the fastest-growing major economy, according to the Central Statistics Office (CSO)

The agriculture sector grew 1.2 per cent compared to the advance estimate of 1.1 per cent. The sector contracted 0.2 per cent in the previous year

Manufacturing grew 9.3 per cent, slower than the 9.5 per cent forecast in the advance estimates. But this is much higher than the 5.5 per cent seen in 2014-15. The consolidated services sector grew 8.8 per cent in 2015-16 compared to 9.05 per cent mentioned in the advance estimates.

Private final consumption expenditure, a proxy for private demand, grew at 7.4 per cent in 2015-16 compared to 6.4 per cent in the previous year. Growth in gross fixed capital formation, a measure of private sector investment, slowed down to 3.9 per cent from 4.9 per cent in 2014-15

Bottom-line:corporate investment is not doing much.Any movement in investment is due to the public sector

GDP_2876235f

D. GS4 Related

E. Important Editorials: A Quick Glance

The Hindu

1. No jokes please, we’re Indian

Topic: Polity

Category: Freedom of expression

Key points

Sometimes the reaction is the real joke. The police force in India’s financial capital have sought legal opinion to check if they have grounds to file an FIR against a comedian for a video he recently posted on the messaging application, Snapchat

Using the “face swap” feature on Snapchat, Mr. Bhat had spoofed Sachin Tendulkar and LataMangeshkar, with jibes about his cricketing ability and her long singing career. It was certainly not polite

The point here is not to applaud his sense of humour — or to condemn it. It is to spotlight the speed with which the system mobilises to shut any expression of mockery targeted at the well-known

That the effect is to stifle freedom of expression, to force the next person to look over her shoulder before mocking the next public figure, is obvious and intended. To be mocked is the most trying way of being critiqued. One can ignore evenly stated takedowns — not spoofs that make folks laugh

To deal with mockery in a democratic society, one needs to be committed to a public culture of engagement, of openness to questioning. India’s public figures are clearly not

Politicians and celebrities (mainly film and cricket stars) have failed India not just by using the strongest arm of the law to curb expressions of humour aimed at them, thereby forcing self-censorship on what we may laugh about

They have failed it by not enabling sensitisation on what should pass as good humour and what may not. When jokiness is curbed so menacingly — and for all the brave front they may put up, cartoonists and comedians are lonely people against the might of the state — the only response is to rally to defend freedom of expression

In an environment where possibly personal jokes are seen to warrant scrutiny and police action, no space can be available for shared humour, for comedy to evolve sufficiently so that the larger community internalises what is truly, even mockingly, funny and what’s not so progressive

2. The Hiroshima touchstoneTopic: International Relations

Category: nuclear policy

Key points:

On May 27, Barack Obama became the first serving American President to visit Hiroshima, 71 years after nuclear bombs were dropped on Hiroshima and Nagasaki by the United States, the only country to have ever used nuclear weapons

Less than three months into his presidency, Mr. Obama had made a landmark speech in Prague in April 2009 (which contributed to his Nobel Peace Prize) where he had called for a change of thinking about the role of nuclear weapons in the 21st century. Promising U.S. leadership, he also laid out the vision of a world free of nuclear weapons. Seven years later, progress in this direction has been modest

The New Strategic Arms Reduction Treaty (START) concluded with Russia limiting both countries to 800 launchers (Intercontinental Ballistic Missiles, submarine-launched ballistic missiles and heavy long-range bombers) and 1,550 warheads each was concluded in 2010 after which the dialogue has stalled

Gains of the Nuclear Security initiative which Mr. Obama launched with a summit in 2010 and concluded with another summit earlier this year were limited to the securing of and restricting the civilian use of highly enriched uranium (HEU) and plutonium so that it does not fall into terrorist hands

On the other hand, the U.S. has announced ambitious plans to spend $1 trillion for modernisation of its nuclear arsenal over the next three decades. In a Nuclear Posture Review, the U.S. has maintained the right of “first-use” of nuclear weapons though limited to “extreme circumstances”

In Hiroshima, Mr. Obama returned to the nuclear disarmament agenda, stating that new and destructive technologies needed a “moral revolution”. He recalled that World War II involving all the major powers of the day had taken a toll of 60 million lives and nations that prided themselves on their civilizational achievements had fallen prey to the “base instincts of conquest”

He called for moral courage to “escape the logic of fear” in order to pursue the goal of a world without nuclear weapons. Unlike in Prague, this time he could not promise that the “US can lead” this process of “change”, nor did he put forward any concrete proposals

Within the region, his visit revealed that historical memories of the regional conflicts are deep seated and the scars have yet to heal. There was disquiet in many Asian countries that Mr. Obama’s visit would be an endorsement of Prime Minister Shinzo Abe’s policies that seek to move Japan beyond the “guilt” of World War II and the imposed pacifism, to becoming a “normal country” ready to play a greater role in global affairs

Chinese commentators recalled the horrors inflicted by Japanese militarism, emphasising that this could not be obliterated by claiming nuclear victimhood. Some suggested that Mr. Abe should have visited Nanjing and Pearl Harbour first. In the Philippines, there were calls for atonement for the Bataan death march in 1941, in which nearly 10,000 American and Filipino prisoners of war perished

Clearly, Mr. Abe’s apology last December on the issue of “comfort women” used as sex slaves by the Japanese military during its Korean occupation is seen by many as inadequate. Others in South Korea wanted recognition of the fact that out of the 2,00,000 victims in Hiroshima and Nagasaki, more than 40,000 were Koreans, taken to Japan as forced labour. It is a sensitive issue because Korean survivors who returned home after the war faced a difficult life; they were forced to hide their ordeal because of domestic politics

For a long time, the official narrative in Korea justified Hiroshima and Nagasaki as necessary for Korea’s liberation. It was only in the 1990s that they began to receive official health benefits from their government, and in 2003 that they won a court case in Japan that obliged the Japanese government to cover medical expenses for the foreign hibakusha

In a press conference on May 26 in Japan, Mr. Obama referred to the Democratic People’s Republic of Korea (DPRK) nuclear programme and the deployment of tactical nuclear weapons by Pakistan as the most worrying aspects of the current global nuclear threat

Since 2006, North Korea has conducted four nuclear tests, the latest in January, claiming it as a hydrogen bomb. Sanctions have not been effective and there are clear limits to which China will push the North Korean regime (or Pakistan for that matter)

Regime change in the DPRK is a scary prospect for both China and South Korea. One view is that the North Korean threat serves a U.S. purpose; the U.S. maintains nearly 30,000 soldiers on the peninsula and deploys modern systems including ballistic missile defences

On the other hand, U.S. presence certainly curbs nuclear ambitions in Japan, South Korea and Taiwan which China acknowledges but grudgingly. More than a fourth of South Korea’s electricity is generated by its two dozen reactors, but unlike Japan, it undertakes no enrichment or reprocessing, making it completely dependent on other countries for its nuclear fuel. This restriction is now increasingly criticised as unfair but any change would certainly be construed as provocative by China and North Korea

The horrors of Hiroshima and Nagasaki have helped generate a norm against the use of nuclear weapons though nuclear abolition remains a distant goal. Part of the reason lies in the myth-making associated with this issue. There is growing scholarship today that questions the U.S. conventional narrative that using the nuclear bomb was necessary to end the war and save the loss of American and Japanese lives resulting from a prolonged invasion

This idea of the military utility of nuclear weapons has been a key driver for the pursuit of nuclear weapons and set the stage for the obscene accumulation of more than 70,000 weapons by the U.S. and the Soviet Union during the 1970s and 1980s

During the Cold War, another myth was generated that the best route to nuclear disarmament was through non-proliferation and the Treaty on the Non-Proliferation of Nuclear Weapons (NPT). The truth is that the NPT has had no impact on nuclear arms reductions. Its limitations are apparent in that it recognises only five nuclear weapon states (the U.S., Russia, the United Kingdom, France and China) but is unable to deal with the reality of India, Pakistan, Israel and North Korea’s weapon programmes

Clearly, it has reached the limits of its success but this acknowledgement flies in the face of the myth

Today’s nuclear world is very different from the bipolar world of the Cold War dominated by nuclear rivalry between the U.S. and the Soviet Union, the two superpowers. The centre of gravity is inexorably shifting from the Euro-Atlantic to the Asia-Pacific, a more crowded geopolitical space. The number of nuclear players has grown, and asymmetry in doctrines and arsenals makes the search for security more elusive. Outer space and cyber space have become new domains of contention even as missile defences and conventional precision strike capabilities blur the threshold between conventional and nuclear weapons

Obama’s visit is a reminder that Hiroshima remains the nuclear conscience keeper of the world. In the 20th century, it symbolised the horror of nuclear war; the question is whether in the 21st century which is often described as the Asian century, it can come to symbolise a new beginning

This requires going beyond the old myths but a dialogue under the shadow of the Genbaku dome is a good place to begin. From a city of remembrance, Hiroshima can then become a city of hope, a place where the first seeds for a world free of nuclear weapons were planted

3. A learning curve on school choice Topic: Governance

Category: Education

Key points:

‘School choice’ is an active topic of discussion among educationists, think tanks, NGOs and some sectors of the government,

‘School choice’ connotes policies and schemes that give substantial weight to the choice of parents in determining their child’s schooling. It builds on Milton Friedman’s idea that administration and financing of schools are separable functions of the government. He proposed that the government establish minimum levels of schooling and finance it by “giving parents vouchers redeemable for a specified maximum sum per child per year if spent on ‘approved’ educational services.”

Parents could use this voucher with any additional sum on their account for “purchasing educational services from an approved institution of their choice.” Although vouchers are non-targeted in Friedman’s scheme, a targeted voucher is not conceptually inimical

The service providers could be any private school whether they run it for profit or not. The government, as part of its coordinating function, would establish infrastructure norms, teacher qualifications, and curriculum

The government schools have managed an unfavourable reputation for being inefficient, non-functioning and even beyond repair. The ASER-2014 suggests that reading levels of students at private schools are better than those at government schools (but we need to factor the number and profile of students in the respective systems). Yet, more students from economically weaker sections and disadvantaged groups study in government schools than in private ones

‘School choice’, it is argued, would allow children from these groups to access schools which they earlier could not. Parents, armed with vouchers, may shift their children to another school if they find the earlier one inadequate. The competition would make it economically unwise for schools to neglect their interests. Of course, private schools have huge variations and limited seats among them. The lottery system resorted to in such instances treats differently situated people at the same level, resulting in unequal outcomes

The Right to Education Act reserves 25 per cent of seats for children belonging to weaker sections and disadvantaged groups in unaided private schools in their neighbourhood. The government would reimburse these schools to the maximum of per child spending in government school

With certain changes, the RTE Act could actually proffer ‘school choice’. In fact, randomised control trials are already being conducted. A project in Andhra Pradesh found that private schools performed only marginally better but their per-child expenditure was much lower than public schools (helped significantly by over-worked and under-paid teachers)

On the other hand, it has been noticed that intra-household gender disparities were replicated in school choice as well. In the U.S. and Canada, studies suggest an inverse relationship between social disadvantage and choice. The ‘school choice’ proposal gives only a limited consideration to the context that makes a ‘choice’ significant

However, ‘school choice’ proponents need to ask if there are any common values that need to be inculcated through the medium of education for which merely a common minimum syllabus would not suffice

The argument here is not that improvement of individuals would cumulatively improve the collective, which is technically possible if all schools give equally good education to all students. Education, importantly, has both instructional as well as experiential aspects. Perhaps, cultivation of democratic values is helped more by experience than instruction

Still, ‘school choice’ could arguably facilitate diversity by providing vouchers to children from disadvantaged sections to study alongside those from privileged segments. With background constraints like strict anti-discrimination laws, vouchers, like votes, could play a role in deepening democracy and pluralism. Yet, an outcome-based proposal like this inevitably calls for standardisation, neglecting the diverse ways in which knowledge has been acquired and transferred between generations of Indians

The ‘school choice’ debate should engage with some questions. Would ‘school choice’ attract competent teachers from government schools which offers them a better paid, less arduous and more secure job? If the ‘consumers’ of education (children) are not really the decision-makers (parents) of school choice (a recognised distinction in the Child Rights Convention), are we only substituting one paternalism with another?

Can we design a regulatory structure that makes our democratic commitments and variegated social contexts central and permanent features of ‘school choice’?

Basic education, like healthcare and subsistence, is an essential for equality of opportunity and access to the market. Only when these background conditions are equal can we hold people responsible for their market decisions involving opportunity costs, which would simultaneously generate economic differentials

Therefore, would it not intensify inequalities if these background conditions that bring people on a level playing field are subjected to market outcomes?

With market economies becoming market societies, Michael Sandel asks critical questions that should also inform the ‘school choice’ debate: “At a time of rising inequality, the marketisation of everything means that people of affluence and people of modest means lead increasingly separate lives. The question of markets is really a question about how we want to live together. Do we want a society where everything is up for sale? Or are there certain moral and civic goods that markets not honour and money cannot buy?”

Indian Express

Others:

PIB

a) 100 Smart Cities India Conference gets underway in Berlin Amidst global interest in the initiative of development of smart cities in India, a three day ‘100 Smart Cities India’ Conference got underway in Berlin, Germany today. It was inaugurated by the Minister of Urban Development

Leading global companies, policy makers and experts are attending the conference being organized to highlight investment opportunities in smart city development set in motion in India

India and Germany discussed mechanisms for bilateral cooperation in the country’s Smart City Mission. Germany has earlier agreed to associate itself with the development of Bhubaneswar, Kochi and Coimbatore as smart city through technical and financial assistance

b) 15 day Swachh Parks campaign gets underway from today As a part of fortnightly thematic campaigns under Swachh Bharat Mission, the Ministry of Urban Development has asked States and Union Territories to focus on ensuring sanitation and cleanliness in all the parks in urban areas. Swachh Parks campaign will be taken up during June 1-15, 2016.

Ministry also issued Standard Operating Procedures (SOP) to all States/UTs for ensuring sanitation and hygiene. Based on these SOPs, urban local bodies have been asked to rate all parks in respective cities/towns based on infrastructure availability, maintenance of park premises and equipment and feedback from visitors

2. The Financial Express: SMART SKINTopic: S&T

Category: electronics

Key Points

Scientists at the University of Wisconsin-Madison supported by the Air Force Office of Scientific Research claim to have created the world’s fastest stretchable circuit

The circuit contains S-shaped inter-twisted transmission lines which endow the material its ability to stretch while also eliminating any loss of current. Thus, it will not only be able to transfer data at 5G speeds, but being just 25 micrometers (0.025mm) thick, it can also be used to develop a smarter second skin which can help design a new breed of wearables

Though it would be some years before the technology can be put to commercial use, it can certainly prove to be a game-changer for the bio-medical industry as medical professionals will be able to use the technology for monitoring patients remotely eliminating the use of a jungle of wires

More than the smart skin, it’s the integrated circuit system that can prove to be a useful invention. Integrated circuits, that small, can be used to develop contact lenses which can connect to smartphones or better function as standalone augmented reality devices

As for the Internet of Things, wearable electronics embedded with 5G are a step forward in integrating humans with machines and the digital world

3. The Financial Express: Low-key chipping away at labour reform sensible; Insolvency Bill fixes large part of problem quietlyTopic: Economy

Category: Labour

Key Points

labour a concurrent subject, even if the centre did enact a law allowing units with less than 300 persons to retrench without asking for government permission, each state is free to enact laws restricting this to, say, units with 100 or 125 or 150 employees

Since it all boils down to legislation in individual states, all that the union government has done is to tell states that, should they desire to change their laws, he will guarantee them smooth passage by agreeing to this—that’s a Constitutional requirement

Rajasthan and Madhya Pradesh have adopted the 300-persons criterion the centre was planning while Gujarat has given complete hire-and-fire in NIMZs and special investment zones like the Delhi Mumbai Industrial Corridor; more states are bound to follow

Meanwhile, a very big labour reform is that brought about by the insolvency bill that allows firms to voluntarily liquidate subject to having no dues—in such a situation, whether a firm has 100 or 1,000 employees, it does not require to, as of now, apply for government permission to shut. It is true, this applies only to firms shutting down and not to those who just want to sack staff, but while the problems of a large proportion of firms have been dealt with, few have put this down as a big reform

Solutions will still have to be found for firms, like readymade garments ones, who have only seasonal demand for labour, but surely the best time for labour reforms is when jobs are growing, not stagnating? A low-key but steady chipping away at the problem is more sensible than a big-bang approach that makes for good optics but has a large chance of failure

4. The Financial Express: Cart before horse, againTopic: Governance

Category: internet

Key points:

That net neutrality is a complex issue is brought out not just by Trai’s pre-consultation paper on it saying ‘there are several definitions of Net Neutrality’, but by the fact there are three separate consultations Trai is conducting on it—a fourth, on differential pricing of data, is over and a ruling already made on it

While Trai’s pre-consultation on net neutrality is to be commended for bringing on board all important issues, what is unfortunate is that while it wants a consultation on ‘what should be regarded as the core principles of net neutrality in the Indian context’ and ‘what are the reasonable traffic management principles … and in what manner could these be misused’, Trai has already banned differential pricing of data on grounds of net neutrality

As a result of this, for instance, Facebook’s Free Basics has already stopped in India. And while Trai’s differential data pricing order created another problem by bringing in the artificial construct of an ‘intranet’ where the ban would not apply, it has yet to rule on Bharti Airtel’s plan based on using the intranet to store movies/serials/music

Much the same happened in the case of the Trai’s order on call drops, for which it was pulled up by the Supreme Court. In that case, Trai had passed its order asking telcos to pay a fine of R1 per dropped call and, within a few months of this, it came out with a technical paper explaining the reasons for call drops. Given this unfortunate turn of events, the regulator would do well to withdraw the differential pricing order and subsume all consultations into the latest one.

There are, of course, no easy solutions. All the countries Trai cites in its paper have a 2Mbps internet penetration of at least 70%, so hitting at the revenues of wireless telcos isn’t going to hurt as much as it will in India where under a tenth of the population has access to broadband internet—presumably that’s why Trai is asking for a net-neutrality definition ‘in the Indian context’

It would have helped if Trairecognised that net neutrality has only recently been introduced for wireless—that is under legal challenge in the US—and that there are technological reasons for why doing this is impossible

If lots of data is consumed—Trai says 74% of all internet traffic will be video by 2019, up from 46% in 2014—the only way good voice calls can be expected (think call drops) is by prioritising (voice) data which is prohibited under strict net neutrality

You could argue that reasonable traffic management can be allowed as part of net neutrality, but as Trairecognises, ‘there is a fine line’ between this and violating net neutrality principles

Dealing with over-the-top (OTT) players like WhatsApp and Skype isn’t going to be easy either since they hog bandwidth which telcos are spending lakhs of crore to roll out; the issue of prioritisation also comes up again

Given the knotty nature of problems, Trai’s best bet is light regulation that allows telcos to work out individual deals with OTT and other players and examine different tariff plans only after complaints of abuse, and revisit this issue after India’s internet penetration is significantly higher

The alternative is to get stuck in disputes over its regulation as telcos take it to court—and with the uncertainty over net neutrality hanging over the heads, chances are few telcos will either bid for spectrum or roll out the internet in any serious fashion till this is sorted out. Neither of Trai’s goals, of consumer interest or investor confidence, are being served right now

5. The Business Line: Does financial inclusion really include?Topic: Economy

Category: Financial Inclusion

Key points:

How can PMJDY be made more reachable to poor?

For the poor, focus is on meeting short-term goals, resulting in a behavioural inclination towards informal financial channels with high cost of funds, where the ease of getting a loan outweighs the long-term cost of servicing the loan. People are aware of this shortcoming and try to compensate by using commitment devices, especially during an important life event for which they need to save money. When presented with choices, the respondents selected savings products that put restrictions on withdrawals and provided no additional benefits, over the ones that allowed for withdrawals. One of the respondents explained this seemingly irrational behaviour as driven by the need to “protect the money from ourselves”

Psychological barriers: Account-holders’ mental model is that banks are meant for saving large amounts, typically in excess of ₹10,000. This means infrequent interactions with the bank and low likelihood of small savings

Relevance: Since low-income customers are likely to be in a cycle of debt, credit is always relevant to them. However, credit is usually required to meet an immediate short-term need, so convenience and ease of access are valued. Therefore, most people do not see banks as a reliable source of credit because they perceive a high degree of uncertainty in securing a loan (cumbersome processes, time-consuming approvals, etc). Hence their preference for more traditional sources

Given these reasons, the challenge then arises in designing products, communication, literacy initiatives and last-mile engagements so that these are relevant to the PMJDY bank account-holder for immediate use, while keeping sight of the future

The research points to four behavioural levers that can be useful

First, design products that bridge the gap between current and future needs. Emotionally relevant products with an artificial barrier to withdraw and with a focus on people’s future such as children’s education and marriage give them a goalpost to bank and save. Many people tend to leave the money from government subsidies untouched for future use. Automated transfers of such subsidies to a savings account or pension account can therefore translate into savings

Banks could design product concepts that are easily understood. The overdraft facility offered by PMJDY bank accounts, for instance, is not well understood by most low-income customers. Instead the bank could design communication to inform people that they can borrow small values against monthly inflows. Similarly, given the familiarity of customers with loan repayments it might help to bundle small savings into loan repayment plans

Second, address the psychological distance. The Reserve Bank of India encourages banks to address physical distances to branches in villages through ‘Bank Mitras’ or banking correspondents who perform basic services for customers. However, banks also need to address the psychological distance in addition to the physical distance. Besides the core product curriculum, Bank Mitras need to be given soft-skills training to engage with low-income customers and help reduce their inhibitions and intimidation of accessing a bank

Third, recalibrate financial literacy initiatives. The shift that needs to be made is to move to ‘process literacy’ from traditional financial literacy — how one needs to (for example, save or borrow) rather than why one needs to emerge as an important finding

Fourth, address perceptions. PMJDY has been successful in getting bank accounts to millions. However, addressing people’s perceptions, that anything from the government is free, will be key

People apply reciprocal relations when they engage with commercial financial institutions. They have to pay back to borrow again in the future. Initiatives from PMJDY should be seen as coming from the financial institution so that it is not envisaged as free money

Banking and saving can lead to healthier and productive lives for those coming into formal banking channels, provided these initiatives are aligned to the context of the customer. The good news is that we have some answers to the problems. It is all about matching the offerings with the goals, aspirations and anxieties of this audience

6. The Business Line: No simple answers to our export declineTopic: Economy

Category: Exports

Key points:

India’s exports have been falling in dollar terms for the 17 months in a row

Falling exports can be attributed to weak global demand and hence beyond the control of Indian policy makers. A significant part of our exports consists of refined petro products, iron ore and minerals, whose prices have fallen sharply. Such exports may have actually risen in volume terms. But that is not the case for all exports

Also, countries such as Bangladesh and Vietnam have been able to increase their exports in dollar terms during the same period. So, we cannot put the blame entirely on deteriorating global demand or falling prices

There are basically two schools of thought here. One emphasizes the structural/institutional features of the economy to be primarily responsible while the other holds the exchange rate to be the villain

The RBI view is that we should focus on improving our economic fundamentals and maintaining macroeconomic stability and the trend exchange rate should be left to market forces

For improving our international competitiveness, we need to remove infrastructural bottlenecks, enhance productivity and access to finance, increase domestic competition, keep inflation in check and improve the ease of doing business in India.

If one looks at the nominal exchange rate, over January 2015 to March 2016 (a substantial part of the period over which Indian exports have been falling) the rupee depreciated against the dollar 6.2 per cent, whereas the Chinese yuan fell by only 4.6 per cent. Thus, contrary to popular perception, the rupee, instead of appreciating, marginally depreciated against the yuan and yet our exports were falling. The currencies of some countries (South Africa, Brazil, Russia, Malaysia, Turkey, Canada, the Eurozone) depreciated by much more, relative to US dollar, while the exports of several of them declined

The real exchange rate or REER (both the six-currency and the 36-currency variants) — which better captures the average price competitiveness of India’s exports relative to its competitors — has remained flat over the period of falling exports. All these imply that the exchange rate was not the primary reason for the fall in Indian exports

People who hold the exchange rate primarily responsible refer to cross-country empirical studies which show that relative exchange rates (with suitable lags) matter for export performance

Even if that is generally true, the fact that the real exchange rate has remained flat during the period of falling exports (and even more strikingly, had actually appreciated, in both nominal and real terms, during the preceding period of rising exports) means that, for the specific period and the Indian context under consideration, exchange rate was not the main factor

In theory, other things remaining the same, currency depreciation should produce an effect on a country’s exports. However, even here, one needs to make a distinction between demand and supply constrained situations

Depreciation helps exports particularly when the binding constraint is weak external demand and lower dollar prices sufficiently increase demand for exports (high price elasticities of demand)

The situation becomes different if there is a supply constraint (like in most agricultural products). In that case, when rupee falls but supply remains the same, Indian exports may rise temporarily as production is diverted from domestic market to export market (since exporting becomes more profitable relative to home sales).

But more exports will push up domestic rupee prices of exports and the initial gain in international price competitiveness will be neutralised by higher inflation. Removing supply constraints calls for other kinds of reforms — not exchange rate adjustment

A country’s export performance also depends on the credit terms, brands, reputation about reliable product quality and maintenance of delivery schedules, quality of repair and servicing facilities (for consumer durables and machines), linkages with global supply chains, access to global marketing channels (often controlled by multinationals), trader networks (note the role of expatriate Chinese traders in expanding Chinese exports), membership of big preferential trading arrangements, labour market flexibility (in the face of sudden rise/fall in export demand), efficiency of storage and transportation facilities, trade facilitation at the customs, and so on

Even if one accepts that the RBI should intervene to maintain a competitive exchange rate, the question is: How? Since we allow free movement of foreign capital into and out of India, there will be periods of sharp appreciation and depreciation. The best that the RBI can hope to do is to smoothen out excessive fluctuations around the trend, but it should not try to buck the trend

The folly of trying to prevent a currency from falling in the face of big capital outflow, whatever the reason, has been amply demonstrated by the experience of countries such as Thailand during the East Asian financial crisis

Maintaining an undervalued exchange rate, as Japan, Korea and China are alleged to have done (and some Indian commentators are urging India to do) to artificially create a competitive cost advantage, run a big trade surplus and accumulate foreign exchange reserves, has its costs

Devaluation, by raising prices of imported final goods and intermediate inputs, pushes up domestic prices. Thus, an undervalued exchange rate, in effect, taxes domestic consumers and subsidises domestic producers

Also, while it benefits the domestic producers of import competing products, it penalises the firms that use the imported goods as inputs. (for example, higher price of steel would benefit Tata Steel but would hurt Tata Motors). Accumulating foreign exchange reserves by running a big trade surplus deprives the current generation of a higher level of consumption while the savings held in the form of US government securities earn a meagre 0.5 to 1 per cent interest rate

The upshot is that, in addition to global demand and exchange rate, falling exports could be the result of factors specific to individual products and markets. This may also explain why exports from Bangladesh and Vietnam, whose commodity compositions, markets and integration with global supply chains are different from India’s, could be rising while Indian exports were falling

For similar reasons, India’s service exports dipped at a much slower rate than goods exports. The causes of falling exports should be subjects for detailed product and market specific research. A general explanation such as global recession or overvalued currency is not enough

7. Business Standard:Signs of recoveryTopic: Economy

Category: State of Indian Economy

Key points:

The whole year’s statistic for economic growth as per the CSO is at 7.6 per cent, the same as was estimated in the advance numbers released in February

the estimate for GDP growth at constant 2011-12 prices for the final quarter of 2015-16, which is 7.9 per cent

Almost eight per cent growth cements India’s position as the fastest-growing large economy in the world

Real growth in 2014-15 was 7.2 per cent, and in 2015-16 it was 7.6 per cent. Within the year, too, an acceleration is evident — GDP in the previous quarter, between October and December, has been revised to show growth of 7.2 per cent against 7.9 per cent in the next, final quarter

While the headline numbers suggest that India is on a path to recovery, two important caveats remain. The first is that this release of GDP numbers continues the puzzling anomalies that have long been noted when it comes to India’s manufacturing sector growth. According to the gross value added (GVA) numbers for 2015-16, manufacturing grew at 9.3 per cent, a marginal decrease over the 9.5 per cent in the advance estimates. The private corporate sector grew at 10 per cent, according to the numbers. It continues to be difficult to reconcile these numbers with other indicators, including the results of listed companies. The anomaly is most stark when the index of industrial production or IIP is taken into account. The IIP grew at 2.4 per cent for the whole year of 2015-16 (two per cent for manufacturing), which according to the GDP calculation corresponded to manufacturing growth of 9.3 per cent

But in 2014-15, IIP grew at 2.8 per cent, faster than in 2015-16, but manufacturing growth according to the GVA estimates was only 5.5 per cent. India’s statisticians are yet to set minds at rest about the manufacturing growth puzzle

The other caveat is about the sustainability of this growth. Sustained high growth requires high investment. But India is yet to recover the high levels of gross fixed capital formation (GFCF) seen in the boom years of 2003-08

In fact, GFCF grew at only 3.9 per cent in 2015-16, as compared to 4.9 per cent in 2014-15. This means that it is only 31.2 per cent of GDP in 2015-16, down from 32.3 per cent in 2014-15. In fact, the momentum for GFCF runs in the opposite direction to headline growth; it was 32.9 per cent of GDP in the second quarter, 29.9 per cent in the third and only 29.4 in the fourth quarter

An investment recovery is still awaited. Indeed, GFCF as per cent of GDP has shrunk for the fourth successive year, even as GDP growth has accelerated in each of the last three years. This is a puzzling trend. Overall, however, the apparent resurrection of growth will no doubt take some of the pressure off the Reserve Bank of India

If the economy is growing as well as the numbers suggest, then the RBI could well argue with some justification that there is no growth crisis at hand that requires him to compromise on his inflation-fighting and cut rates further

8. Business Standard: Railway revival running very lateTopic: Economy

Category: Railways

Key points:

The railways continue to lose market share with an actual fall in the number of passengers and stagnant freight tonnage. It is not as if growth is being sacrificed to protect margins. The bottomline also has little to show for itself, with the operating ratio (percentage of earnings accounted for by expenses) projected at a high 92 per cent for the current year

This means there is barely any surplus left to fund future investment from internal resources. The main effort in the foreseeable future, as far as the bottomline is concerned, will be to service the substantial extra budgetary resources (costly money) which will be secured to fund investment

But invest the railways must, not just to replace worn out assets (safety demands it) but also to keep growing so that it is not marginalised in a high growth economy. The highly ambitious investment agenda of Rs 8.5 lakh crore over a five-year period and a capital expenditure target of Rs 1.2 lakh crore in the current year is welcome

These funds will come from a variety of sources (other than budgetary support), foremost being market borrowing through the Railway Finance Corporation. Concessional funding will come from bilateral (notably Japanese) and multilateral (World Bank and Asian Development Bank) sources. Public private partnerships, as also projects partnered with state governments, will be vigorously pursued

In fact, the railway ministry can be credited for daring to think big even when current financials are unpromising. This is because there is no option but to adopt modern technology to enhance both safety and productivity

But substantial new investment and absorption of technology cannot happen in a vacuum. The way of doing things has also to change to get the best out of the new investments. Restructuring of the Railway Board and the creation of an independent regulator to rule on revision of fare and freights and also adjudicate on issues resulting from a sharply higher level of PPPs is an attempt to change the way things are done

It is high time the board had positions corresponding to customer segments instead of just internal functions. But that is not enough. There has to be a change in the way the board functions. The chairman of the board has to act like a CEO instead of the current practice of simply presiding over meetings. He has to overrule individual members and push things through, instead of the current culture whereby any proposal opposed by a board member is put in cold storage

As for a regulator, it is not enough simply to set it up so that price hikes can be depoliticised. The real issue today is not the inability to raise prices but the dilemma posed by a market which will not take any more price rises. Both passenger and freight volumes are under pressure and the regulator, in order to be useful, will have to intensively examine whether cost increases are not simply passed through to the customer

A complex system of cost audit has to be evolved to determine which cost increases are allowable. A case in point is the major savings that are being made in buying power and the move to do the same with diesel. This stands at the core of what any management, operating in a competitive environment, must do. Cost saving comes before price administration

The ministry has tried to address this by striking at the roots of a fundamental malady of the railways – departmentalism. It has sought to achieve this by taking the first steps towards merging cadres. Rivalry and lack of cooperation between cadres is the bane of the railways. But merging cadres is a herculean task. Doing it haphazardly, without addressing the complexities, can be ruinous, as was the botched up merger of Indian Airlines and Air India which also involved the merger of two pilots’ cadres

The ministry has also initiated the process (it should have been done long ago) of the railways being brought under an integrated information technology solution, an ERP structure which sits at the heart of companies. The railways must simultaneously adopt a master plan to go digital, capture every bit of business relevant data digitally so that it becomes available instantly both for decision making and analysis for management insights. (Dynamic pricing, which is essential, is enabled by data analysis.) Putting the railways on a different track is a massive task. Hopefully, after much wastage of time, it will now move fast forward on the right track.

The Business Line: Time for evenomics

Topic: Economy/Society

Category: gender issues

Key points:

Feminist analysts of public policy have noted that men gain most from income tax cuts and women are most likely to plug the gap left by the state as care for the elderly is cut

Economists are blind towards social norms that are unfair to women. Economics as commonly practiced, misses out an element of inequality between the sexes, namely, unpaid work

The main measure of economic activity, GDP, counts house work when it is paid but excludes it when it is done free of charge. This can be both misleading and perverse (Paul Samuelson humorously pointed out the truth when he said a country’s GDP falls, when a man marries his maid)

OECD pointed out that women spend roughly 5 per cent more time working than men

But simultaneously, they spend roughly twice as much time on unpaid work. By leaving unpaid work out of the National accounts, feminist economists argue that economists diminish women’s contribution and gloss over staggering inequality in who does it. Raising well cared-for children, says Mrs. Waring, is just as important to society as making buildings or cars

The former is excluded from official measures of output making it less of a priority sector. Women are disadvantaged by the failure to measure the value of parenting properly

A recent paper from the Bureau of Economic Analysis attempted to calculate an augmented version of GDP that included unpaid work

There was a social and legal transformation of the role of women in India when the Hindu Succession (Amendment) Act 2005 was passed. It recognised the daughter as a coparcener with equal rights to the son

A recent Judgement of the Delhi High Court laid down the law that a woman can be the karta or Manager of the ‘HUF’ after the passing of this Act. The Constitution guarantees protection to women under articles 14, 15 and 16 as well as in the Directive Principles of State Policy

Despite the strident march of law, the truth is that at the social level, women are discriminated against. There is a huge gender gap in education. There is pay disparity, too. Job portal Monster India notes that the gender pay gap in India stands at 27 per cent

The Government recently released the Draft National Policy for Women 2016. The most important part of the policy is that it shifted from just welfare to “welfare with heavy dose of rights”, which is reflective of change in women’s attitude

Societal attitudes are changing along with the law. Manu Smriti is turned upside down; this can be the design of the society for the future. and not direction, to achieve higher growth

9. The Economic Times: Scrap sourcing rule for all retailersTopic: Economy

Category: retail

Key points:

Removing the local sourcing norm is welcome, but not doing it selectively for some.

The sourcing rule, which mandates single-brand retailers to buy at least 30% of what they sell from Indian vendors — preferably from micro, small and medium enterprises, village and cottage industries, and artisans — must be scrapped

Fiddling with policy — to define cutting-edge technology for a product to qualify for an exemption from the sourcing rule — is needless. A case-to-case approach will also raise concerns on arbitrariness

Some goods can be made efficiently and cheaper in large enterprises, and some other goods, such as automobile components, in small units

The best course is to allow the economics of production — scale, capital intensity, cost of skills, transport costs and so on — to determine where and how things are produced, depending on the underlying forces of technology at any point of time

The decision on how much to source locally and how much from abroad must be left to the retailer.

Make in India should not become screwdriver assembly of imported kits. To make India a manufacturing hub and nurture the SME sector, we need reforms on multiple fronts

Manufacturing is throttled by the shortage of power, capital, roads, telecom connectivity, efficient logistics and skills, besides red tape and corruption

The government is moving determinedly to remove these constraints and raise India’s ranking on the ease of doing business

States are vying hard to improve the ecosystem and offer incentives. Infrastructure is being improved. Trust these measures to boost manufacture, rather than choke retail with irrational conditions.

10. To Read: Infra tweets: Green surge(The Financial Express)

11. Must Read: High crude prices should not catch us napping(The Economic Times)

12. Quick Bits

a) Centre met 3.9% fiscal deficit target in FY16The Centre achieved the fiscal deficit target of 3.9% of GDP in FY16, the Controller General of Accounts reported on Tuesday, validating the government’s claim earlier

fiscal-deficit

b) India, Morocco launch Chamber of CommerceBilateral trade between the two countries stood at USD 1.26 billion in 2015 with Indian exports forming roughly 25 per cent of the trade volume.

Indian companies have cumulatively invested more than $320 million in Morocco, including in the flagship project, the Indo-MarocPhosphore SA joint venture

c) Core sector growth accelerates to 8.5% in AprilGrowth in the eight core sectors jumped to 8.5 per cent in April, due to a sharp pick-up in refinery products and a commensurate rise in electricity generation

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d) How TRAI has gone back on net neutralityDifferential tariffs being offered for data transmitted over closed electronic communication network (CECN), such as intranets, are not prohibited by the TRAI regulations.” Activists claim the loophole will allow telcos to curate content within a “walled garden” and zero rate it (or sell it at throwaway prices)

What this effectively means is that a broadband service provider can offer the content of its own choice — movies, television shows, journals and newspapers — for free to its consumers

Activists say this would prevent people from accessing the public internet and, thereby, restrict choices

F. Concepts-in-News: Related Concepts to Revise/Learn:

G. Fun with Practice Questions 🙂

Question 1: Which of the following statements is/are correct?

An Indian citizen cannot be a citizen of another country
Any person born in India whose father is an Indian citizen is a citizen of India by birth
Any person born outside whose mother is an Indian citizen is an Indian citizen by descent
A foreign resident of India cannot be a citizen of India

a) 1 only

b) 1and 2 only

c) 1,2 and 3

d) 1,2 and 4

Question 2: Which of the following statements can be drawn as the conclusions of IndraSawhney Etc. Etc. vs Union Of India And Others judgement?

The list of reserved categories should be exhaustive in nature
In no manner shall the reservation exceed 50% of the criterion
During the reservation policies the creamy layer shall be necessarily excluded
Reservation in promotion cannot be allowed

a) 1 and 2 only

b) 2 ,3 and 4

c) 1,2 and 4

d) All the Above

Question 3: Which of the following industries is/are classified as core sector industries?

Coal
automobile
pharmaceutical industry
cement

a) 1 and 2 only

b) 2 and 3 only

c) 1 and 4 only

d) 3 and 4 only

Question 4: Which of the following statements is/are correct about the Jan DhanYojana?

Account holders will be provided zero-balance bank account with overdraft facility after 6 months
An account opened under the scheme should be necessarily AADHAR seeded

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

Question 5: Which of the following statements is/are correct?

Depreciation of a currency makes imports cheaper
Even if a currency depreciates against US dollar the effective exchange rate of the currency may appreciate
Effective exchange rate is the most suitable measure for comparing standard of living across countries

a) 1 only

b) 2 only

c) 2 and 3 only

d) All the Above

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