26 Feb 2018: UPSC Exam Comprehensive News Analysis

A. GS1 Related
B. GS2 Related
POLITY
1. Statute Bench to solve conflict in Supreme Court
C. GS3 Related
ECOLOGY AND ENVIRONMENT
1. A test bed to generate clean energy
SCIENCE AND TECHNOLOGY
1. How ionosphere affects Earth and space weather
2. Rustom-2 UAV takes to the skies
ECONOMY
1. Coal Mining and Private Sector
2. Centre may enact law against fugitives
2. OVL drops plan to build Iran LNG facility
D. GS4 Related
E. Editorials
ECONOMY
1. Banking and Frauds
INTERNATIONAL RELATIONS
1. Justin Trudeau’s discovery of India
F. Prelims Fact
G. UPSC Prelims Practice Questions
H. UPSC Mains Practice Questions 

A. GS1 Related

B. GS2 Related

Why in news?

• Chief Justice of India Dipak Misra formed a five-judge Constitution Bench, led by him, to resolve the conflict between two three-judge Benches of the Supreme Court, which has again brought to the fore the simmering tensions within the court.
• Trouble started when Justice Kurian Joseph, one of the five senior-most judges, voiced his concern in open court about fellow judges tinkering with judicial discipline and how the judges should function as one rather than in disparate voices.

Judgment overruled

• Justice Kurian was reacting to a February 8 judgment of a Bench of Justices Arun Mishra, A.K. Goel and M.M. Shantanagoudar which had overruled a 2014 judgment of a co-ordinate Bench of the then Chief Justice, R.M. Lodha, and Justices Madan B. Lokur and Kurian.
• Justice Kurian made the remarks while he was sitting along with Justices Madan B. Lokur and Deepak Gupta on February 21.
• At this hearing on compensation for land acquisition, senior counsel like Mukul Rohatgi highlighted the divergent viewpoints in the 2014 judgment and the February 8 verdict.
• Rohatgi pointed out that the February 8 decision had unsettled a long-standing statement of law and had very serious repercussions for land acquisition cases.
• Justice Kurian passed scathing remarks about how judicial discipline did not allow a three-judge Bench to overrule the decision of another three-judge Bench.He said the three-judge Bench, led by Justice Mishra, should have instead referred the question of law to a Bench of five judges.
• The day after Justice Kurian made these remarks, Justice Mishra and Justice Goel referred the land acquisition cases before their Benches to the Chief Justice.They asked the Chief Justice of India to decide on whether these matters should be heard by a larger Bench.
• The February 8 judgment delivered by Justice Mishra’s Bench was on compensation paid to landowners, mostly farmers, when their land was acquired.

C. GS3 Related

Why in news?

Scientists have developed a supercritical Carbon Dioxide (CO2) Brayton test facility at the Indian Institute of Science (IISc) in Bangalore to generate clean energy from power plants, including solar thermal.

What is the significance?

• The new-generation high-efficiency power plants with closed cycle CO2 as the working fluid have the potential to replace steam-based nuclear and thermal power plants, thus reducing the carbon foot print significantly.
• While the current day’s thermal power plants would use steam to carry the heat and turn a turbine to generate power, the research makes use of supercritical CO2 (SCO2) instead of steam to generate more power.
• Besides increasing power generation and making the process more efficient, there are other advantages of using this new technology like making the power plants cheaper with lower operating costs.

Supercritical CO2

• Supercritical refers to the state of carbon dioxide above its critical temperature of 31 degree C and critical pressure of 73 atmospheres, which makes it twice as dense as steam.

• The ionosphere gets its name from ions — tiny charged particles that blow around in this layer of the atmosphere.

How did all those ions get there?

• Everything in the universe that takes up space is made up of matter, and matter is made of tiny particles called atoms. At the ionosphere, atoms from the Earth’s atmosphere meet up with energy from the Sun. This energy, called radiation, strips away parts of the atom. What’s left is a positively or negatively charged atom, called an ion.
• The ionosphere is filled with ions. These particles move about in a giant wind. However, conditions in the ionosphere change all the time. Earth’s seasons and weather can cause changes in the ionosphere, as well as radiation and particles from the Sun — called space weather.
• These changes in the ionosphere can cause problems for humans. For example, they can interfere with radio signals between Earth and satellites. This could make it difficult to use many of the tools we take for granted here on Earth, such as GPS.
• Radio signals also allow us to communicate with astronauts on board the International Space Station, which orbits Earth within the ionosphere. Learning more about this region of our atmosphere may help us improve forecasts about when these radio signals could be distorted and help keep humans safe.

NASA’s Missions

• In 2018, NASA has plans to launch two missions that will work together to study the ionosphere. NASA’s GOLD (Global-scale Observations of the Limb and Disk) mission launched in January 2018. GOLD will orbit 22,000 miles above Earth. From way up there, it will be able to create a map of the ionosphere over the Americas every half hour. It will measure the temperature and makeup of gases in the ionosphere. GOLD will also study bubbles of charged gas that are known to cause communication problems.
• A second NASA mission, called ICON, short for Ionospheric Connection Explorer, will launch later in 2018. It will be placed in an orbit just 350 miles above Earth — through the ionosphere. This means it will have a close-up view of the upper atmosphere to pair with GOLD’s wider view. ICON will study the forces that shape this part of the upper atmosphere.

Why in news?

• The Defence Research and Development Organisation (DRDO) carried out a test-flight of the unmanned aerial vehicle Rustom-2 on Sunday.
• This flight assumes significance because of the fact that this is the first flight in user configuration with a higher power engine. All parameters were normal.

More on Rustom-2

• Rustom-2 belongs to a family of UAVs under development, besides Rustom-1 and Rustom-H. It is a medium-altitude long-endurance drone (MALE) and will fill a critical capability gap in the inventory of the armed forces.
• It can fly up to an altitude of 22,000 feet and has an endurance of over 20 hours. It is capable of carrying payloads for electronic and signal intelligence missions.
• Currently, the three services employ hundreds of Israeli drones and have projected a requirement of hundreds of more UAVs, including armed variants, in the near future.
• The DRDO is also developing other drones in different categories.

Why has coal mining been opened up?

• The Centre opened up commercial coal mining for the private sector. About 70% of power generated in India uses coal. Domestic coal has been able to meet only 75% of our annual coal demand.

What is the significance of the move?

• The government has termed it the most ambitious coal sector reform since 1973 when the sector was nationalised.
• With an aim to boost coal production, the state-owned Coal India Limited (CIL) was set up in 1975. Ever since, it has monopolised the sector, and is now the world’s largest coal-producer.
• With the latest decision, the Centre said, the sector will move from an era of monopoly to that of competition.

What led to this move?

• The coal ministry had, from 1993 to 2011, allocated 218 coal blocks to eligible Public Sector Undertakings and private firms for specified end-use projects, that is power, steel and cement, as well as for commercial mining by PSUs.
• However, these allocations were challenged before the Supreme Court, which in August 2014 cancelled the allocation of 204 blocks after finding that the allocations were arbitrary and illegal.
• To manage and reallocate the cancelled blocks, the Coal Mines (Special Provisions) Act, 2015 was enacted.
• In March 2017, the coal ministry brought out a discussion paper on auction of coal mines for commercial mining.
• Given the present demand-supply situation and the projected economic growth of the country, it will be necessary to further augment the production through commercial mining, certain mines will be offered to all eligible companies in private as well as public sector through auction mode.

How will the decision be implemented?

• The approved methodology for auction of coal mines / blocks for sale will prioritise on transparency and ease of doing business.
• There will be an ‘ascending forward auction’ — a two-stage online auction comprising (i) technical bid and (ii) financial bid with initial and final price offers. There will be no curbs on the sale or use of coal from the mine.

What are the benefits?

• It is expected to bring in greater efficiency, technology, higher investment and more employment. It would also lead to more revenue that can be used for development of the area and inhabitants around the mine by the State.
• Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Telangana and Maharashtra would benefit the most.
• The move could be the first step towards the full privatisation of the mining sector, adding that global mining giants like BHP, Rio Tinto, Anglo American and Glencore have expressed interest in prospecting for coal in India.
• However, coal blocks would be commercially viable only if they are offered in minimum blocks of 40-50 million tonnes.

Why in news?

• The Union government may consider enacting the Fugitive Economic Offenders Bill to confiscate assets of those who flee the country and refuse to return after committing frauds in excess of Rs. 100 crore.
• The Bill cleared by the Law Ministry has provision for settling dues of creditors by disposing properties of defaulters

Significance

• Such a law assumes significance as major bank frauds have come to light in quick succession of late.
• Under the existing laws, the bank has failed to recover the dues in the past three years.
• The draft Bill followed an announcement in the Union Budget for 2017-18 that the government planned to introduce a legal measure to confiscate assets of the economic offenders who flee to foreign jurisdictions to escape the clutches of law.
• The move came after Vijay Mallya, who owed more than Rs. 9,000 crore to the public sector banks, flew out of the country and refused to come back. It set off prolonged and multi-pronged legal proceedings, with the government still fighting a legal battle for his extradition from the U.K.
• In another instance ,Nirav Modi, a diamond merchant accused in the Rs. 11,400-crore Punjab National Bank case, and his family members are currently abroad. The passports of Mr. Modi and his uncle Mehul Choksi have been revoked.
• In another case involving Rs. 389 crore of the Oriental Bank of Commerce, a Delhi-based jewellery exporter and his business partners fled the country in 2014.

Provisions of the bill

• The Bill was cleared by the Union Law Ministry with certain recommendations on reconciliation of provisions with the existing laws.
• The draft Bill defines a fugitive economic offender as any individual against whom an arrest warrant has been issued and who has either left the country or refuses to come back to face prosecution.
• As proposed, the Enforcement Directorate will be empowered under the Prevention of Money Laundering Act (PMLA) to initiate the proceedings.
• It has a provision enabling repayment of dues to creditors by disposing of confiscated assets, in case the accused offender continues to evade prosecution.
• As listed in the draft Bill’s schedule, it will be applicable to various financial and allied offences as defined under the Indian Penal Code, the Prevention of Corruption Act, the Securities and Exchange Board of India Act, Customs Act and so on.

• ONGC Videsh Ltd. has shelved plans to build a $5 billion LNG export facility in Iran and has, instead, opted to only invest in developing a giant gas field in the Persian Gulf for which the revised cost is being worked out, an official said.
• OVL, the overseas arm of state-owned Oil and Natural Gas Corporation (ONGC), had, last year, made its ‘best’ offer to spend $11 billion in developing the Farzad-B field in the Persian Gulf as well as in building the infrastructure to export the gas but Iran had dithered on awarding rights for the field to the Indian firm owing to differences over investments and price of gas.
• The company has now agreed to do just the upstream field development part, leaving fuel marketing to Iran, the official said.
• As had been agreed during the visit of Iranian President Hassan Rouhani earlier this month, a team of OVL officials will be visiting Tehran this week to discuss modalities of the upstream development.

D. GS4 Related

E. Editorials

Context of the issue

• The bank frauds involving Punjab National Bank (PNB) and the companies associated with businessmen Nirav Modi and Mehul Choksi as well as the Rotomac case have come at a worse time.
• We need stricter adherence to sound banking rules and more transparency from public and private players
• The Indian banking system is already reeling under the pressure of growing NPAs, or non-performing assets, which will touch nearly Rs. 10 lakh crore by March this year.
• This does not include the Rs. 6 lakh crore already written-off. This has already caused a slowdown in disbursal of bank credit, in turn affecting productive investment.

Failure at many levels

• This failure has occurred at many levels.
• At the level of the bank, it is impossible to believe that only a handful of employees have been implicated.
• Senior management and auditors did not track these problematic transactions for years.
• The Reserve Bank of India (RBI) did not monitor banks properly and created opacity with new financial instruments.
• The Finance Ministry failed in its oversight and regulation.
• And successive Central governments, including the present one, did and have not done anything to address the obvious problems that were festering, and made them even worse.
• What has been revealed so far could be only the tip of the iceberg. The ease with which fraudulent practices have been carried out and the length of time over which they continued suggest that the rot is much deeper.
• Other banks could have provided large loans without due diligence, which other companies then received without intent to repay; this means that many more loans gone bad could soon surface.
• It is now clear that the scams are fundamentally and overwhelmingly a failure of regulation.

Using LoUs

• The PNB scam relied on the existence of an unusual financial instrument, the letter of undertaking (LoU).
• This is a bank guarantee that enables a bank’s customer to raise short-term credit from another Indian bank’s foreign branch.
• It has to be another Indian bank, because the LoU as a form of underwriting other borrowing does not exist in other countries and is not even recognised by foreign banks.
• It was created by the RBI as an additional incentive to importers who could then avail of cheaper credit abroad, even though import credits already exist.
• These LoUs — which are equivalent to providing credit and should be recorded as contingent liabilities — were not so recorded.
• When loans are not repaid — in this case vast amounts borrowed from other banks based on these LoUs were apparently siphoned off to shell companies controlled by the Modi-Choksi combine — the buck stops with the issuing bank.
• What was intended to be trade credit was misused, with no record and monitoring of the spending from those loans.
• There is talk of sums in excess of Rs. 20,000 crore being involved in this case as these businessmen were alleged to be so influential that they were even able to game the SWIFT system for foreign exchange transactions.
• This case involves pure criminal fraud, but there is a thin line between fraud and the many large defaults that plague the system.
• Commercial bank lending is massively skewed: according to the RBI, in March 2016, 11,643 borrowers accounted for 38% of all bank loans; large corporate borrowers had the overwhelming share (84%) of bad loans. Just 12 large outstanding NPA accounted for as much as Rs. 250,000 crore.

The case of Wilful Defaulters

• Finance is one of the many ways in which concessions and advantages are distributed. Some favoured companies are not declared wilful defaulters even when the government’s own investigating agencies find that they are diverting funds.
• Those declared as wilful defaulters are neither punished nor prevented from leaving the country.
• In fact their names are not even made public, so they can continue to access loans from other banks.
• Some insolvent companies are made to sell their assets which are then purchased at throwaway prices by relatives or associates of the defaulting owners.
• Despite claims to the contrary, shell companies held by influential people continue to enable the siphoning of assets and money laundering in various forms.

Issues with Privatisation

• Many analysts within and outside government have responded to these scams by pointing the finger at public sector banks, claiming that they are more vulnerable to influence peddling and crony capitalism.
• The current mess has also become an excuse to demand the privatisation of state-held banks. This completely misses the point since privatisation would actually make things much worse for Indian banking.
• The key issue is one of poor regulation, and not ownership. Indeed, the reason why the current scam has not led to a widespread run on the PNB and other banks is precisely because of the sovereign guarantee that, despite everything, still generates trust in the public banking system.
• Poorly regulated private banks are even more prone to scams and failure as the financial sector is rife with information asymmetries and market imperfections.
• Private profit orientation generates incentives for managements to exploit loopholes in the rules and engage in risky behaviour, as examples by U.S. and European bank behaviour leading to the great financial crisis of 2008-09 show.
• The bailouts they then require tend to be even more expensive for the public exchequer because bank runs have to be prevented.
• In India, in the decade before the nationalisation of banks in 1969, there was an average of more than 35 private bank failures every year.
• After the liberalising reforms of the 1990s, the collapse of the private Global Trust Bank and Centurion Bank (among others) resulted in mergers, with the losses being borne by public sector banks.
• Private banks such as Axis and ICICI also face large NPAs, often with the same companies that are defaulting on public banks. Kotak Mahindra Bank and several others have been found guilty of providing unsecured loans and ever-greening, practices that the PNB is now accused of.
• In fact, because of the opacity of banking practices, public banks are actually easier to regulate.

So why has banking regulation in India failed to this extent?

• It is not only mala fide intent and corruption but also an overall approach to economic policy.
• The RBI may have been too occupied in counting old currency notes and dealing with the other damaging consequences of demonetisation to pay enough attention to its real job — of bank regulation.
• But more significantly, this government, like the previous one, has created incentives for all banks to privilege large high-profile corporate borrowers and be relatively lax on their repayment in the mistaken belief that this would encourage sustained income growth. This context makes it easy for some players to game the system.
• Recovering from this will require stricter adherence to sound banking rules and more transparency and accountability from both public and private players. But most of all, these would apply to the regulators themselves and the government that frames all this.

• While mutual interests can drive India-Canada ties, there needs to be greater sensitivity shown to India’s core concerns

Central controversy

• The Canadian delegation should have avoided the controversy concerning the Khalistan movement, but it was self-inflicted. It stemmed from the ruling Liberal Party’s soft approach on extremist and separatist activities in Canada.
• In its quest for votes of sections of the Sikh community in Canada, India’s basic interests were surprisingly given short shrift by the Liberals.
• The silver lining now is that Mr. Trudeau returns home amply enlightened and chastened about India’s red lines. Deeper friendship is possible when Canada reins in anti-India elements.
• From the Indian viewpoint, the most important agreement signed during the visit is the Framework for Cooperation between India and Canada on Countering Terrorism and Violent Extremism.
• It commits the two nations to combating this phenomenon in all its forms and manifestations, and to facilitate effective cooperation on security, finance, justice, law enforcement and operations.
• Through further interaction, New Delhi is certain to ensure and monitor closely that Ottawa delivers on this commitment. Progress in this realm will spur positivity in other domains of mutual cooperation. It was reassuring that Mr. Trudeau reiterated his support for a united India.

Regional, bilateral issues

• A close commonality of views emerged on several regional issues. The two Prime Ministers called for dismantling the infrastructure of support to terrorism from across borders of Afghanistan, a clear reference to Pakistan.
• The Maldives government was urged “to ensure early resumption of the political process.” On Myanmar, the need for voluntary, safe and sustainable return of the Rohingya refugees was stressed.
• More importantly, Canada and India showed a common perspective on freedom of navigation and over-flight throughout the Indo-Pacific region and respect for international law, including the United Nations Convention on the Law of the Sea.
• Canada implicitly shared India’s reservations on China’s mega Belt and Road Initiative. The two sides agreed on their analysis of the situation in the Korean Peninsula. They considered peacekeeping as an effective response to global challenges. Finally, Mr. Trudeau extended strong support for India’s membership of the Nuclear Suppliers Group.
• Bilateral cooperation, progressing fairly well on a wide spectrum, is likely to blossom further, thanks to the joint initiatives agreed during the visit.
• A business leader saw India-Canada cooperation anchored on five Es: economy, energy, education, entertainment industry linkages, and empowerment of women.
• While trade is rather limited (about $6 billion in 2016), investment in both directions has been increasing steadily. Mr. Trudeau announced that understandings reached last week would result in additional investment of over $1 billion.
• Progress on two government-level agreements, one on investment and the other on trade was minimal as expected, but the two leaders directed officials to intensify their negotiations.
• India’s need for continued uranium exports from Canada and for state-of-art technologies relating to clean energy and renewables came through vividly in discussions.
• The decision to expand the scope of Ministerial Energy Dialogue is noteworthy. Besides, a new Canada-India Track 1.5 Dialogue on Innovation, Growth and Prosperity was launched.
• This aims to establish contours of convergence through sustained research and brainstorming among experts, officials and business people.

The way ahead

• As a capital, technology and innovation-rich economy and an open, inclusive and multi-cultural society, Canada is highly relevant to India. It is sharpening its role as a Pacific Ocean power.
• India’s commitment to peace and prosperity in the Indo-Pacific should deepen geopolitical affinity. Thus mutual interests are likely to impel the two nations to strengthen their strategic partnership.
• However, for this vision to turn into reality, the Canadian leadership needs to demonstrate greater sensitivity to India’s core concerns than what Mr. Trudeau could muster.

F. Prelims Fact

G. Practice Questions for UPSC Prelims Exam

Question 1. Consider the following statements:

Question 2. Look at the following statements about Soft power Index:

Question 3. Consider the following statements:

Question 4. Consider the following statements:

Question 5. Consider the following statements:

H. UPSC Mains Practice Questions

General Studies III

1. Is the recent PNB scam a failure of banks or a failure of banking regulation? Discuss the role played by all the government agencies involved.
2. India and Canada need to engage openly and discuss the core concerns of each other. Explain the significance of the India-Canada bilateral relationship.

 

Also, check previous Daily News Analysis