UPSC Exam Comprehensive News Analysis Sep19

A. GS1 Related

Context

• According to the new mortality estimates released by UNICEF, the World Health Organization (WHO), the United Nations Population Division and the World Bank Group, an estimated 6.3 million children under 15 years of age died in 2017, or 1 every 5 seconds, mostly of preventable causes.

Stats

• In 2017, 2.5 million newborns died in their first month while 5.4 million deaths — occur in the first five years of life, with newborns accounting for around half of the deaths.
  • Globally, in 2017, half of all deaths under five years of age took place in sub-Saharan Africa, and another 30% in Southern Asia.
• Also, a baby born in sub-Saharan Africa or in South Asia was nine times more likely to die in the first month than a baby born in a high-income country
• The most risky period of child’s life is the first month.
• The estimates also said that the number of children dying under five has fallen dramatically from 12.6 million in 1990 to 5.4 million in 2017.
• The number of deaths in older children aged between 5 to 14 years dropped from 1.7 million to under a million in the same period.

Disparities within countries

• Under-five mortality rates among children in rural areas are, on average, 50% higher than among children in urban areas.
• In addition, those born to uneducated mothers are more than twice more likely to die before turning five than those born to mothers with a secondary or higher education.

Causes

• Most children under 5 die due to preventable or treatable causes such as complications during birth, pneumonia, diarrhea, neonatal sepsis and malaria.
• Among children between 5 and 14 years of age, injuries become a more prominent cause of death, especially from drowning and road traffic.
  • Within this age group, regional differences exist, with the risk of dying for a child from sub-Saharan Africa 15 times higher than in Europe.

Conclusion

• There is an urgent need to being a stop to this and this requires radical reforms like structural changes in policy making and simple solutions like providing medicines, clean water, electricity and vaccines.

B. GS2 Related

C. GS3 Related

Context

• The trade rivalry between the U.S. and China escalated to an unprecedented level, with both countries announcing new tariffs on imports from each other.

Details

• The U.S. has announced 10% tariff on $200 billion of imports from China, whose retaliatory tariffs between 5% and 10% will apply to $60 billion of imports from the U.S.
• With the new announcements, U.S. tariffs will apply to $250 billion of Chinese goods and Chinese tariffs will apply to $110 billion of U.S. goods. The rate of the new tariffs will be raised to 25% by the end of 2018
• Around 5,000 American items are expected to face the new measures, including aircraft, soya bean oil, smoked beef, coffee and flour

How it all started?

Context

• The Agriculture Ministry has set a foodgrain production target of 285.2 million tonnes for 2018-19, a marginal increase from the previous year’s harvest of 284.8 million tonnes.

What is the expected increase?

Context

• The Securities and Exchange Board of India (SEBI) has broadly accepted the recommendations of the H.R. Khan Committee on Know-Your-Client (KYC) requirements for foreign portfolio investors (FPIs), while lowering the Total Expense Ratio (TER) for open-ended equity schemes, thereby making it less expensive for investors to invest in mutual funds.
• SEBI has agreed to amend the circular [issued in April] and the new one is largely in line with Khan Committee recommendations.

Expense Ratio

• It is the annual fee charged by the mutual fund scheme to manage money on behalf of individuals.
• It covers the fund manager’s fee along with other expenses required to run the fund administration.
  • Asset management companies (AMCs) employ highly qualified professionals to track developments in equity, debt and money markets and then transact accordingly in the asset markets to attain the objectives that are stated in the fund’s offer documents. For such specialised services, the AMC pays a management fee to the professionals.
  • There are operating expenses too, such as the fee for transfer and registrar agents.
    • They are responsible for issuing and redeeming units of the mutual fund and providing other related services, such as preparation of transfer documents and updating investor records.
  • Other than these charges, a fee is also paid to the custodian, who buys and sells securities in large volumes.
  • Moreover, there are legal expenses, audit fees, as well as marketing and distribution expenses
  • A mutual fund recovers such costs through its unit holders on a daily basis. The daily net asset values (NAVs) of a fund scheme are reported after deducting such expenses, though the expense ratio is disclosed only once every six months.
• If the funds’ assets are small, the expense ratio can be quite high so that the fund can meet its expenses from a restricted or a smaller asset base.
• If the net assets of the fund are large, the expense percentage should ideally diminish as expenses are spread across a wider asset base.
• Therefore it measures per unit cost of managing a fund.

Changes made by SEBI

• The market regulator, SEBI sets a ceiling for the expense ratio
  • For equity mutual fund
  • For debt funds,
  • for index funds
  • For fund of funds (FoFs)
• SEBI capped the total expense ratio (TER) for equity-oriented mutual fund schemes (close-ended and interval schemes) at 1.25% and for other schemes at 1%.
  • However, it allowed an extra 30 basis points (bps) for selling in B-30 (beyond top 30) cities. One basis point is one-hundredth of a percentage point.
• The TER cap for fund of funds will be 2.25% for equity-oriented schemes and 2% for other schemes.

Additional expense

• The regulator has, however, allowed an additional expense ratio of 30 basis points for retail flows from beyond the top 30 cities.
• More importantly, the additional expense will not be allowed for flows from corporates and institutions.

Laws managing losses in the Market

• The regulator has framed the SEBI (Settlement Proceedings) Regulations 2018 which bar offences that cause a marketwide impact, loss to investors or affects the integrity of the market, to be settled through the consent route.
• While serious offences like insider trading or front running can be settled through consent, the regulator has said that it would use a principle-based approach while deciding on such matters.
• The regulator will also not settle any proceedings wherein the applicant is a wilful defaulter or if an earlier application for the same offence has been rejected.

Other Measures

• The board of the capital markets has also approved a framework for permitting foreign entities having an exposure in physical commodity market to hedge in the commodity derivatives segment.
• Sebi also reduced the time period for listing after an initial public offering to three days from six, freeing up locked investor funds faster.

Significance

• The regulator is of the view that the lower expense ratio would lead to investors saving ₹1,300 crore to ₹1,500 crore in commissions.
• It will enhance returns for investors. However, the change in TER may impact profit margins of AMCs.
  • Early listing and trading of shares will benefit both issuers and investors.
  • Issuers will have faster access to the capital raised, thereby enhancing the ease of doing business and the investors will have early liquidity.

Background

• DRDO developed Akash as part of the Integrated Guided Missile Development Programme which was initiated in 1984.
• It is made by Bharat Dynamics Limited (BDL).
• Akash is a surface-to-air missile defense system
• Akash can fly at supersonic speeds, ranging from Mach 2.8 to 3.5
• Akash has a range of 25 km and can engage multiple targets at a time in all-weather conditions.
• It has a large operational envelope, from 30 meter to a maximum of 20 km.
• Each regiment consists of six launchers, each having three missiles.
• Akash missile has an indigenous content of 96 per cent.

Enhanced features

• The upgraded version will include the seeker technology and possess a 360-degree coverage, and will be of compact configuration.
• It is operationally critical equipment, which will provide protection to vital assets.

D. GS4 Related

E. Editorials

Context:

• There have been various economic crises in the past over which economists the world over have deliberated upon and have submitted their observations and analysis.
• The most notable crisis was that of the financial crisis of 2007.

A look at the causes of the financial crisis of 2007

• There were multiple causes to the crisis of 2007.
• Among them included,
  a) global macroeconomic imbalances,
  b) a loose monetary policy system followed by the U.S.,
  c) the housing bubble in the U.S.
  d) a misplaced belief in efficient markets, greedy bankers, and the existence of incompetent rating agencies. All of these factors played their part.
• However, a major causative factor for the implosion of the financial sector in 2007-08 was in the failure of regulation.

The Failure of Regulation:

• Let’s take a brief look at the way this failure had taken place:  
  Firstly, banks were allowed very high levels of debt in relation to equity capital.
  Secondly, banks in advanced economies moved away from the business of making loans to investing their funds instead in complex assets known as “securitised” assets.
• These securitised assets consisted of bundles of securities derived from sub-prime loans, i.e, housing loans of relatively higher risk.
• The switch which was made from loans to securitised assets had enormous implications for banks. It is important to note that with a loan, losses are recognised over time. As housing prices began falling and securitised assets lost value, it translated into enormous losses for the banks.
• As a consequence, these losses eroded bank capital and created panic among those who had lent funds to banks.
• The third element in the failure of regulation was allowing banks an excessive dependence on short-term funds. Besides this, there were other failures of regulation. These included:
  a) Banks had low standards for making housing loans.

1. b) Global nature of the failure: These were not confined only to the U.S. They were witnessed across banks in Europe and some in Asia as well.

How did such a massive failure of regulation occur?

Experts attribute this to two things a) ‘regulatory capture’ b) ‘revolving door’ syndrome.

• The term regulatory capture refers to the ability of financial institutions to influence policies of governments and regulators. It is important to note that financial institutions are a big source of political funding.
• ‘Revolving door’ syndrome: This refers to the situation wherein we observe that bankers in the U.S. and Europe hop on to jobs in government and regulation. On the other hand, we also witness that government officials and regulators land lucrative jobs and assignments with banks.
• As a consequence of the ‘revolving door’, we witness havoc in matters concerning regulation. This also explains the lack of accountability of bankers for the havoc they created. No top banker has been prosecuted or jailed.
• As a matter of fact, banks have paid up massive fines for assorted violations- with the fines coming from the pockets of shareholders.

The Indian Perspective:

• India hasn’t suffered much on account of the financial crisis.
• Although growth has slowed down to 7%,  but these figures are in line with the trend rate over the past two decades.
• Many forward-looking policies have helped India. For example, she has not embraced full capital account convertibility. India has kept short-term foreign borrowings within stringent limits.
• Further, India did not open up to foreign banks despite pressure from the U.S. and the international agencies. In the wake of the crisis, foreign banks retreated from overseas markets- this caused a severe credit crunch in places such as Eastern Europe. India was insulated from this.

Core Issues that Need Addressal:

• Significantly, there are three issues that need to be addressed. Firstly, there has been a tradition wherein some banks, just by the virtue of them being large, are deemed to be such that they cannot be allowed to fail. This notion needs to be changed.
• The second aspect is the very size of debt itself in various forms in the world economy.
• As a matter of fact, the overhang of debt itself for the global economy as a whole, poses some serious challenges.
• The third aspect is that financial globalisation makes the world vulnerable to U.S. monetary and fiscal policy.

Concluding Remarks:

• The current crisis which one is witnessing in emerging economies underscores the fact as to how vulnerable emerging markets are to the vagaries of American economic policy.
• The world needs to be slowly nudged away from its dependence on the dollar.

Note to Students:

Students are advised to go through the topic on rupee depreciation which BYJUs has covered as part of a YouTube video release.

Category: SCIENCE AND TECHNOLOGY

1. Celestial misfit

Question 1. Consider the following statements about Aravalli:

Question 2. Hurricane Florence recently in news caused devastation in

Question 3. Consider the following statements about the ‘Kuiper belt’:

Question 4. Consider the following statements about the ‘Oort Cloud’:

Question 5. The Akash short-range surface-to-air missile (SRSAM) system was recently 
in the news. Consider the following statements relating to this.