📰 The spectre of deportation
The outcome of the NRC exercise has implications for India’s ties with Bangladesh
•The last date for filing claims and objections for Assam’s National Register of Citizens (NRC) has been extended by the Supreme Court to December 31, from December 15. This exercise of compiling the NRC in the first place has sparked a debate around its political, economic and humanitarian consequences, and its implications for India’s relationship with its neighbours, particularly Bangladesh. In fact, there was some disquiet in Bangladesh when the Indian Army Chief, General Bipin Rawat, lent support to the NRC drive, claiming that those settled in Indian territory without legal jurisdiction posed a threat to national security.
Two-way traffic
•Few seem to realise that there are legal as well as illegal Indian immigrants in Bangladesh too. According to the latest available Bangladesh government estimates of 2009, more than 500,000 Indians were working in Bangladesh. More recently, Bangladesh was reported to be among the highest source of remittances to India, behind the United Arab Emirates, the U.S., Saudi Arabia, Qatar and the U.K. Many Indian citizens are securing coveted employment opportunities in Bangladesh through multinational companies, non-governmental organisations, and trading activities. To put things into perspective, most of them are employed in advantageous jobs in Bangladesh while Bangladeshis in India are largely employed in low-paying jobs.
•The ruling establishment in India maintains that the NRC is an administrative task overseen by the Supreme Court, and not a political gambit. However, some members of the ruling party have been making hateful anti-migration and anti-Bangladeshi comments that reflect poorly on the prevalent positive relationship between Bangladesh and India.
•While Prime Minister Narendra Modi has assured the Bangladesh government that those excluded from the NRC will not be deported, Dhaka has so far been silent on the issue, terming it as an ‘internal matter of India’. This is seen as a signal that Bangladesh, already stretched in terms of resources and manpower to host Rohingya refugees, would not be acceding to a request of taking back Bengali-speaking Muslims in case deportation is initiated. Yet, some remain apprehensive, pointing out that Bangladesh had been similarly unconcerned about the Rohingya issue, which did not prevent the country from ultimately hosting more than a million Rohingya.
Neighbourhood first?
•Mr. Modi came to power with proclamation of a ‘Neighbourhood First’ policy. Midway in the final year of his term, the reality speaks quite differently. Nepal, once a time-tested ally, has tilted towards China since the 2015 Nepal blockade barring the entry of fuel, medicine and other vital supplies and holding the state to a literal siege. Nepal now has been given access to four Chinese ports at Tianjin, Shenzhen, Lianyungang and Zhanjiang in addition to its dry (land) ports at Lanzhou, Lhasa and Xigatse, as well as roads to these facilities, ending India’s monopoly to its trading routes. The India-Bhutan relationship has also been strained ever since India temporarily withdrew subsidies on cooking gas and kerosene in 2013, constraining bilateral ties. The Doklam stand-off in the summer of 2017 reinforced Bhutan’s scepticism towards Chinese expansionist plans across the region. Simultaneously, Thimphu has been underlining the landlocked kingdom’s aspiration to affirm its sovereignty. It has, for instance, stepped out of India’s diplomatic influence, as evidenced by its withdrawal from the Bangladesh-Bhutan-India-Nepal (BBIN) motor vehicles agreement. The India-China power play has also cast its shadow over Sri Lanka and the Maldives in the last few years.
•Against this backdrop of China making inroads into South Asia and India’s backyard, Bangladesh has so far been the most trusted ally of India. On the security front, it has cooperated in India’s crackdown on insurgents. Border Security Force (BSF) chief K.K. Sharma said last year that because of close cooperation with Border Guard Bangladesh (BGB) “the number of training places and hideouts of these insurgents (in Bangladesh) has been reduced to almost zero.” Annual bilateral trade is set to cross the $9 billion mark, making it India’s biggest trading partner in South Asia. In addition, Bangladesh has facilitated connectivity with the Northeast by allowing the use of Chittagong and Mongla ports. However, the Teesta water-sharing issue remains unaddressed, non-tariff barriers on Bangladeshi exports persist and border killings are yet to become a thing of the past.
•The NRC issue threatens to disturb the equilibrium in India-Bangladesh ties. It is vital to note that Bangladesh is heading for elections at the end of this month, and in poll campaigns, relations with India tend to be played up. Plans for deportation of those not on the NRC list are not only politically imprudent but also risk inciting unrest across the region. Previous similar exercises have not been effective and only resulted in alienating individuals from their natural rights.
📰 Rafale deal: JPC cannot review Supreme Court order, says Arun Jaitley
Finance Minister rubbishes Congress demand for panel to probe Rafale deal.
•Attacking the Congress’s demand for a Joint Parliamentary Committee investigation into the Rafale deal, Finance Minister Arun Jaitley said on Sunday that a JPC could not go into the “correctness or otherwise” of a Supreme Courtverdict.
•“The court conducts a judicial review; it is a non-partisan, independent and fair constitutional authority. The court’s verdict is final. It can’t be reviewed by anyone except by the court itself. How can a parliamentary committee go into the correctness or otherwise to what the court has said? Is a committee of politicians both legally and in terms of human resources capable of reviewing issues already decided by the Supreme Court?,” Mr. Jaitley said in a Facebook post.
•His comments come a day before the BJP’s 70 press conferences on Rafale planned for Monday.
Beyond purview
•“On areas such as procedure, offset suppliers and pricing, can a parliamentary committee take a different view of what the court has said? Can the contract be breached, nation’s security be compromised and the pricing data be made available to Parliament or its committee so that national interest is severely compromised with? This would be putting the price details of the weaponry in public domain,” the Minister said.
•Mr. Jaitley recalled the experience of the previous JPC on a defence transaction.
•“The B. Shankaranand Committee in 1987-88 went into the Bofors transaction. Since parliamentarians are always split on party lines, it came out with a finding that no kickbacks were paid and the monies paid to the middlemen were ‘winding up’ charges. At that time, only Win Chaddha appeared to be a middleman. But then others including Ottavio Quattrocchi, whose bank accounts got detected subsequently, were not entitled to any winding-up charges,” he said.
‘A cover-up exercise’
•“The reports/documents published by Chitra Subramanium and N. Ram in The Hindu and all subsequent facts which came to light, conclusively established each fact mentioned in the JPC to be factually false. It became a cover-up exercise. After the Supreme Court has spoken the last word, it gets legitimacy. A political body can never come to a finding contrary to what the court has said.”
•Mr. Jaitley dealt with the question of an expected CAG report on the Rafale deal.
•“Defence transactions go to the CAG for an audit review. CAG recommendations go to Parliament and are referred to the Public Accounts Committee (PAC) whose reports are then placed before Parliament. This was factually and accurately stated by the government before the Court,” he said, referring to a controversy on the accuracy of facts on the pending CAG report.
•“The audit review of Rafale is pending before the CAG. All facts are shared with it. When its report is out, it will go to the PAC. Notwithstanding this factually correct statement made, if an ambiguity has emerged in the court order, the correct course is for anyone to apply/mention before the court and have it corrected,” he said.
•He added: “The CAG review is not relevant to the final findings on procedure, pricing and offset suppliers. But bad losers never accept the truth. Having failed in multiple lies they have now started an innuendo about the Judgement. Having failed in their initial falsehood, the Congress is now manufacturing further lies about the Judgement.”
•He claimed the Congress would prefer disruptions over discussion on Rafale during the current session of Parliament. “The judgement of the Supreme Court conclusively establishes the Congress Party’s vulnerabilities in a discussion on defence transactions. It will be a great opportunity to remind the nation of the legacy of the Congress Party and its defence acquisitions – a great opportunity indeed for some of us to speak,” Mr. Jaitley added.
📰 Widening Gulf
Qatar is now taking the fight to the Saudi Arabia-led OPEC and GCC
•Qatar Emir Sheikh Tamim bin Hamad al-Thani’s decision to stay away from the December 9 Gulf Cooperation Council summit in Riyadh is the latest reminder of the growing disunity among the Gulf countries. Qatar, blockaded by three GCC countries, Saudi Arabia, the UAE and Bahrain, and their non-GCC allies, has said it will not discuss a compromise unless the blockade is lifted. The Saudi-led bloc imposed it in June 2017, accusing Qatar of funding terrorism. But as Riyadh came under increasing global pressure after the murder of Jamal Khashoggi in its consulate in Istanbul, it has shown signs of reconciliation. In October, Crown Prince Mohammed bin Salman, who is believed to have ordered the Khashoggi hit, surprised observers by praising the Qatari economy. The personal invitation to the GCC meet from King Salman bin Abdulaziz to the Qatari Emir followed the Crown Prince’s remarks. But Qatar, a tiny kingdom but the largest exporter of liquefied natural gas, remains defiant. Doha has announced its decision to quit OPEC, the first Arab nation to do so since the cartel was formed in 1960. Though Qatar said the decision was not political, clearly its exit from OPEC was a snub to Saudi Arabia, its de facto leader.
•The blockade has triggered tensions among other GCC countries as well. Saudi Arabia is upset that Oman and Kuwait did not join the embargo. Kuwait was trying to mediate between the rivals camps, which hasn’t gone down well with Riyadh. Last September, the Crown Prince started a two-day tour of Kuwait. But ties were reportedly so tense that he left the country within a few hours. Oman continues to be independent of Saudi influence by keeping ties open with both Qatar and Iran. The blockade has made Qatar only more independent in its foreign policy decisions. It has stepped up assistance for Hamas in Gaza, accelerated a plan to allow Turkey to set up a military camp in the country and resisted calls to cut ties with Iran. The decision to quit OPEC and the Emir’s absence at the GCC meet (a state minister was sent to represent the country) point to an increasingly confident Qatar. But the intra-Gulf quarrels have dampened hopes for the integration of the region. The bloc, which once talked about a common Gulf currency and robust connectivity projects, is now a ghost of its old self. After the summit, the GCC issued a customary statement, emphasising regional stability and economic challenges. Even as the summit was on, Bahrain Foreign Minister Khalid bin Ahmed Al Khalifa criticised the Emir’s decision to skip the meet, while Doha slammed the communiqué for its failure to address the blockade. That is the state of affairs in the GCC.
📰 N-E varsity researchers patent process to treat industrial waste
‘Green process 75% faster, 40% more energy-efficient than existing technology’
•Three researchers from the North-Eastern Hill University (NEHU) based in Meghalaya capital Shillong have patented a fast, energy-efficient and low-cost process for treatment and bio-detoxification of industrial effluents contaminated with harmful azo-dye.
Non-toxic discharge
•The ‘green process’ developed by Mihir K. Sahoo, Bhauk Sinha and Rajesh N. Sharan for treating waste-water from industries such as textile, leather and paint is 75% faster, 40% more energy-efficient and more sustainable than the existing technology.
•Their process has also been found to leave the discharge environmentally benign and thus likely to be equally non-toxic to other bio-flora and fauna.
•“We received the patent for biologically detoxifying industrial waste-water apart from chemical detoxification, which we feel is quite revolutionary. My expertise in molecular biology and my colleagues’ expertise in chemistry combined to develop the technology,” Prof. Sharan of NEHU’s Department of Biochemistry told The Hindu on Sunday.
•He worked with Dr. Sahoo and Mr. Sinha of NEHU’s Department of Chemistryfor four years. The trio perfected the technology and applied for a patent in July 2013. The patent was received in October this year.
•According to the trio, the traditional treatment of environmentally damaging waste-water effluents with appropriate chemicals processes such as chemical precipitation, coagulation and electrocoagulation only transfers the contaminating chemical entities and chemical groups of the waste-water to other media, thereby producing secondary wastes.
Secondary wastes
•“In some cases, these secondary wastes, intermediates and by-products formed by the second process of chemical remediation or detoxification may produce equally or more toxic chemical entities than the original toxicants and pollutants,” Prof. Sharan said.
•It was thus important to ascertain if the treated effluent was also benign to the biosphere (flora and fauna). Although theoretically, modern chemical remediation processes completely eliminate the pollutants from waste-water, the trio’s bio-toxicity evaluation of such effluents using Escherichia coli, or E. coli based bio-toxicity assay showed that it still continued to be highly bio-toxic.
•Most strains of E. coli, a common kind of bacteria that lives in the intestines of animals and people, are harmless. Their survival is crucial for bio-flora and fauna, the researchers said.
•Therefore, the release of such effluents into the environment could adversely affect the survival of aquatic micro-organisms, flora and fauna, thereby disturbing the entire ecosystem and ecological balance.
•“The so-called waste-water is not really suitable for release directly into streams, rivers and other water bodies. We recognised this serious shortcoming of the existing technologies in the domain, and came up with the innovative technology,” Prof. Sharan said.
📰 ISRO’s GSAT-7A to add muscle to Air Force
Military communication satellite to be launched on Dec. 19
•Military communication satellite GSAT-7A, due to be launched on December 19 evening from Sriharikota, is expected to add a new space-based dimension to the way Indian Air Force interlinks, operates and communicates with its aircraft.
•Although all Indian communication satellites offer capacity to the armed forces, GSAT-7A will be the first one built primarily for the IAF to qualitatively unify its assets and improve combined, common intelligence during operations. With integrated action being a buzzword it will also support aerial activities of the Army and the Navy where required.
•“About 70% of it would be for the Air Force and the rest for the needs of the Army,” said a source in Delhi. The ground force’s Army Aviation Corps operates many helicopters, uses UAVs and will acquire fixed wing aircraft in future — all for surveillance and rescue missions.
•Multiple sources said the satellite using Ku band will enable superior real time aircraft-to-aircraft communication; and between planes that are in flight and their commanders on the ground.
•It would enhance by many times the coverage now provided by ground communication systems such as radars and stations of the Army.
•Out-of-sight and remote areas where ground infrastructure and signals are difficult would get into the critical information loop.
Forward leap
•A military veteran said, “It will be a very important step towards what we call network-centric operations or warfare. It will enable communication and data linking at forward places and air defence centres. Pilots can communicate much better with headquarters while they fly. Headquarters can receive data in real time.”
•Since August 2013, the Navy has a satellite largely for its use, the GSAT-7, for similarly linking its ships to command on land.
•The GSAT-7A/ GSLV-F11 mission will also wrap up the calendar year for the Indian Space Research Organisation (ISRO). The GSLV-F11 space vehicle will release it to an eventual geostationary orbit about 36,000 km from Earth.
•However, it will become fully functional after a month of testing payloads.
•In 2018, ISRO launched GSAT-11 on December 5 on a European vehicle from Kourou, GSAT-29 on November 14 on its GSLV-MkIII vehicle from Sriharikota, and the ill-fated GSAT-6A on March 29 from Sriharikota.
📰 Direct benefit transfer scheme for TB patients makes slow progress
Of the 18 lakh registered, barely 26% have received cash transfers so far
•The direct benefit transfer (DBT) scheme for nutritional support to Tuberculosis (TB) patients — Nikshay Poshan Yojana (NPY) — rolled out from April this year has recorded slow progress in the last eight months. Of the 18 lakh registered TB patients across the country, only 4.69 lakh, barely 26% of the beneficiary pool, have received cash transfer so far.
•A total payment of over Rs. 50 crore, at the rate of Rs. 500 each patient monthly, has been made to these 4.69 lakh patients till December 7. Of the total registered patients, the bank account details of only 9 lakh patients are available with the Central TB division so far.
•This is because many of the rural poor either do not have a bank account or are migrant patients, whose bank accounts are difficult to be captured.
‘No dearth of funds’
•Revealing these figures, Vikas Sheel, Joint Secretary (Revised National Tuberculosis Control Programme- RNTCP) told The Hindu on Saturday that there is no dearth of funds for the DBT scheme under NPY.
•“Although funds are not set aside for DBT, available funds can be used for all activities approved under the State plans. We have asked the States to expedite collecting bank account details of all registered patients under their jurisdiction,” he said.
•Concerned over the slow progress, the Joint Secretary recently wrote to the Principal Secretaries (Health and Family Welfare) and National Health Mission (NHM) directors asking them to accelerate the uptake of DBT scheme.
•“We have asked the State TB officers to use the Public Financial Management System (PFMS) portal if there are any technical glitches on the NIKSHAY portal to make DBT payments. We have also asked the State TB officers to submit weekly reports on the progress of DBT scheme to the Union Health Ministry,” the official said.
Transfer to blood relative
•In the letter dated December 4, the Joint Secretary has asked the State TB officials to transfer the benefits of NPY to the patient’s blood relative (spouse, parents, siblings) if he/she does not have an account in his/her own name.
•“In case the beneficiary does not have an account in his/her own name, but a family member (spouse, parents, brother/sister /blood relatives) has a bank account, the health staff/treatment supporter can transfer the benefits of NPY to the account of a family member by obtaining an undertaking from the beneficiary,” stated his letter.
•“Also for beneficiaries who do not have a bank account even in his family member’s name, provision of opening zero balance bank account is available under the Pradhan Mantri Jan Dhan Yojana (PMJDY) and Indian Postal Bank. The District Magistrates/Collectors should ensure that zero balance bank accounts for the TB patients are opened expeditiously. The District TB officers should coordinate with the Lead Bank manager, nodal officer for PMJDY and Postal Bank in the district,” the letter said.
📰 India recorded 95 tiger deaths in 2018, 41 outside reserves
NTCA chief says many animals venture into habitations, which increases the possibility of human-animal conflicts and results in deaths
•According to the National Tiger Conservation Authority’s (NTCA) records till December 15, 2018, there were 95 cases of tiger deaths in the country. Of this, 41 cases of tiger deaths outside tiger reserves have been reported.
•Of them, 14 occurred in Maharashtra, which accounted for over 34% of all deaths outside tiger reserves in the country. A total of 19 tiger deaths were recorded in Maharashtra in 2018, so deaths outside tiger reserves comprise more than 70% of all tiger deaths in the State.
•The NTCA maintains the official database of tiger mortality in the country, and compiles figures from reports sent by different States on the basis of recovery of bodies or seizure of body parts.
•According to the last tiger estimation exercise in the country in 2014, Maharashtra is home to 190 tigers, but more than a third of its tigers, or about 74 of them, live outside tiger reserves in the State.
•“One of the major reason why tigers are dying in Maharashtra is because many of the tigers are living outside tiger reserves,” Anup Kumar Nayak, member secretary, NTCA, told The Hindu .
•“In several areas, tigers are not only living outside reserve areas, but are venturing into human dominated landscapes, which increases the probability of human-animal conflict and results in deaths,” he explained.
•Three States comprise 60% of tiger deaths.
•Till December 15, of the 95 tigerd that died in the country, 41 deaths occurred outside protected areas. After Maharashtra, Madhya Pradesh recorded 22 deaths (11 outside and 11 inside tiger reserves), followed by Karnataka, with 15 deaths (six outside tiger reserves and nine inside) being recorded.
📰 The numbers game
A structural break can be observed in the GDP back series before and after the year 2011-12
•India’s national income statistics are under a cloud. The Central Statistics Office (CSO) has released official revisions of the GDP estimates for the years 2004-05 to 2013-14 in the Manmohan Singh-led government’s tenure. The revisions make the Narendra Modi government’s performance on the economic front appear better than that of its predecessor.
•In 2015, when the CSO had first computed this set of estimates, the growth rates for the years in Dr. Singh’s tenure were higher. The NITI Aayog rejected those numbers and blocked their release. Whether the CSO should have yielded to the NITI Aayog on a purely statistical matter is not clear.
•In the recomputed estimates, which were released last month by the CSO under the guidance of the NITI Aayog, GDP growth does not exceed 9% even once during Dr. Singh’s tenure. The fastest growth rate reached was in the year 2010-11 (8.5%). The growth rate for this year, before this revision, was estimated at 10.3%. The best year in Mr. Modi’s term so far has been 2015-16 (when GDP growth reached 8.2%). In fact, the growth rates for the majority of years in Dr. Singh’s term have been cut drastically. Besides 2010-11, the growth rate was slashed quite sharply for 2007-08, from 9.8% to 7.7%.
•Naturally, these revisions have stoked a controversy. Besides the political duel between former Finance Minister P. Chidambaram and his successor Arun Jaitley, eminent statisticians have posed questions over the technical issues at hand. The CSO has offered no satisfactory answers. Even the Chairman of the Prime Minister’s Economic Advisory Council, Bibek Debroy, is concerned about what he calls the use of “less than perfect” deflators by the CSO.
Statistical stunts
•Mr. Jaitley is at pains to stress the CSO’s credibility, and has emphasised that the revisions are compliant with the international guidelines, the System of National Accounts (SNA), 2008. The truth is, many of the proxies and techniques that the CSO has used are, in fact, not recommended by the SNA. At best, they are tolerated under the SNA system.
•One particular statistical stunt that the CSO has introduced is a structural break in its back series in 2011-12. Let us understand this in detail.
•Macroeconomic aggregates such as GDP and GVA (gross value added) are estimated every year at the prices of a selected year, the base year. Base years are periodically updated, and the GDP for every year all the way back to 1950-51 is then re-estimated. In 2015, the base year was updated from 2004-05 to 2011-12. Improvements in estimation methodology were also carried out. But there was a problem: non-availability of appropriate databases complicated the re-estimation backwards.
•Three years ago, at the time of re-basing the GDP series, the forward computation was done using data sourced from the Ministry of Corporate Affairs’ MCA-21 database of balance sheets. Its use led to growth getting revised upwards substantially for the years after 2011-12, including for the last two years of Dr. Singh’s term. But the MCA data are available only 2011-12 onwards. So, what was to be done for computing the series before 2011-12? This was the principal difficulty in backcasting the rebased series.
•The CSO worked out a proxy. Its use would have led to growth rates getting revised upwards in the years before 2011-12. This was not agreeable to the NITI Aayog, and the back series computed with it was withheld. For three years, the CSO and the NITI Aayog could not resolve the problem. Now, the CSO, under the rather controversial guidance of the NITI Aayog, has for a proxy used data extracted from the Annual Survey of Industries (ASI), the database that was used for the earlier 2004-05 base year series. Combining MCA data with the ASI data is technically problematic. There is no statistically robust way of seamlessly linking these two datasets. Their coverage differs significantly.
Complications
•Consider one of the complications introduced by the ASI’s relatively smaller coverage than the MCA’s. Take a company that has manufacturing establishments across the country. Such a company may also have non-manufacturing establishments as part of its set-up. The total corporate GVA should ideally be the sum of manufacturing and non-manufacturing establishments. While the MCA would cover both the manufacturing and non-manufacturing GVA of this company from 2011-12 onwards, the ASI has been found to cover only manufacturing establishments in such cases. Non-manufacturing GVA inside a manufacturing corporate enterprise is not captured by it. This GVA, in fact, does not get covered at all as the service sector surveys also leave it out.
•Some of the GVA in the years before 2011-12 in the back series has escaped estimation altogether due to such holes in the ASI’s coverage, making the year 2011-12 a point of discontinuity.
•A structural break can be observed in the back series before and after the year 2011-12. The upgradation to MCA from ASI data 2011-12 onwards had led to upward revisions. Going backwards, the revisions are by and large sharply downwards.
Glossing over challenges
•The statistical challenge before the CSO is to estimate the GVA that remained uncaptured by the ASI. This is a complex problem with no clear solution. Whether the holes led to an underestimation or overestimation and what the impact was on the growth rates is difficult to judge. Service offshoots can lead a conglomerate or can be a drag. The now-defunct Kingfisher Airlines associated with the business group United Breweries illustrates how a service establishment can ensure that a conglomerate’s GVA goes up but it may also drag it down. The trouble is, rather than admitting to these challenges transparently, the CSO has sought to gloss over them.
•One of India’s most well-regarded statisticians, T.C.A. Anant, was not willing to replace the MCA database with the ASI database in the back casting exercise when he was Chief Statistician of India. Months after his retirement, the CSO went ahead and did exactly that.
📰 ‘Back series data based on global practice’
We need to work hard to achieve double-digit growth, says the Vice-Chairman of NITI Aayog
•The new RBI Governor will be much better as he is more of a team player and displays greater maturity, NITI Aayog Vice- Chairman Rajiv Kumar explains in an interview. He also, for the first time, explains why the Aayog got involved in the back series GDP calculations. Excerpts:
The RBI and the government have been in a public stand-off for almost three months...
•I think that was completely unnecessary. Everybody is part of the macro management team of the country. There are always differences in the manner any two economists look at the economy and that is expected. But you resolve your differences through discussions that are kept within the team, and come to some understanding. This is where I think the new Governor will be much better. He has a lot more roundedness and a lot more maturity in him.
But where do you stand on the two issues of RBI autonomy and transferring of excess reserves to the government?
•I think as a number of former Governors have pronounced, autonomy is as much as the Finance Minister wants. You are appointed by the government. But there is a space and everybody respects that space. There is autonomy to consult and the statutory authority is given to Monetary Policy Committee (MPC) on the determination of interest rates for achieving the inflation target. That is a big one. That is statutorily your single point objective.
•On the funds, I think you have to agree to a benchmark or a framework that is globally accepted. I don't see a reason for which you should have a higher benchmark than the global norm. You can at best say we need slightly higher reserves because of India specific reasons. But you need to accept that there is a globally accepted norm and then define your very clear reasons for which the India specific reserve requirement should be higher than that and beyond that you should hand over to the government.
•Why should prudential norms be higher for Indian banks than the Basel III norms? The Basel III norms specify 4.5% of Tier-I capital relative to your assets. Why should we have 5.5%? Given that 75% of India’s banking is explicitly sovereign guaranteed, so there is no additional risk. And the rest of it is quasi-sovereign guaranteed as came out in the 2008-09 crisis. To that extent, any argument that the capital adequacy norms should be higher needs to be carefully looked at and calibrated.
What about banking regulations and PCA norms?
•All of that overlaps so much between the government and the RBI… In enforcing banking norms, RBI is the regulator but the government is the owner. How can you not consult? The State Bank of India is owned by the government of India. You can’t possibly say this is what I will do with it. Even in the UK, and the Bank of England, there is a degree of consultation between the treasury and the bank. As I said earlier, you are autonomous within a team.
Why was NITI Aayog included in the back series GDP data estimation process?
•We have been waiting for the back series data since 2015. Then came the Mundle Committee report for which estimating the back series was not a part of their mandate, but they did it. The committee was on recommending the set statistics for the real sector of the economy.
•They compiled a fairly simplistic econometric model where the general feeling was that it was not satisfactory and the government did not accept those findings.
•That, I am assuming, brought pressure on the CSO (Central Statistics Office) to come out with their version of the ‘back series.’ They came to NITI Aayog and asked us to have a look at the output. I agreed, and said rather than just me looking at it, why don’t we ask this to be looked at by a group of statisticians, to which they agreed. We got a first meeting organised where 8-9 of the best statisticians came and there were some issues that were raised. We had already called a press conference and then, we cancelled it because we felt that the back series was not yet ready.
•Then NITI Aayog organised another round table about a month later. We discussed the final results and the statisticians endorsed it. Having been involved, CSO asked NITI if the report could be released together. I agreed. I hadn’t realised the possibility of any of this political drama at the time. My thoughts were that at one point the Department of Statistics used to be a part of the Ministry of Planning, so I thought there was a normal and natural nexus here.
•The story is that we were consulted to check the veracity of the data, we took the help of statisticians over two rounds, and then when asked, we agreed to release it jointly.
One of the criticisms of NITI Aayog’s involvement is that it put in doubt the method chosen for calculation of the back series
•The method that was chosen, and the statisticians made sure of that, was the method recommended by the UN System of National Accounts (SNA) 2008, and that’s the standard global practice. How can anybody argue otherwise? If there were political motivations, then why would the CSO release the Q2 growth data, which showed slower growth than Q1, just three days after the back series? There is no political connection or pressure. The whole argument that this has become political has no legs.
The new data show we never grew above 9% in the last decade or so. Does this mean we have to re-evaluate our view of what the economy was like?
•I strongly think so. We need to accept that we need to work much harder to get to those magic numbers of double or even near double-digit growth. It has been said several times before, including by the then Chief Statistician of India T.C.A. Anant, that there was a significant overestimation of the rate of growth of the services sector, which is why the sector’s share in the GDP and its growth had been exaggerated. There are three sub-sectors where this happened most: communications, financial services and unorganised trade.
•Some of it you can see very clearly.
•For example, telecom. First the growth in the number of subscribers was taken as a proxy for the growth of value-added in the sector. It was not value-added. Instead, what should have been done was looking at either revenue receipts or at least the number of data or voice minutes used for estimating growth. This is what they are doing now in the new series. So that showed a sudden drop.
•Then, the RBI was being treated as a market entity. The SNA 2008 says that the RBI should not be treated as a market entity so that only the costs should enter the accounting and not all the profits that they make.
•Earlier, all the dividends that they paid to the government came into the calculation. This change also led to a huge drop in the new estimates of service sector growth.
•Similarly for the unorganised trade sector. Based on a 1999-2000 survey, the CSO used a general trade index (GTI) for estimating trade growth.
•Having done that survey in 1999-2000, on how trade was related to the real economy and having got that coefficient, they kept extrapolating on that basis. Now, for the 2014-15 data onwards, they used the sales tax data. The sales tax data gives you the collection and growth of sales tax, and this is a percentage of the total trade taking place. So from there you can approximate the trade growth much better. Having done that, you find that the number has dropped dramatically.
•Then there is this whole argument about the ‘smell test’ and how the numbers don’t feel right. One of the points being made was to do with investment. That 38% of GDP was invested, and it’s only producing 8% GDP growth whereas now investment is only 28-29%, so how are you producing 7% GDP growth.
•As all economists know, there is the capital-output ratio. If that 38% of investment share has in it a lot of investment from the banks to the power plants, and let us assume as an exaggeration that all of them are currently stranded, then they are not producing any output. Or if they are investments in highways that are not completed. So, the capital-output ratio can become very high. You can have huge investments, but they don’t have to necessarily show up in output. If investments are being converted into NPAs, then they are not going to produce the output, and so to link the two is incorrect. By casting aspersions on these estimates, you are questioning the very professional integrity of the CSO, which is a highly professional and competent organisation.
Some ratings agencies have downgraded their estimates of India's growth for the rest of the financial year. Do you think there is a case to be made for slower growth over the course of the year?
•I think we will keep to what the RBI and IMF estimates are, which are more like 7.3-7.4% for the whole year. We will achieve that.
What is your reading of the extreme volatility in the stock markets?
•I honestly think it is not all domestic. There is a lot of uncertainty going around in the world. It is that sort of a time. For instance, if the Huawei issue doesn't settle, a US-China trade stand-off is imminent. There is also turbulence in the global markets. The global drivers of volatility get reinforced in India a bit because of political uncertainty. In India, one-one and a half months before the elections, you get in the mood of who will come, what will happen. That is one part of it.
•I think another real issue is the thinness of the market. It is not deep enough. There are some big investors, especially the FIIs, they move in one direction or the other this brings about a huge change. That is what I think causes the real problem.
•It is not any macro fundamentals that are driving the market. Market is being driven by factors other than fundamentals. One is global, the other is political, and I think there could also possibly be investor sentiment. People are still not sure whether the investment cycle, which seems to have picked up with the rise in the commercial bank credit offtake rising to 15%... whether it will sustain or not. If everybody is sure about that then they will invest money and you will get a bull run.
•The market is not yet sure and the reason for that is the state of NBFCs. After October, NBFC credit to the regular eight or nine segments of consumption demand has gone down by around Rs 10,000 crore compared to October last year. Post IL&FS, commercial banks are not extending credit, so NBFC balance sheets have shrunk. That is why we have been asking for higher liquidity.
There are reports of the government mulling a farm loan waiver...
•If there is genuine farmer distress, it has to be addressed.
•Given that this is not the first time this will be done, and some State governments have already done it, I think the government will be unresponsive if it did not take steps to address farmers’ distress. I have never been a fiscal hawk. I have always said that fiscal deficit target is there, yes.
•But you can’t have a fiscal fetishism. If there is a need, you cannot tell me don’t do it because it will breach the fiscal deficit. If some real concerns of the people have to be addressed, public expenditures have to expand.
•Everywhere in the world, including the US and also Europe… they have shown that fiscal deficit target numbers are there as a guide. It is not something that prevents you from taking the necessary steps for removing farmers’ distress or addressing people’s genuine issues.
What is happening on the electric vehicles front? Many different statements have come from the government on the need for a EV policy.
•We need a policy framework surely. Niti Aayog has put together a comprehensive policy framework paper, which is being submitted to the government for its consideration. The focus will be very sharply on shifting public transport decisively away from hydrocarbons towards electric mobility.
📰 Navy to helm centre on maritime security
The Information Fusion Centre will serve countries that have White Shipping Information Exchange agreements with India
•The Navy will formally inaugurate the Information Fusion Centre (IFC) for the Indian Ocean Region (IOR) later this week.
•Through this Centre, information on “white shipping”, or commercial shipping, will be exchanged with countries in the region to improve maritime domain awareness in the Indian Ocean.
•“The IFC-IOR is established with the vision of strengthening maritime security in the region and beyond, by building a common coherent maritime situation picture and acting as a maritime information hub for the region,” a defence official said on condition of anonymity.
Gurugram headquarters
•The IFC has been established at the Navy’s Information Management and Analysis Centre (IMAC) in Gurugram, which is the single point centre linking all the coastal radar chains to generate a seamless real-time picture of the nearly 7,500-km coastline.
•“All countries that have already signed white shipping information exchange agreements with us, about 21 of them, are IFC partners,” another official said.
•“With the launch of the IFC, they now have the option of positioning liaison officers at the IFC for which we need to build up requisite infrastructure too. So we now start with their ‘virtual presence’,” the official said.
•Against this backdrop, information exchange at the Centre would be initially undertaken by virtual means, telephone calls, faxes, e-mails and video conferencing. Subsequently, to enable better interconnection, quicker analysis of information and timely inputs, the IFC-IOR would host liaison officers from foreign countries.
•“Additionally, the Centre would undertake conduct of exercises and training capsules in maritime information collection and sharing,” the first official stated.
•Establishment of the IFR-IRO would ensure that the entire region is benefited by mutual collaboration and exchange of information and understanding the concerns and threats which are prevalent in the region.
Maritime network
•In a related development, India has signed the ascension agreement to the Trans Regional Maritime Network (T-RMN) which facilitates information exchange on the movement of commercial traffic on the high seas. The multilateral construct comprises of 30 countries and is steered by Italy.
•Commodore K.M. Ramakrishnan signed the agreement on behalf of the Indian Navy at the Italian Naval Headquarters in Rome last Monday.
AIS systems on ships
•The information is available primarily through the Automatic Identification System (AIS) fitted on merchant ships with more than 300 gross registered tonnage as mandated by the International Maritime Organisation. The AIS information comprises name, MMSI number, position, course, speed, last port visited, destination and so on. This information can be picked up through various AIS sensors including coastal AIS chains and satellite based receivers.
•“The Indian Navy is mandated to conclude white shipping information exchange agreements with 36 countries and three multi-national constructs,” the official added. Such multilateral agreements are necessitated due to the large traffic in the Indian Ocean which cannot be entirely monitored by any one nation.
📰 Climate talks deliver ‘rule book’
It is designed to achieve the Paris summit goals of limiting temperature rise to below 2°Celsius
•Nations on Sunday struck a deal to breathe life into the landmark 2015 Paris climate treaty after marathon UN talks that failed to match the ambition the most vulnerable countries need to avert dangerous global warming.
•Delegates from nearly 200 states finalised a common rule book designed to deliver on the Paris goals of limiting global temperature rises to well below 2°Celsius.
•“Putting together the Paris agreement work programme is a big responsibility,” said COP24 president Michal Kurtyka as he gavelled through the deal after talks in Poland that ran deep into overtime. “It has been a long road. We did our best to leave no one behind.”
‘Lacking ambition’
•But states already dealing with devastating floods, droughts and extreme weather made worse by climate change said the package agreed in the mining city of Katowice lacked the bold ambition to cut emissions the world needed. Egyptian Ambassador Wael Aboulmagd, chair of the developing nations G77 plus China negotiating bloc, said the rule book saw the “urgent adaptation needs of developing countries relegated to a second-class status”.
•The final decision text was repeatedly delayed as negotiators sought guidelines that could ward off the worst threats posed by the heating planet while protecting the economies of rich and poor nations alike. “Without a clear rulebook, we won’t see how countries are tracking, whether they are actually doing what they say they are doing,” Canada’s Environment Minister Catherine McKenna said.
•At their heart, negotiations were about how each nation funds action to mitigate and adapt to climate change, as well as how those actions are reported.
•French President Emmanuel Macron, who has recently backed down on anti-pollution fuel tax hikes in the face of countrywide protests, said France must “show the way” as he welcomed the progress made at the talks.
•Developing nations had wanted more clarity from richer ones over how the future climate fight will be funded and pushed for so-called “loss and damage” measures. This would see richer countries giving money now to help deal with the effects of climate change many vulnerable states are already experiencing.
•Another contentious issue was the integrity of carbon markets, looking ahead to the day when the patchwork of distinct exchanges — in China, the Europe Union, parts of the U.S. — may be joined up in a global system.
•The Paris Agreement calls for setting up a mechanism to guard against practices such as double counting emissions savings, which could undermine such a market. Delegates eventually agreed on Saturday to kick the issue down the road until next year.
•One of the largest disappointments for countries of all wealths and sizes was the lack of ambition to reduce emissions shown in the final COP24 text.
IPCC report
•Most nations wanted the findings of the Intergovernmental Panel on Climate Change (IPCC) to form a key part of future planning. It had highlighted the need to slash carbon pollution by nearly half before 2030 in order to hit the 1.5°C target. But the U.S., Saudi Arabia, Russia and Kuwait objected, leading to watered-down wording.
•The final statement from the Polish COP24 presidency welcomed “the timely conclusion” of the report and invited “parties to make use of it” — hardly the ringing endorsement many nations had called for.
•UN Secretary-General Antonio Guterres, who made three trips to Katowice over the course of the talks, said the world’s climate fight was just beginning.
📰 Will Goods and Services Tax help in the doubling of farm income?
Issues such as levy on warehousing, agri-project imports pose a challenge
•With the introduction of Goods and Services Tax (GST) — India’s biggest reform in the tax structure — the government has succeeded in moving a step closer towards making the country a unified common market, leading the nation’s economy towards growth and sustainability.
•India’s fast-moving consumer goods (FMCG) sector has grown consistently over the past three years, reaching over $25 billion in retail sales. We believe that the implementation of GST and the opening of foreign direct investment (FDI), especially in the food processing, has enabled the growth of the industry and raised market potential to grow over 12-13% percent in 2018.
•The agricultural sector continues to remain the largest contributing sector to the GDP with a share of 16%. The onset of GST in the sector is encouraging industry players/stakeholders to go beyond the boundaries of cities and States and create one-of-a-kind national market for agricultural goods with a clear and hassle-free supply chain which would lead to the free movement of agri-commodities across India.
•Further, the promotion of the National Agriculture Market (NAM) by the Centre in accordance with the GST has created scope for increased transparency and impartial trade of agri-commodities without the restrictions of multiple taxation.
Agricultural produce
•Considering the perishable nature of the agri-commodities, improved supply chain mechanism due to GST would re-write the scope of profitability for farmers.
•With the exemption on GST on storage and warehousing of agricultural produce, the new tax regime has reduced the tax burden on the farming sector and created an opportunity for farmers to sell the produce at the best available price in the Indian market without State barriers and reduce the imminent storage-related food loss, that goes a long way in helping realise the government’s vision to double farmer incomes.
•Due to the nature of GST being a consumption-based tax, it will be levied only when food products are sold by the manufacturer and not when they are manufactured unlike the earlier imposed excise duty. In addition, full input credit allowed of prior GST paid on inputs/purchases and the decision of the government to drop the 1% interstate tax on stock transfers has reduced the amount of working capital required by companies.
Doubling tax burden
•However, the application of GST to agri-commodities will have a significant impact on the population that lives under the subsistence level.
•While food, including grains and cereals, meat, fish and poultry, milk and dairy products, fruits and vegetables, candy and confectionery, snacks and restaurant meals currently come under the purview of GST, the earlier exemption of food from CENVAT and the 4% VAT on food items highlight the doubling of tax burden on the food sector due to GST.
•While large corporates in the agri-processing sector have begun to adapt to the new regime, the grassroot players are still adversely impacted. While most agri-warehousing companies rent warehouses from small owners of the property, a majority of such owners remain unregistered suppliers.
•However, such renting of warehouses by agencies engaged in providing storage and warehousing services is liable to GST under a reverse charge at the rate of 18%.The GST paid thus is not eligible for input tax credit (ITC), as the corresponding outward supply of warehousing service is exempted from GST.
•Since the majority of warehouses managed by private companies are leased ones, the above situation implies an 18% increase in the cost of warehousing and defeats the very purpose of GST exemption for storage of agricultural produce.
•The tax burden will inevitably be passed on to farmers in the form of higher price for storing goods in the absence of any viable alternative for warehouse agencies, thereby increasing the cost of the food produce.
•With India’s food wastage pegged at approximately ₹30,000 crore and the rate of food inflation being pegged at 6%, it is necessary for the industry to stress upon the importance on reduced taxation for processed food by the government. The GST rates on food consumed by the common man should be subject to the lowest rates to ensure that there is reduced impact of inflation on the household budget of the common man.
•Another challenge lies ahead for companies engaged in the creation of modern agriculture storage infrastructure like silos and cold storages.
•Earlier, imports of project equipment used to create facilities to store agriculture commodities — like mechanised handling systems and pallet racking systems — attracted only a basic customs duty of 5% and were specifically exempt from countervailing duty and special additional duty.
Exemption denied
•The same exemption has not been extended under GST. These imports now attract 18% IGST coupled with the existing 5% basic customs duty, resulting in a spike in the cost of imported machinery.
•This deters the creation of modern agri-infrastructure, thereby defeating the purpose of extending exemption to storage of agricultural produce. Exemption should be extended for project imports of cold chain equipment when used for providing storage and warehousing services of agricultural produce, which is exempted from GST to avoid an increase in the cost of storage of items of mass consumption. Unless corrective measures are immediately enforced to address these issues, farmers will see a rise in storage costs and the burden on the supply chain will eventually increase, thereby affecting consumers.
📰 Bank credit: is it growing, and where’s it going?
Lenders have loosened purse strings, but some sectors are monopolising bank loans. Hence the clamour for more credit
•Credit flow to industry, or the lack of it, has been a bone of contention between the Centre and the Reserve Bank of India (RBI). While RBI and its supporters assert that bank lending is now growing at a brisk pace, the government and industry lobbies insist that the credit taps remain shut. So who’s right? An analysis of RBI data on the deployment of bank credit yields some answers.
Credit flow accelerates
•RBI data shows that Indian banks’ non-food credit growth, which had slumped to 7-8% in the three years to October 2017, got back to double-digit growth in the last one year (October 2017 to October 2018) at 13%.
•Historically, bank credit in India has either matched or grown ahead of nominal GDP. In the three years from FY15 to FY18, bank credit growth at 7-9% lagged nominal GDP growth of 10-11%. But as the nominal growth rate picked up to 12.8% in the first half of this fiscal, bank credit has matched this expansion.
•Absolute numbers on net credit flow make it even clearer that banks have stepped up their lending. In the year from October 2017 to October 2018, banks added a net ₹9.44 lakh crore to their outstanding loan books. This reflects new credit flow to the economy. It is more than twice the ₹4.7 lakh crore addition in October 2016-17.
•In fact, in absolute terms, net bank credit flow in the past year has been at its highest level in a decade. In the nine years from 2007-08 to 2016-17, banks added ₹5.1 lakh crore every year to their loan books on an average.
•New loans to industry were at ₹97,029 crore in the year ended October 2018, against ₹75,100 crore last year. Services bagged ₹4.74 lakh crore this year against ₹2.17 lakh crore. Retail loans were plentiful too, at ₹2.9 lakh crore in the year ending October 2018 compared to ₹1.15 lakh crore. Lending to MSMEs nearly doubled to ₹1.1 lakh crore.
•These numbers suggest that RBI is right to take the view there’s no systemic problem impeding bank credit, despite its sweeping a few public sector banks into the Prompt Corrective Action framework.
Services pips industry
•But if credit flow has been picking up, why do market participants and the government complain that banks are playing scrooge? The key reason appears to be that a few sectors are hogging the lion’s share of these loans.
•For instance, for every ₹100 of new bank loans added, it was services which bagged ₹50, while industry received just ₹10. Out of the ₹10 advanced to industry, large firms cornered ₹8.30, while medium and small enterprises had to make do with just ₹1.70. Apart from lending directly to large firms, banks were also heavy subscribers to corporate bonds, which are mostly floated by large companies.
•As much as ₹31 out of every ₹100 of new bank loans did not go to businesses at all, but to retail folk borrowing towards their home, credit card or personal loans.
•Though credit flow to services appeared plentiful, NBFCs (financial services) cornered a disproportionate share of loans to this sector. With as much as ₹21 of every ₹50 in new bank loans to services finding its way into NBFCs, direct borrowers in services were left with smaller slices of the loan pie. NBFCs in turn seem to have funnelled this money into consumer loans, real estate, affordable housing, loans against property and shares, promoter funding and infrastructure.
•There has been concern about a squeeze on bank credit to MSMEs post-demonetisation. Overall loans to MSMEs doubled this year, with ₹11.6 out of every ₹100 in new bank credit flowing to them. But the MSMEs in services hogged ₹11 of this, leaving manufacturing MSMEs with just ₹0.60. The surge in services MSME loans likely reflects small-ticket loans to entrepreneurs under the Pradhan Mantri Mudra Yojana, which has seen a big push by the government. In FY18, banks are believed to have lent over ₹92,490 crore and NBFCs ₹27,000 crore under the Mudra Yojana.
•Within the priority sector, though services MSMEs, agriculture and housing saw brisk growth, exporters were starved of credit, with their credit flow in negative territory for the last three years.
•Agriculture, bagging ₹8 of every ₹100 in bank loans has also seen a dip in credit flow compared to the pre-demonetisation period. Thus data clearly show that if mid- and small-sized manufacturing firms, exporters or farmers complain of tight credit, they have good reason to do so.
•In fact, the above shifts in bank credit flows have been evolving for some time.
•Between October 2013 and October 2018, total bank credit growth has expanded at 9% a year. But retail loans have galloped at 17% a year in the same period. Loans to services have grown at 12% and those to agriculture at 11%. Industry has given up its share of the pie, with bank credit to it growing at just 3% a year. Banks’ strong appetite for retail loans and their parsimony with industrial loans could be the result of the risk aversion brought on by their terrible lending experience with corporate loans during the previous economic boom.
•But at this juncture, it is important for the Centre and the RBI to allow banks to make their own decisions on allocating credit, instead of driving it to specific segments. For banks to regain their appetite to lend to riskier borrowers, they must first digest the mountain of bad loans that today account for over 11% of their loan books.
