The HINDU Notes – 21st March 2020 - VISION

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Saturday, March 21, 2020

The HINDU Notes – 21st March 2020





πŸ“° Defence procurement draft released

After feedback from industry, the norms will come into effect on April 1

•The Ministry of Defence (MoD) has for the first time introduced leasing of defence equipment as a new category for acquisition in the draft Defence Procurement Procedure (DPP) 2020.

•The draft was released by Defence Minister Rajnath Singh on Friday for further suggestions from industry before being finalised for promulgation. It will come into effect from April 01, 2020, and supersede DPP 2016. “This DPP would remain in force till 31 March 2025,” the draft said.

•Other proposed measures include making after-sales support part of the capital acquisition contract, higher indigenous content in acquisitions and incentives for local material and software and emphasis on product export under offsets. The draft was finalised by a committee headed by the Director General (Acquisition), which was set up in August 2019.

•Leasing has been introduced as a new category for acquisition in addition to the existing ‘Buy’ and ‘Make’ categories to substitute huge initial capital outlays with periodical rental payments, the draft stated.

•“Leasing is permitted under two categories, Lease [Indian] where Lessor is an Indian entity and is the owner of the assets and Lease [Global) where Lessor is a Global entity. This will be useful for military equipment not used in actual warfare like transport fleets, trainers, simulators, among others,” the draft stated.

•The draft proposed increasing the indigenous content stipulated in various categories of procurement by about 10% to support the ‘Make in India’ and a simple and realistic methodology had been incorporated for verification of indigenous content for the first time, the MoD said.

•It included “assurance of procurement on a single vendor basis from Aero Engine manufacturing unit and chips from FAB manufacturing units established in the country.”

•New chapters have been introduced for procurement of software and systems related projects due to fast obsolescence, Post Contract Management to facilitate and provide clear guidelines, given long time of defence deals. Another new category introduced is ‘Buy’ (Global – Manufacture in India) with minimum 50% indigenous content on cost basis of total contract value.

•The scope and options for product support have been widened to include contemporary concepts like Performance Based Logistics (PBL), Life Cycle Support Contract (LCSC) and Comprehensive Maintenance Contract (CMC) to optimise life cycle support for equipment. “The capital acquisition contract would normally also include support for five years beyond the warranty period,” it added.

πŸ“° Crime and punishment

A society that prefers a male child has already condemned its women to an unequal world

•The pre-dawn hangings of four men convicted of the gang rape and murder of a 23-year-old woman may have brought a semblance of closure to her parents, prompting her mother, to say, “Women will now feel safe.” On December 16, 2012, the woman was brutally raped in an empty moving bus in Delhi and she died after battling for her life later that month. A little over seven years later, the first date of execution was set for January 22, and the convicts tried all legal avenues possible to escape the punishment. After the executions, on Friday, her mother said, “Families will start teaching their boys that the punishment for such a crime will be severe.” But is India any closer to guaranteeing safety for women? In 2012, the government of the day, reacting to the clamour on the streets for justice, set up the Justice J.S. Verma Committee to look into rape laws. The report, filed in a month, led to stringent changes through the Criminal Law (Amendment) Act, 2013, but several recommendations were simply not considered, including those relating to marital rape and police reform.

•On the imposition of the death penalty, the government went against what the Verma report had suggested — that seeking such a punishment “would be a regressive step in the field of sentencing and reformation”. Now, repeat offenders in rape cases, even those that unlike the Nirbhaya case did not involve murder, can be awarded the death sentence. The Verma Committee had argued instead for rigorous imprisonment of a convict for life. It is a fact that sexual crimes against women have not come down since the Delhi case. The death penalty could actually encourage the rapist to kill the victim. Going by data in the National Crime Records Bureau report, released in January 2020, a total of 3.78 lakh cases of crimes against women were recorded across India in 2018 compared to 3.59 lakh in 2017 and 3.38 lakh in 2016. The total number of rape cases in 2018 was pegged at 33,356, of which Madhya Pradesh registered 5,450 rapes, the maximum in 2018. The crime rate per one lakh women population was 58.8 in 2018 compared to 57.9 in 2017. At the end of 2018, 33.6% cases were pending police investigation. This raises the key question — what does India need to do to protect its girls and women? It is apparent that laws may have changed, but not mindsets. A society that endorses a preference for the male child has already condemned the girl child to an unequal world. Until Indian leaders, policy-makers and society shed the gender bias and the thinking that they need to protect women as a question of honour, there will be no stopping crimes such as rape, sexual assault and harassment.

πŸ“° Blunting the economic impact of a pandemic





There are a number of helpful actions the government can take in response to the unfolding distress across sectors

•That screeching noise that you hear is of the wheels of commerce grinding to a halt. The effect of the strong clampdown measures taken by the government to arrest the spread of the coronavirus is beginning to be felt across a swathe of the economy.

•Prime Minister Narendra Modi, in his address to the nation on Thursday, said that a task force under Finance Minister Nirmala Sitharaman has been constituted to assess the economic impact of the pandemic and suggest palliative measures.

•Here are some suggestions for the task force to discuss.

Cash transfers

•Those such as cab drivers, restaurant waiters, mall workers, domestic help, itinerant retailers and other casual job workers are either already without jobs and incomes or will soon find themselves in that position.

•It may not be a bad idea to consider cash transfers of a fixed amount to these vulnerable sections. There are 33 crore accounts under the Pradhan Mantri Jan Dhan Yojana that can be leveraged for this purpose. There is also an efficient Public Distribution System prevalent in most States through which the beneficiaries can be identified for a cash handout.

•There are a total of 23.53 crore ration cards in the country according to the National Food Security Portal. Assuming that all of these are below poverty line cards, a transfer of Rs. 1,000, which is the least that should be considered, will cost the Centre over Rs. 23,500 crore. Granted that the funds requirement is huge even for this basic amount. We will look at funding possibilities later in this piece.

•Last month, Hong Kong announced a cash handout of HK$10,000 to every permanent resident as a supportive measure. The United States is also weighing the option of a cash handout totalling $250 billion to its citizens.

Loan guarantee

•Service industries such as airlines, hotels and restaurants and tourism have begun to feel the pinch, and in course of time the pain will extend to the manufacturing sector as well. The immediate problem for the services industry is that the cash spigot has been turned off. There will be revenue and profit issues to deal with later but the immediate crisis is one of cash flows.

•While the cash registers have stopped ringing, these businesses have to deal with expenses that cannot be put off such as salaries, lease instalments, loan repayments and so on.

•Banks are obviously not going to offer any accommodation to these businesses given their own issues with sick loans. This is where the government can consider what most of the affected nations in the West have done —offer loan guarantees to affected businesses. Britain has pledged £330 billion of government-backed loans and guarantees, France and Spain have announced €300 billion and €100 billion aid, respectively.

•The priority is to keep businesses liquid and that is the reason why these countries have pledged such large amounts as guarantees. The cash machine has to be kept well-lubricated in these difficult times and the government can play a role in that. For a start, it can provide guarantees to working capital loans and link it with assurances from the borrowers concerned that they will secure the jobs in their companies.

Mortgage holiday

•An equated monthly instalment (EMI) holiday can be a huge blessing for individuals and businesses when faced with a job loss, salary cut or loss of revenue. A three-month mortgage holiday should be coaxed out of lenders by the government to begin with for businesses in obvious trouble and to those employed by such businesses.

•The Reserve Bank of India should show regulatory forbearance in the matter of asset recognition for banks when it comes to these industries. But it should be made amply clear that this is only temporary accommodation till the crisis plays itself out.

•God forbid, but if this shutdown prolongs beyond the next couple of weeks, the government may have to look at offering temporary tax relief to businesses. We are looking at an unprecedented situation where revenues are likely to fall off the cliff and cash flows wind down to zero. There are other helpful actions that the government can take such as promptly discharging its bills, refunding taxes without delay, promptly carrying out direct benefit transfers already budgeted for, and, if necessary, even permitting affected businesses to temporarily delay payment of statutory dues such as provident fund and ESI.

How to finance?

•This is difficult but there are viable answers. The resources of the Centre and the States have to be pooled to develop a national response to this unfolding economic tragedy. Kerala, for example, has already announced a Rs. 20,000 crore package and other States may follow suit. It may be a good idea for the Centre to leverage State resources along with its own.

•Second, the government will have to engage with the private sector while devising assistance measures. There is a lot of expertise and sharp financial minds available in the private sector and these should be tapped into for innovative ideas. The Yes Bank rescue proves the heft of the private financial sector in coming to the rescue of one of its own.

•The virus has eaten into the just-a-month-old Budget whose numbers now appear unrealistic. It is not just tax revenues that are heading for trouble, even the disinvestment budget of Rs. 2.10 lakh crore now appears unachievable. Bharat Petroleum Corporation Limited and Air India appear destined to remain government companies in the foreseeable future. In this backdrop, it is impossible for the Budget to fund any stimulus programme now. Extra budgetary support will be needed and that is where the idea of a bond issue comes in.

•A well-structured, tax-efficient bond issue can be an option to tap into the large pool of domestic savings. The large Indian diaspora can also be tapped into. Remember the Resurgent India Bonds experience of 1998 post-Pokhran? The State Bank of India raised about $4 billion from non-resident Indians against all odds to help India tide over the immediate impact of sanctions. Why not do something similar now? After all, this is as unprecedented a situation for the country as the aftermath of the sanctions in 1998.




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