VISION

 Why in news?

The ‘Report of the Working Group on Digital Lending including Lending through Online Platforms and Mobile Apps’ has been released by the RBI.

What is digital lending?

• Digital lending is the process of availing credit online
• Digital lending is mostly preferred by those who are generally not able to avail any credit through the formal sources of finance like banks.

What digital lending models have been in place?

• Presently, there are three digital-lending models seen through the regulatory-approach lens.
• Bank/NBFC-owned digital platforms – They operate under the direct regulatory purview of RBI.
• Fintech companies’ proprietary digital platforms  - They work in partnership with banks/NBFCs, typically under an outsourcing arrangement to support sourcing of borrowers, assess creditworthiness using alternative data and recover the dues.
• Being mere intermediaries, these platforms are not required to seek any registration with RBI and are only indirectly regulated through RBI’s outsourcing guidelines applicable to Banks/NBFCs.
• Peer-to-peer (P2P) lending platforms - They usually involve the otherwise unregulated retail lenders.
•  RBI has mandated such platforms to seek registration as NBFC-P2P and thus they are directly regulated by RBI.

What is the significance of digital lending?

• Instant disbursal of funds
• Customer friendly application
• Paperless process
• Transparent and simplified process
• Reasonable interest rates
• Ensure swift payback
• Reduced credit gap
• Operating cost effieciency
• Financial inclusion – Example- JAM (Jan Dhan-Aadhaar-Mobile) trinity

What are the concerns of digital lending?

• Unauthorised lenders
• Exorbitant rates of interest
• Use of coercive repayment methods
• Non consensual collection of user data

RBI report finds 600 illegal loan apps operating in India which are available on several app stores for Android users.

What are the key recommendations on digital lending?

• The working group was set up on January 13, 2021 with Jayant Kumar Dash, Executive Director of RBI as the Chairman.
• Loan servicing - The balance-sheet lending through the apps should be restricted to RBI-regulated entities.
• All loan servicing should be executed directly in a bank account of the balance-sheet lender and disbursements should always be made into the bank account of the borrower.
• Nodal agencies - Nodal agencies must be set up to run digital lending applications through stringent verification processes .
• Legislative measures - The group has recommended that in the medium term, the government may consider bringing in legislation to prevent illegal lending activities by introducing the ‘Banning of Unregulated Lending Activities Act’.
• Technology standards - Certain baseline technology standards should be developed when it comes to digital lending apps and compliance with those standards as a pre-condition.
• Algorithmic features used in digital lending has to be documented to ensure transparency.
• The group recommends that auditable logs should be kept for every action that a user performs on the app and that every fintech app must be signed/ verified in a secured manner.
• Data collection and usage - Data should be collected from the borrower with prior information on the purpose, usage and implication of such data and with the explicit consent.
• All such data must be stored in servers located in India.
• Reporting of lending activities - Lending by regulated entities (REs) through lending apps must be reported to credit bureaus.
• And only regulated entities can access bureau data for the purpose of collecting or reporting data on behalf of borrowers.
• Interest calculation - Interest must be calculated on the basis of the actual number of days and no prepayment penal rate of interest for short-term consumer credit.
• Shaping  the Self- Regulatory Organisations (SRO)- Standardised code of conduct for recovery to be framed by the proposed SRO in consultation with RBI.
• The group recommended the maintenance of a ‘negative list’ of Lending Service Providers by the proposed SRO.

What does the draft rule imply?

 Why in news?

The Trade Policy Forum (TPF), a premier forum to resolve trade and investment issues between India and the United States has been re-launched after four long years.

What is the status of India-US bilateral trade?

• The US remained India’s biggest trading partner and largest export market and the bilateral trade exploded from approximately 20 billion dollars in 2001 to over 145 billion dollars in 2019.
• The US investment in India amounts to 46 billion dollars.
• Over 2,000 US companies are located in India, including every major Fortune 500 companies.
• Over 200 Indian companies created about 125,000 jobs in United States across all states.
• The US is one of the few countries with which India has a trade surplus with India’s exports exceeding the imports.
• The top traded goods include pearls and precious stones, pharmaceuticals, machinery, electronics, clothing, vehicles, chemicals and fish products, optical, photo, medical apparatus and aluminium.

What are the key issues in the bilateral trade relations?

 What is the issue?

The United States’ Labor Department reported that retail inflation had spiked to 6.2 % in October whereas India’s National Statistical Office data showed that retail inflation rose to 4.5 % for the same month.

What is inflation rate?

• It is the rate at which prices increase over a given period.

• In India, the inflation rate is calculated on a year-on-year basis.

• A high inflation rate erodes the purchasing power of people.

• Since the poor have less money to withstand fast-rising prices, high inflation hurts them the hardest.

What has caused the inflation surge in the US?

 Why in news?

The Glasgow Climate Pact (of COP 26)  was adopted recently and it is a mixed bag of modest achievements and disappointed expectations.

What are the modest achievements of the Summit?

• Average global temperature - The achievements include a clear consensus on a target of keeping global temperature rise down to 1.5 degrees Celsius.
• The notional target of 2 degrees of the Paris Agreement remains but the international discourse is now set in the more ambitious target.
• Transition from fossil fuels - It is the first clear recognition of the need to transition away from fossil fuels by phasing down the use of coal.
• Importance of Adaptation – Adaptation attained greater significance and there is a commitment to double the current finance available for this to developing countries.
• A start is being made in formulating an adaptation plan and this puts the issue firmly on the Climate agenda.
• Global Methane Pledge - Methane is a significant greenhouse gas with 28 to 34 times higher temperature forcing quality than carbon but stays in the atmosphere for a shorter duration.
• An agreement is signed among 100 countries to cut methane emissions by 30 % by 2030.
• Ending deforestation - A group of 100 countries has agreed to begin to reverse deforestation by 2030.
• Since the group includes Brazil and Indonesia where large areas of forests are being ravaged by legal and illegal logging, there will be progress in expanding these carbon sinks on the planet.
• US-China Joint Declaration on Climate Change - It implies that both the countries are moving towards a less confrontational and more cooperative relationship overall.
• India’s commitments – The commitment to achieve net-zero carbon by 2070 and of enhanced targets for renewable energy were welcomed.
• Clarity on Article 6 of Paris agreement- There is greater clarity on how bilateral carbon trades can proceed and the creation of a centralised hub that replaces Kyoto Protocol’s Clean Development Mechanism.
• Criteria have been set out for countries to use CERs from projects registered after January 1, 2013 to meet their first NDC or first adjusted NDC.
• It also designates a 12-member Supervisory Body to oversee the emerging hub and to review the baselines of recognised credits.

Article 6 of the Paris Agreement introduces provisions for using international carbon markets to facilitate fulfilment of Nationally Determined Contributions (NDCs) by countries.

What are the major disappointments of the Summit?

 What is the issue?

The net zero campaign has been gaining momentum as a number of countries and non-state actors are pushing for the world’s carbon dioxide emissions to reach net zero.

What targets have been set by the countries towards net zero emissions?

IPCC AR6 emphasised that to keep temperature rise within 1.5°C, global emissions should be reduced by 45% from 2010 levels by 2030, on the way to net zero 2050.

• Developed countries – Countries such as the U.S., UK and Australia have committed to to achieve the goal of net zero GHG emissions by 2050.
• Developing countries – Countries such as China have pledged to achieve net zero emissions by 2060.
• India hasn’t set any  net zero target so far.
• Non state actors - Race To Zero is a UN-led campaign is asking cities, businesses, universities, and more to hit net zero emissions.

Can net zero contain the global temperature rise within 1.5°C?

 What is the issue?

The issue of the maximum water level  in the Mullaperiyar dam and the possibility of a dam-break has revived the contyroversy  surrounding the Tamilnadu Kerala relations.

What is the history of  the Mullaperiyar dam?

• The 130-year old Mullaperiyar dam is located on the confluence of the Mullayar and Periyar River in Kerala’s Idukki district.
• It was built by Pennycuick to create a harmonious atmosphere in the east coast by taking the water there and have people cultivate crops.
• Although the dam is located in Kerala, it is operated by Tamil Nadu following an 1886 lease indenture for 999 years that was signed between the Maharaja of Travancore and the Secretary of State for India.

What is the genesis of the dispute?

• In 1979, a problem erupted over the safety of the dam which led to a tripartite meeting that decided to bring the water level from the full reservoir level of 152 ft to 136 ft.
• By mid-1990, Tamil Nadu started demanding restoration of the water level in the Mullaperiyar as it had completed the dam strengthening works.
• When no consensus was reached through negotiations, the Supreme Court was approached.
• The Supreme Court in February, 2006 allowed Tamil Nadu to raise the water level of the dam to 152ft.
• In response to that,Kerala government enacted Irrigation and Water Conservation (Amendment) Act, 2006  and put the second schedule of Mullaperiyar Dam as endangered and fixed its maximum water level to 136ft.
• In 2014, the apex court declared the Act unconstitutional and restrained Kerala from interfering with the rights of Tamil Nadu in raising the water level in the dam to 142 feet.
• The Kerala government has been at many times emphasising the urgent need for the gradual release of water.

What is the standpoint of Kerala government?

• Dam safety- The Mullaperiyar dam suffers from structural issues and the possibility of a dam-break cannot be ruled out.
• The dam is located in an earthquake-prone area and small-time earthquakes that had happened in 1979 and 2011 caused some cracks in the dam.
• The leakage in the dam is another cause of concern.
• The technology which was put into use for constructing the dam 130 years ago was obsolete compared to the sophisticated construction methods used now.
• According to the UN University report, 35 lakh people in Kerala will be directly hit in the case of a dam-break.
• It will also have its impact on the National Periyar Park which hosts some of the endangered species.

What is TamilNadu’s position regarding the dispute?

• For Tamil Nadu the Mullaperiyar dam is like a lifeline for the people of Madras Presidency for irrigation  and drinking
• The dam is also significant for the generation of the power in lower Periyar water station as the region is is shadow and arid.
• So, the government of Tamil Nadu insists on raising the water level in the dam pointing out the failure of crops.
• The government has also asserted that it has full right over the control of the dam.
• Tamil Nadu  has challenged the Kerala’s  proposal for decommissioning of the dam and construction of a new dam.

What are the other river water issues between both the states?