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06 August, 2019

7 Min Read

GS-II : International Relations Afghanistan
Talks and Terror : on Afghan peace talk

GS- II : Talks and Terror : on Afghan peace talk

Background

  • Mr. Saleh, a former intelligence chief and a strong critic of the Taliban and Pakistan, is President Ashraf Ghani’s running-mate for the September 28 election.
  • And the irony is that the assault occurred a few hours after President Ghani officially launched his campaign in which he promised that “peace is coming”.
  • The message the insurgents are trying to send is that even the most fortified political offices in the country or its top politicians are not safe.
  • The insurgents have made it clear they will carry out their offensive irrespective of the peace process, especially when Afghanistan gets down to a full-fledged election campaign.

Peace initiatives

  • In recent months, even when the U.S. and Taliban representatives have held multiple rounds of talks in Doha, Qatar, insurgents have kept up attacks, both on military and civilian locations.
  • The Taliban appears to be trying to leverage these assaults to boost its bargaining position in the talks with the U.S.
  • And the Kabul government’s inability to prevent them and the U.S.’s apparent decision to delink the negotiations from the daily violence are giving the insurgents a free run in many Afghan cities.

Problems before Afghanistan

  • Afghanistan’s crises are many.
  • Half the country is either directly controlled or dominated by the Taliban.
  • In the eastern parts, the Islamic State has established a presence and the group targets the country’s religious minorities.
  • The government in Kabul is weak and notorious for chronic corruption.

Response by government

  • It is true that Afghanistan needs a political settlement.
  • The war has been in a stalemate for long.
  • The government, even with U.S. support, is not in a position to turn the war around.
  • The Taliban, on the other side, has expanded its reach to the hinterland, but not the urban centres.

Conclusion

  • The result is that Afghans continue to suffer even when the Americans and the Taliban talks.
  • There has to be more pressure, both political and military, on the Taliban to cease the violence.
  • U.S. should back the Afghan government and the coming elections resolutely, while Kabul has to get its act together.

Source: The Hindu

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GS-III : Economic Issues Budget
Borrow abroad and profit

GS-III: Borrow abroad and profit

Context

The government is planning to issue 10 year bonds denominated in foreign currency.

Why it is a good idea

  • Such borrowing would be cheaper because dollar or yen interest rates are lower than rupee interest rates.
  • Our debt to GDP ratio is not very high, the exchange rate is stable, and foreign exchange reserves are high. So foreign borrowing, if its long term, is not a problem.
  • If foreign bond issuance was accompanied by a move towards greater capital account convertibility then it may be worth pursuing.
  • A country pays a country premium for borrowing in dollars; currently, the US 10-year bond is trading at 2%. A complex set of factors determine the country’s premium, but the magnitude of reserves and foreign currency debt are important attributes. India has less debt denominated in foreign currency, close to 5%. Thus, we should be able to borrow at a somewhat lower premium than 150 bp, possibly 130bp.
  • Indian inflation has moved structurally downward over the last three years.
  • It will also help to significantly lower the real repo rate to respectable levels.

Problems with these bonds

  1. Usually, the lower dollar interest rate is offset in the long run by higher principal repayments as the rupee depreciates against the dollar.
  2. Loss of sovereignty and may lead to currency depreciation

No country has grown at “trend” rates with a real repo rate of around 3.4%, not even 2.4% or 2%. Issuing bonds now is an idea whose time has come.

Source: Indian Express

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GS-III :
Why we need to look beyond the ‘electric’ smokescreen

GS-III: Why we need to look beyond the ‘electric’ smokescreen

Context

The obsession with electric mobility makes it look as if it is the only solution for India’s transportation problems.

What the government must do instead

Bringing down the fuel import bill.Bringing down air pollution.

Do not push EVs

  • We still cannot ensure a 24×7 electricity supply to hospitals. All our villages still do not have a reliable electricity supply.
  • Close to 80% of the electricity generated is from coal and gas. Yet another 50,000MW of coal-fired power plants are being set up under the National Electricity Plan.
  • More than 20% of all the electricity generated goes into “transmission and distribution losses”.
  • Most independent power plants operate at 12-15% below their declared capacity as they over-invoice plant costs.
  • There will be immense pressure on the power grid that is not yet fully reliable.

Other Solution

  • Air pollution – Construction dust, road dust, thermal power generation, diesel generators, traditional cooking fuels, stubble burning and open waste burning also contribute. Need action against each of these sources.
  • Dependence on fossil fuels can be cut down not just by banning diesel, but by other more sane and immediate measures. Upgrade to the latest diesel-engine technology in public transport, reduce traffic congestion, ensure adequate power supply and get into diesel-blends.
  • Ban all Bharat Stage 3 (BS3) vehicles and below. At once, close to 40% of all the 300 million vehicles on the roads will be gone. There’s no “vehicle scrappage policy”.
  • Expand the traffic police strength by four-five times in over-jammed cities.
  • Create and mandate dedicated parking spots for shared mobility services.
  • Create vast grids of pedestrian skywalks. Operate multi-level parking lots.

Public transport

  1. Assure top-notch public transport in India’s top 24 cities. A multi-modal grid of trains, buses, taxis, three-wheelers and two-wheelers could achieve this.
  2. Incentivize the manufacture and purchase of public transport vehicles through lower GST and cheaper loans.
  3. Encourage greater use of public transport among citizens through redemption and loyalty programs.
  4. Get all organizations with more than 100 employees to use bus fleets.

Each of these measures would show an immediate impact on vehicle-caused pollution and the use of fossil fuels.

Source: Live Mint

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GS-III : Economic Issues Financial Market
Fiscal wheels must also roll in order to make monetary policy effective.

GS-III: Fiscal wheels must also roll in order to make monetary policy effective

Context

Through four successive reductions in this year, RBI has reduced the repo rate by 110 basis points to 5.4%.

Status of the rate cut

  • The economy has been slow to respond to these incremental monetary stimuli.
  • Quarterly growth data show a continuing slowdown, mainly driven by sluggish demand, due to both external and domestic factors.
  • There is substantial excess capacity in the manufacturing sector.
  • With unutilized capacity, temporary and casual employees are being laid off and wage hikes are being postponed, reducing levels of aggregate disposable income, which is further reducing demand, particularly for consumer durables.
  • Unless capacity utilization improves, investment demand from the private sector is not likely to improve.
  • Repo rate reductions only provide enabling conditions to reduce the cost of borrowing. To be effective, adequate transmission needs to take place.

Limitations of Monetary Policy

  • Demand for investment and consumer durables has to increase, which is a function of income, much more than the cost of borrowing. For this, momentum has to be generated at the fiscal side.
  • Due to revenue constraints and legislative limits on borrowing, suitable countercyclical fiscal measures have not yet been taken.
  • Without a demand push from the public sector, monetary policy alone would not be effective.

What the government should do:

  • The countercyclical policy is primarily the responsibility of the central government.
  • A one-year departure from the budgeted fiscal deficit of 3.3% of GDP for 2019-20 can be justified at the current juncture.
  • It should be ensured that the entire additional borrowing above the budgeted level is spent on capital expenditure.
  • It is established fact that increases in government capital expenditures have much larger multiplier effects, as compared to increases in government revenue expenditures.
  • State governments and the central and state public enterprises should come on board and undertake additional investment spending on infrastructure.
  • This will push investment from the private sector, uplifting the infrastructure and construction sectors, and later spreading out to other sectors.

Together, the joint impact of the fiscal and monetary stimuli is expected to uplift the country’s growth from its present low level to levels comfortably above 7% and, eventually, closer to 8.5-9%. Sustaining growth at these levels is required if India were to become a $5-trillion economy by the end of FY25.

Source: Live Mint

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GS-IV : Miscellaneous
A case against punishing non-compliance of CSR guidelines

GS-IV: A case against punishing non-compliance of CSR guidelines

Context

To mandate that private firms donate a part of their revenues to charitable causes is to profoundly misunderstand both the social responsibility of corporations and the meaning of the word donation.

Arguments against punishing non-compliance

  • The fundamental social responsibility of corporates is to generate wealth for shareholders in a law-abiding, ethical and sustainable way.
  • They generate surpluses for society, provide consumers with goods and services that they need, create employment, purpose and dignity among workers, and strengthen the nation.
  • A profitable, well-run corporation does more for India and its people than any charity could possibly do.
  • Government, through taxation, has the duty of providing public goods like education, public health, safety, and environmental protection. The government should not indulge in wasteful expenditures through loss-making airlines, wrong subsidies, etc.,
  1. Philanthropy is a private matter—it is up to the individual to decide whether, how much and who to give to. The government can encourage this—through tax deductions, public acclamation, and moral suasion, but should not intervene.

Why CSR

  • Allocate funds into activities that a government of a low-income democracy cannot.
  • Faced with immense developmental challenges, our governments cannot easily justify allocations for world-class art galleries, museums, theatres, sports facilities, research institutions and so on.
  • Individual philanthropy and CSR can support causes that democratic politics won’t allow the government to.

Problems with current CSR spending

  • The bulk of CSR spending is going into education, health, rural areas, environment and so on. Already the government is spending hundreds of lakhs of crores for the same purposes.
  • Corporate executives are unable to decide on the best social use of CSR funds because they are not equipped to do so.

Way ahead

  • The right role and the right balance between corporate profits, government taxes, and individual charity promote social welfare.
  • Do away with mandatory CSR, lower corporate taxes, and introduce tax deductions for certain activities that the government wishes to promote.

Source: Indian Express

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