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12 October, 2019

12 Min Read

GS-II : International Relations West Asia
The policy way out.

GS-III: The policy way out.

News

India is in the middle of a sharp growth slowdown. The debate surrounding the slowdown is whether it is a cyclical downturn or a structural correction. Diagnosing the problem is key for devising policy responses.

Slowdown

  • Cyclical slowdowns can be dealt with using temporary fiscal and monetary stimulus.
  • Structural problems require long-run policy responses.

The slowdown is structural – Oil imports

  • Most of the growth between 2014 and 2017 was sparked by a sharp increase in government spending.
  • Given India’s oil imports, the decline in the world price of oil by almost $50 a barrel between 2014 and 2016 represented a windfall revenue gain of 3% of GDP.
  • Since the fiscal deficit barely moved, the government effectively used the windfall to finance various government schemes.
  • Now that oil prices have reverted towards their previous levels, a stable fiscal deficit demanded a reduction in government expenditures.

Structural slowdown – investment demand

  • Throughout the period 2016-2018, there was a criticism of the Monetary Policy Committee’s refusal to cut rates.
  • It was argued that high real interest rates, along with the restrictions by RBI on banks’ lending to deal with the NPA problem, were jointly responsible for low investment demand.

Sovereign bonds:

  • The idea needs to be pursued for multiple reasons.
  • Sovereign bonds would force government debt to be priced in a more competitive setting. Currently, it is priced in a sheltered domestic bond market.
  • Issuing sovereign bonds will force greater clarity and transparency of macroeconomic data since international creditors will demand that.
  • Things like failure to achieve policy targets or reticence in releasing data will attract rapid punishment by markets. This will provide greater discipline for policymaking.

Way ahead:

The government should revisit the appointments process to key technical and regulatory bodies.

Functions like monetary policy, banking supervision, data collection and dissemination, the audit of government financial accounts need to be independent of government direction.

Source: Indian Express

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GS-III :
Delhi diplomacy to fight disaster.

GS-III: Delhi diplomacy to fight disaster.

News

While speaking at the UN Secretary General’s Climate Action Summit PM Modi had announced the launch of the Coalition for Disaster Resilient Infrastructure (CDRI).

Coalition for Disaster Resilient Infrastructure:

  • Each time a natural disaster occurs anywhere in the world, countries try to provide immediate relief, but there is no focus on building disaster-resilient Infrastructure.
  • CDRI could fill this gap of funds and technology and help developing countries to build disaster-resilient Infrastructure.
  • For instance, India is a world leader in preventing human deaths due to disasters. The United Nations Office for Disaster Risk Reduction (UNISDR) has praised India’s
  • zero casualty approach and playing a pioneering role model for global community for drawing up a national and local strategy to reduce disaster losses and risks.
  • CDRI is an attempt to bring countries together to share and learn from the experiences of one another to protect their key infrastructure highways, railways, power stations, communication lines, water channels, even housing against disasters.

Need to protect infrastructure:

  • Many countries, including India, have over the years developed robust disaster management practices that have helped in sharply reducing human casualties in a disaster.
  • However, the economic costs of a disaster remain huge, mainly due to the damage caused to big infrastructure.
  • According to a recent estimate by the World Bank, Cyclone Fani, which hit Odisha in May this year, caused damage to the tune of $4 billion.

Moving away with basic infrastructure:

  • Much of the developing world is still building its basic infrastructure.
  • Many developed countries are also in the process of replacing old infrastructure that has completed their lifetimes.
  • Future infrastructure needs to take into account the heightened risks arising out of the increased frequency and intensity of extreme weather events and other adverse impacts of climate change.
  • Even existing infrastructure would need to be retrofitted to make them more resilient.

International Forum:

  • Disaster preparedness and infrastructure creation are largely national endeavors. However, modern infrastructure is also a web of networked systems, not always confined to national boundaries.
  • There are increasing numbers of trans-national and trans-continental highways and railways; transmission lines carry electricity across countries; assets on a river are shared.
  • Damage to any one node can have cascading impacts on the entire network, resulting in loss of livelihoods and disruption in economic activity in places far away from the site of a disaster.

CDRI and Belt Road Initiative:

  • CDRI has sometimes been seen as India’s response to the Belt Road Initiative, China’s ongoing multi-billion-dollar programme to recreate the ancient Silk Route trading links.
  • China is building massive new land and maritime infrastructure in several countries.
  • India and some other nations view this as an attempt by China to use its economic and military heft to usurp strategic assets in other countries.
  • Unlike BRI, CDRI is not an attempt by India to create or fund infrastructure projects in other countries.
  • Having said that, international initiatives like these are not without any strategic or diplomatic objective.

CDRI and Solar Alliance:

  • A more relevant comparison of CDRI can, however be made with the International Solar Alliance (ISA) that India launched at the climate meeting in Paris in 2015.
  • ISA, which has evolved into a treaty-based organisation with more than 50 countries already signed up, aims at a collective effort to promote the deployment of solar energy across the world.
  • Its objective is to mobilise more than $1 trillion into solar power by 2030, and to deploy over 1,000 GW of solar generation capacity in member countries by that time.
  • India hosts ISA, with its headquarters in Gurgaon. The CDRI secretariat too would be based in New Delhi.
  • ISA is about climate change mitigation deployment of more solar energy would bring down the reliance on fossil fuels, thereby reducing greenhouse gas emissions.
  • With these two initiatives, India is seeking to obtain a leadership role, globally, in matters related to climate change.

Source: Indian Express

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GS-III :
Elastocaloric Effect

GS-III: Elastocaloric Effect.

News

Elastocaloric effect

  • When rubbers bands are twisted and untwisted, it produces a cooling effect.
  • This is called the “elastocaloric” effect, and researchers have suggested that it can be used in a very relevant context today.
  • Researchers have found that the elastocaloric effect, if harnessed, may be able to do away with the need of fluid refrigerants used in fridges and air-conditioners.
  • These fluids are susceptible to leakages, and can contribute to global warming.

How it works?

  • In the elastocaloric effect, the transfer of heat works much the same way as when fluid refrigerants are compressed and expanded.
  • When a rubber band is stretched, it absorbs heat from its environment, and when it is released, it gradually cools down.
  • In order to figure out how the twisting mechanism might be able to enable a fridge, the researchers compared the cooling power of rubber fibres, nylon and polyethylene fishing lines and nickel-titanium wires.

Efficiency:

  • The level of efficiency of the heat exchange in rubber bands “is comparable to that of standard refrigerants and twice as high as stretching the same materials without twisting”.
  • To demonstrate this setup, the researchers developed a fridge the size of a ballpoint pen cartridge that was able to bring down the temperature of a small volume of water by 8°C in a few seconds.

Source: Indian Express

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GS-III : Economic Issues Banking
What PMC means.

GS-III: What PMC means.

News

In at least three of the major financial sector scams in the last couple of months in India, featuring Punjab National Bank, IL&FS, Punjab and Maharashtra Cooperative Bank, apart from poor governance and fraudulent practices, a common thread has been a supervisory failure.

Supervision

  • The country’s leading financial sector regulator, RBI, has been responding only after the event.
  • As in IL&FS, in the PMC case too, there appears to be culpability on the part of the management and the board of the bank.
  • Bank’s loan exposure to a single firm, HDIL, alone constituted 73% of its assets and several dummy accounts were created to camouflage this.
  • The issue of dual control by the RBI and state governments has been cited as a hurdle by the regulator for its inability to effectively supervise cooperative banks.
  • Limitations in superseding the board of directors or removing directors of these banks, unlike in commercial banks.

Cooperative banks & Credit delivery:

  • The role of co-operative banks in ensuring credit delivery to the unorganised sector and last-mile access, to small businesses, is huge, as the large banks continue to focus on bigger cities and towns.
  • A recent RBI report shows that fund flows to the commercial sector have declined by 88% in the first six months of this current fiscal. That would have hurt small businessmen, traders, and the farm sector.

Regulation – RBI

  • The central bank has already started building an internal cadre for the supervision of banks and other entities aimed at enhancing its oversight capabilities.
  • This should be complemented by legislative changes which could lead to greater regulatory control and powers for the RBI.
  • An insolvency regime for financial firms is the need of the hour.
  • India needs not just a few large banks and lenders with a national or regional presence but also other players such as cooperative banks, small finance, and payment banks.
  • There is a need for greater accountability on the part of India’s financial regulators.
  • Carving out a separate authority for supervision may only lead to regulators working in silos.

Source: Indian Express

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