04 October 2020

  • Prelims 2020 solution announcement
  • World longest highway tunnel opened in Himachal Pradesh - (Indian Economy)
  • Moratorium loans up to cr. may get relief - (Indian Economy)
  • DAP 2020: Offset clause and Rafale-like deals - (Indian Economy)
  • What does herd immunity mean for COVID-19?) - (Science & Technology)
  • Question of the day (Indian Economy-infrastructure)

Prelims Quiz

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    1. UPSC Current Affairs:World’s longest highway tunnel opened in Himachal Pradesh – Pg 1

    UPSC Syllabus: Prelims: Current event of national importance

    Sub Theme: Important Feature of Tunnel |Pir Panjal Range| UPSC       

    Context: Prime Minister Narendra Modi on Saturday inaugurated the Atal Tunnel at Rohtang at an altitude of above 3,000 metre in Himachal Pradesh.

    Feature and importance of the tunnel

    • The horse-shoe shaped, single tube double lane tunnel with a roadway of 8 metre, is built in the eastern Pir Panjal range of the Himalayas on the Leh-Manali Highway.
    • The 9.02 km-long-tunnel, built by the Border Roads Organisation (BRO), is the world’s longest highway tunnel and connects Manali to the Lahaul-Spiti Valley.
    • The tunnel reduces the distance between Manali and Leh by 46 km and the travel time by about 4 to 5 hours.
    • It provides all-weather connectivity to the landlocked valley, which remains cut-off for nearly six months in a year as the Rohtang Pass is snow-bound between November and April.
    • The tunnel would provide new strength to the country’s border infrastructure. It will provide better connectivity to the armed forces in reaching Ladakh.
    • It is expected to boost tourism and winter sports in the region. 

    Pir Panjal range

    • The Himalayan range is made up of three parallel ranges often referred to as the Greater Himalayas, the Lesser Himalayas, and the Outer Himalayas.
    • Pir Panjal is the largest range of the Lesser Himalayas. Near the bank of the Sutlej River, it dissociates itself from the Himalayas and forms a divide between the Beas and Ravi rivers on one side and the Chenab on the other.

    Rohtang pass

    • It is a high mountain pass on the eastern end of the Pir Panjal Range of the Himalayas around 51 km from Manali. It connects the Kullu Valley with the Lahaul and Spiti Valleys of Himachal Pradesh.
    • Kullu Valley is a broad open valley in Himachal Pradesh, India, formed by the Beas River between Manali and Largi.
    • Spiti Valley is a cold desert mountain valley located high in the Himalayas in the north-eastern part of the northern Indian state of Himachal Pradesh.Lahaul and Spiti are cut off from each other by the higher Kunzum Pass.

    Border Roads Organisation

    • BRO was conceived and raised in 1960 for coordinating the speedy development of a network of roads in the North and the North Eastern border regions of the country.
    • BRO is engaged in road construction to provide connectivity to difficult and inaccessible regions in the border areas of the country.
    • It works under the administrative control of the Ministry of Defence.
    • Currently, the organisation maintains operations in twenty-one states, one UT (Andaman and Nicobar Islands), and neighbouring countries such as Afghanistan, Bhutan, Myanmar, and Sri Lanka.
    • The highly-skilled BRO personnel undertook and successfully completed construction of the Delaram-Zaranj Highway in Afghanistan in 2008. The Farkhor and Ayni air bases of Tajikistan were also restored and repaired by the BRO.
    • The BRO works in close association with the Indian Army in cases of natural disasters.

     

    1. UPSC Current Affairs: Waiver of Interest on Interest |Pg 9

    UPSC Syllabus: Prelims: Economy | Mains: GS Paper-III – Economy

    Sub Theme: Waiver of Interest | UPSC  

    Context: Recently, the Government has submitted an affidavit before the Supreme Court stating that it is willing to provide waiver on levy of compound Interest or Interest on Interest on MSMEs and Personal loans of up to Rs 2 crores for a six-month moratorium period announced due to the COVID-19 pandemic. 

    Background   

    • In response to the distress caused due to COVID-19, the RBI had come out with loan moratorium scheme for a period of 6 months from March 2020 to August 2020. Under this scheme, borrowers could voluntarily opt for non-repayment of loans for a period of 6 months.
    • The moratorium was not loan waiver, but rather deferment of the Principal and Interest for a period of 6 months, that means the tenure of the loan would be extended by 6 months. Further, interest would continue to be accrued on the outstanding portion of the loan during the moratorium period as well.

    Understanding Calculation of Interest during Moratorium Period

    • For example, if you had a loan outstanding of Rs 50 lakh crores for a term of 10 years at the beginning of the moratorium period and your annual interest rate was 10 per cent, the interest cost for the six-month period of the moratorium would be close to Rs 2.5 lakh.
    • Suppose say, you have availed the moratorium facility, then in that case you would not be required to pay Rs 2.5 lakhs for a period of 6 months. However, it is not a waiver. The tenure of the loan gets extended by 6 months and hence you would be ending up paying Rs 2.5 lakhs after the moratorium. The Banks can convert this Rs 2.5 lakhs into EMIs to make it easier for the borrowers to repay the loans. Apart from this, the Banks also charged interest on Rs 2.5 lakhs. This is form of compound Interest or Interest on Interest.

    Recent Controversy over Waiver on Interest

    Supreme Court's Stand: As highlighted before, the borrowers who have availed moratorium will have to pay the Interest accrued during the 6 months. Further since the tenure of the loan has been extended by 6 months, the borrowers may end up paying Interest on Interest as well. In this regard, Supreme Court believes that payment of Interest would be a huge burden on the borrowers and hence, the Banks should provide for waiver on the interest.

    RBI's Stand:

    RBI believes that waiver on the interest is financially imprudent as well as discriminatory on account of number of reasons:

    1. Waiver on Interest would lead to loss of around 4 lakh crores to the Banks, which roughly translates into 2% of India's GDP.
    2. The Banks are required to pay the Interest to the depositors during the moratorium period. Hence, waiver of interest for the borrowers would put Banks under unnecessary strain.
    3. Waiver of Interest for the borrowers who have availed moratorium would be considered as discriminatory against those borrowers who did not avail moratorium and continued to pay the Interest during the moratorium period.

    Hence, in order to sort out this issue, the Centre has recently appointed an expert committee under the leadership of former CAG Rajiv Meharishi. The Committee is required to will measure the economic impact of waiving of interest and interest on interest on the Covid-19 related loan moratorium and give appropriate recommendations to the Government 

    What is the Present stated Position of Government?

    The Government has stated that it is willing to provide waiver on levy of compound Interest or Interest on Interest on MSMEs and Personal loans of up to Rs 2 crores. Any individual/entity whose loan amount is more than Rs 2 crore will not be eligible for waiver of the compounding of interest. The customers will continue to bear the liability of interest accumulated in during the six months of the moratorium period. So, the Government would be paying the Compound Interest on the behalf of customers to the Bank. According to some of the estimates, it works out to be around Rs 6000-7000 crores.

     

    1. UPSC Current Affairs: Defence Offset Policy - Page 13

    UPSC Syllabus: Prelims: Economy | Mains: GS III – Economy; Security  

    Sub theme: Defence Offset Policy| UPSC      

    Context: The Comptroller and Auditor General (CAG) has recently questioned India’s Defence offset policy and came down heavily on foreign vendors for not fulfilling their offset commitments.    

    Apart from that, the new Defence Acquisition Procedure (DAP) 2020 has made certain fundamental changes to the Defence offset obligations. In this regard, let us understand in detail about the Defence Offset Policy- Meaning, Rationale and recent changes. 

    Understanding the Defence Offset Policy

    An offset is a mechanism to partially compensate for the significant outflow of a country’s resources in large purchases of foreign goods and services by making the foreign supplier to invest in industry, or in research and development, etc. in the buyer country. The idea behind such a policy is to persuade foreign vendors to outsource orders, transfer technologies to Indian companies and invest in India. The objective is to create a strong local ecosystem for Defence manufacturing and step up exports.

    When was the policy introduced?

    The Defence Offset policy was first introduced through the Defence Procurement Policy and Procedure which was adopted in 2005 based upon the recommendations of Vijay Kelkar Committee.  The Policy provided that all capital purchases above Rs 300 crore through imports will have the foreign vendor invest at least 30% of the value of the purchase in India.

    Accordingly, the first Defence offset contract was signed in 2007. 

    How can a foreign vendor fulfil its offset obligations?

    • Direct purchase of eligible products manufactured by Indian enterprises
    • Foreign Direct Investment in joint ventures with Indian enterprises for eligible products and services
    • Investment in ‘kind’ in terms of transfer of technology (TOT) to Indian enterprises
    • Investment in ‘kind’ in Indian enterprises in terms of provision of equipment
    • Technology acquisition by DRDO in areas of high technology.

    Latest changes in the Defence Acquisition Procedure (DAP) 2020

    According to DAP 2020, all other international defence deals will continue to have a 30% offset clause. However, offsets would be applicable in case of capital purchases of above Rs 2000 crores (as against capital purchases of Rs 300 crores earlier). Further, the government has decided to remove the offset clause, if the equipment is being bought either through Inter-Governmental Agreements (IGAs) between Indian and Foreign Government, or through single-vendor deal.

    Why the latest changes were introduced?

    Usually, the foreign vendors incur costs (including administrative costs) in fulfilling the offset obligations. Hence, they bid for the higher amount in the Defence deals with India in order to recover these costs. Thus, doing away with the Offset obligations in some of the cases such as Inter-Governmental agreements (IGAs) would enable India to procure Defence Goods at lower cost.

    Highlights of CAG's Observation on Defence Offsets Policy

    In its report titled ‘CAG’s Performance Audit Report on Management of Defence Offset’, the CAG has pointed out that French aerospace major Dassault Aviation and European missile maker MBDA, which supplied armaments for the Rafale jets, have not yet discharged their 30% offset obligation.

    The CAG has highlighted that most of the time Foreign vendors such as Dassault Aviation give commitment for offsets in order to win the tender, but later on do not fulfil their commitments. In this case, Dassault Aviation was required to transfer the technology to DRDO for the indigenous development of Kaveri Engine for the Light Combat Aircraft (LCA)

    Tejas. However, it has failed to do so.

    The CAG has pointed out that between 2005-2018, 46 contracts with offset commitments worth Rs 66,000 crores was made by foreign vendors. However, so far only Rs 11,300 crore

    has been realized. Accordingly, there is a need to have a relook at our Defence Offset policy to promote indigenization of Defence Industry.

     

    1. UPSC Current Affairs: What does herd immunity mean for COVID-19? - Pg 13

    UPSC Syllabus: Prelims: General Science |Mains: GS III – Science & Technology

    Sub theme: Herd Immunity | UPSC  

    Context: To deal with SARS-CoV-2 virus, herd immunity, an important tool in epidemic control, was proposed as a means to overcome the pandemic. 

    Herd Immunity

    • When enough people are vaccinated, a pathogen cannot spread easily through the population. If a person is infected with measles but everyone h/she interact with has been vaccinated, transmission will be stopped.
    • Only a certain proportion of the population needs to be infected in order to stop large outbreaks, either through naturally-acquired disease, or through vaccination.
    • Herd immunity refers to preventing an infectious disease from spreading by immunising a certain percentage of the population.it is really like having a barrier of people who are protected, who break that chain of transmission
    • Herd immunity can be achieved in two ways.
    • The first way is through mass vaccinations, which for COVID-19, is still under development.
    • The second way is through the infection which means that a person gets infected and after a while, they develop antibodies to fight the infection and thus become immune to it.

    Since currently, the vaccine for COVID-19 is absent; countries around the globe like, the United Kingdom, the Netherlands, Sweden and Holland are experimenting with the second method. 

    • There are a large number of people who are asymptomatic – who show no symptoms at all or have just mild symptoms like mild fever, mild cough. Most of these people will recover from the virus without getting hospitalized. This will contribute to increasing the herd immunity.
    • Herd immunity is achieved when one infected person in a population generates less than one secondary case on an average, which corresponds to the effective reproduction number R (that is, the average number of persons infected by a case) dropping below 1 in the absence of interventions

    The problem with applying herd immunity concept in SARS-CoV-2 

    • The SARS-CoV-2 virus is easily transmissible and would require around 60-70% of the population to be infected to acquire herd immunity.
    • It will take a long timebut more importantly, it is going to do a lot of collateral damage
    • Even if 1 % of people who get infected are ultimately going to die, then this can add up to a huge number of people, if we look at the global population.
    • And that is why herd immunity is not a strategy or a solution. It is surrender to a preventable virus
    • It is not a good idea to achieve herd immunity by just letting the infection run wild in the general population and infect a lot of people.
    • We should talk about herd immunity in the context of a vaccine. vaccines are particularly suited for creating herd immunity because “their allocation can be specifically targeted to highly exposed populations, such as healthcare workers or individuals with frequent contact with customers.” 

    Resect sero-surveys study revealed that for every reported COVID-19 case, there were 26-32 infections, down from 81-130 infections per reported case in May. It also said the susceptibility of a considerable section of people, who are still unexposed to SARS-CoV-2, exists, and the risk in urban slums is twice that in non-slum areas, and four times higher than the risk in rural settings. 

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