19 December, 2020 - Daily Current Affairs Analysis & MCQs - The Daily News Simplified from The Hindu

  • Govt. mulls bad bank to boost banking sector - Economy
  • MSP - the factoids versus the facts - Economy
  • India mulls E20 fuel to cut vehicular emissions - Env
  • All have equal right to practice religion: HC - Polity
  • Question for the day

Prelims Quiz

    Solution.

    • Total Marks 0
    • Total Scored 0
    • Total Attempted 0
    • Total Correct 0
    • Total Wrong 0
    • Total Not Attempted 0
    0%
    Description

    UPSC Current Affairs: MSP — the factoids versus the facts – (Lead Article)|Page 06

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

    Sub Theme: Minimum Support Price | MSP | Shanta Kumar Committee | UPSC

    Context: The recent passage of the Farm acts has brought the focus on the MSP Regime. The farmers believe that the farm acts would ultimately lead to dismantling of the MSP regime and hence they would be exploited by the corporate entities. Thus, the farmers want the Government to amend the farm acts and provide that the private sector should not procure the agricultural commodities below the MSP declared by the Government.

    On the other hand, a number of economists have highlighted various flaws associated with the MSP regime and accordingly are in favor of doing away with the MSP regime completely.

    In this regard, this article seeks to debunk various flaws which have been associated with the Minimum Support Price (MSP) regime.

    Details about Minimum Support Price (MSP) regime

    Declaration of MSP

    The Cabinet Committee on Economic Affairs (CCEA) notifies MSP based on the recommendations of the Commission on Agricultural Costs and Prices (CACP). These recommendations are made separately for the Kharif marketing season and the Rabi marketing season. Post harvesting, the government procures crops from farmers at the MSP notified for that season, in order to ensure remunerative prices to farmers for their produce.

    As of now, CACP recommends MSPs of 22 commodities, which comprise 7 cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), 5 pulses (gram, tur, moong, urad, lentil), 7 oilseeds (groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower, nigerseed), and 3 commercial crops (copra, cotton and raw jute).

    NOTE: The CCEA declares the Fair and Remunerative Prices (FRP) for the sugarcane.

    How are the MSPs fixed?

    The CACP considers various factors such as the cost of cultivation and production, productivity of crops, and market prices for the determination of MSPs. Different methodologies may be used to calculate the MSPs. These are

    • A2 Approach, which includes cost of inputs such as seeds, fertilizer, labour.
    • A2+FL Approach, which includes A2 and the implied cost of family labour (FL); and
    • C2 Approach, which includes the implied rent on land and interest on capital assets and A2+FL. Hence, C2 approach is considered to be the most comprehensive approach which can be used to calculate the MSP.

    Note: The National Commission on Farmers led by M.S. Swaminathan had recommended for the adoption of C2 Approach for fixing the MSP. However, presently, the MSPs are fixed at least 50% more than cost of production as calculated according to A2+FL approach.

    Limitations in the MSP Regime

    The MSP Policy of the Government has come under immense criticism on account of number of reasons. These flaws with the MSP regime have been highlighted by number of committees such

    as the Committee on Doubling Farmers' income which was headed by Ashok Dalwai and Shanta Kumar Committee on FCI reforms. Some of these fundamental flaws include:

    Promoted Cultivation of Water Intensive Crops: Even though, the Government declares MSP for 22 crops, the procurement is quite strong only for Rice and Wheat. The procurement of other

    commodities, particularly Pulses and Oilseeds is quite lower. Hence, it has incentivized the cultivation of more water intensive crops such as Rice and Wheat leading to an adverse impact on the Indian Agriculture.

    Lack of Safeguards: The present MSP regime is not geared to pay compensation to the farmers when they are forced to sell the agricultural commodities in the open market below the MSP. Ideally, the MSP regime should be able to compensate such farmers for the losses incurred.

    Flawed Approach: It has been stated that the fixing of MSP based on A2+FL approach would lead to declaration of lower MSP and hence does not adequately compensate the farmers. Accordingly, some of the economists have pointed out that the MSP should be declared based on the C2 Approach as recommended by Swaminathan Committee.

    Benefitted only Large Farmers: The Shanta Kumar Committee on FCI reforms has highlighted that the MSP procurement has benefitted only 6% of farmers in India. Hence, only the large farmers which higher surplus of agricultural commodities have got benefitted from MSP. The Small and marginal farmers who comprise of almost 83% of the farming community have failed to get benefitted from the MSP regime.

    Undue delay: In some of the cases, the Government has not been able to declare the MSPs as per the schedule. These delays in the announcement of the MSPs have not able to able to send the price signals to the farmers on time.

    Debunking these flaws of the MSP regime

    This article is based upon the data collected by the authors on State-wise procurement from the Food Corporation of India (FCI) for 2012-13. Based upon the analysis of this data, the authors have debunked the following flaws of the MSP regime:

    Benefits only 6% of Farmers: The Shanta Kumar Committee has highlighted that the MSP regime has benefitted only 6% of the farmers. However, the authors have highlighted that it is mainly with reference to only Rice and Wheat. If we take into account the farmers who sell other agricultural commodities, the percentage of farmers who have got benefitted from the MSP regime could be much higher.

    Benefits only Traditional States such as Punjab and Haryana:  The FCI had introduced the Decentralised Procurement scheme (DCP) in 1997-98. Under this scheme, the States have also been encouraged to undertake the procurement of food grains on their own to reduce the transportation and storage costs of FCI.

    Over a period of time, a large number of states have come on board and adopted this scheme. For example, until 2000, barely 10% of wheat and rice was procured outside the traditional States. But by 2012-13, the share of the DCP States rose to 25-35%.

    In the case of paddy, Chhattisgarh and Odisha have been the star performers accounting for 20% of paddy procurement. Similarly, an overwhelming majority of agricultural households selling wheat to the procurement agencies come from Madhya Pradesh (33%) compared to 22% from Punjab and 18% from Haryana. Hence, the criticism that only Punjab and Haryana have benefited from the MSP is now a thing of the past.

    Benefitted only large farmers: At the all-India level, among those who sold paddy to the government, 1% were large farmers, owning over 10 hectares of land. Small and marginal farmers, with less than 2 hectares accounted for 70%. The rest (29%) were medium farmers (2-10 hectares). 

     

    UPSC Current Affairs: Govt. mulls bad bank to boost banking sector | Page 14

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

    Sub Theme: Bad Bank| Twin Balance Sheet Problems | NPA| UPSC

    The twin balance sheet problem in India has led to decline in the credit creation, investment rates and consequent slowdown of the Indian Economy. The Gross NPAs of the scheduled Banks stands at around 9.3%, which is considered to be the worst NPA among the emerging economies. So, how do we solve the problem of NPAs?

    Recently, the Indian Banks Association (IBA) proposed the Government to set up a Bad Bank. Prior to this, the Economic Survey 2016-17 had recommended the Government to set up Ccentralised Public Sector Asset Rehabilitation Agency (PARA) to clear the NPA mess. So, let us understand about the proposed Bad Bank.

    Understanding the Twin Balance Sheet problem (TBS) and its impact

    The Twin Balance sheet problem highlights that the balance sheets of the banks as well as companies are in bad shape. While, the balance sheet of the Banks is dominated by the higher NPAs, while the balance sheet of the companies is dominated by higher debt levels and their inability to repay back loans.

    Such a TBS problem puts the economy into vicious economic cycle as seen below.

    Concept of Bad bank

    The Bad Bank is a bank which takes over the NPAs of the other banks and hence leads to improvement in the their financial position. For example, let’s say a Bank XYZ has total NPAs of around Rs 1000 crores. In accordance with RBI's norms, the Bank here would be required to set aside certain percentage of its profits to cover the loss arising from such NPAs. This is referred to as Provisioning norms. Hence, the increase in the NPAs accompanied by higher provisioning requirements would severely constraint ability of the Bank to lend loans and hence affects its overall financial position. That is where, a Bad Bank comes into picture.

    In this case, the Bad bank can take over NPAs worth Rs 1000 crores from Bank XYZ at say Rs 800 crores. Now, the Bad Bank can undertake restructuring of such loans or undertake any other mechanism to recover the NPA amount. As far as Bank XYZ is concerned, it is at least able to get Rs 800 crores. ( In the absence of Bad Bank, the Bank XYZ would not even recovered that much amount).

    Pros and Cons of Bad Bank

    Arguments in Favour

    Arguments against

    Improvement in the balance Sheet of the Banks due to decrease in the NPAs.

     

    The Bad Bank stands ready to buy NPAs from the Banks. Hence, this would discourage the Banks from exercising due caution in lending loans

    Unlocking of the capital that was earlier locked up as provisioning requirements. This would lead to increase in the credit creation.

     

    According to Ex-RBI Governor Raghuram Rajan, the Setting up of Bad Bank would merely lead to transfer of Assets from one entity to another

    Enable the Bank to focus on their core areas of accepting deposits and lending loans. The function of recovery of bad loans gets transferred to the specialist Bad Bank.

     

    The NPAs of Banks has increased on account of number of reasons such as Political interference in working of Banks, Increase in wilful defaulters, poor recovery process etc. Hence, Bad Bank does not solve the core underlying reasons which led to increase in NPAs in the first instance.  The Bad Bank is thus considered to be superficial solution to the underlying problem of NPAs.

    Most of the NPAs are concentrated in the larger borrowers who have taken loans from multiple banks.

    Presently, in case of default, such Banks come together to form Committee of Creditors (CoC) and formulate a resolution plan to recover the NPAs.

    However, such a mechanism is presently facing problem of coordination and delays in the recovery of NPAs. Setting up of Bad Bank would enable the multiple Banks to transfer their NPAs simultaneously to Bad Bank and improve their balance sheets

    The Bad Bank set up by Government may incur significant losses. Hence, some of the economists have pointed out as to why the taxpayers money should be used to bail out the Banks for their bad lending decision


    Way Forward

    The Economic Survey 2015-16 emphasized that addressing the stressed assets problem would require 4 R’s: Reform, Recognition, Recapitalization, and Resolution. The setting up of Bad Bank without focussing on these 4 R's would mean that the fundamental problems that led to NPAs in first place continue to remain. Hence, the Government has to first focus on 4 R's before setting up Bad bank.

    Idea of Bad Bank- Pros and Cons (Mains Compass 2020)

    The Bad Bank is a specialised Bank that purchases NPAs from Banks and restructures them. The Economic Survey 2016-17 had recommended setting up Centralised Public Sector Asset Rehabilitation Agency (PARA) as Bad Bank to address the growing problem of NPAs.

    The Bad Bank has been touted as a magic bullet for reducing NPAs, improving Banks’ Balance sheet, unlocking Bank’s capital, increasing the Credit creation and consequently a way out of the vicious economic cycle created due to Twin Balance Sheet (TBS) problem. 

    Arguments in favor:

    • Improvement in the balance Sheet of the Banks due to decrease in the NPAs.
    • Unlocking of the capital that was earlier locked up as provisioning requirements. This would lead to increase in the credit creation.
    • Enable the Bank to focus on their core areas of accepting deposits and lending loans. The function of recovery of bad loans gets transferred to the specialist Bad Bank.
    • Address the problem of coordination and delays in the recovery of NPAs by multiple Banks. Setting up of Bad Bank would enable the multiple Banks to transfer their NPAs simultaneously to Bad Bank and improve their balance sheet

    However, it has to be realised that Bad Bank cannot be considered as Panacea to the present problems:

    1. Moral Hazard: Taxpayers money would be used to bail out inefficient Banks. Guaranteed takeover of NPAs by Bad Bank may prevent Banks from exercising due caution before giving loans. 
    2. Pricing of NPAs: If the NPAs are sold at higher prices to Bad bank, the Bad Bank itself would fail. if NPAs are sold at lower prices, the Banks would be required to take higher haircuts.
    3. No Substantial Impact: Merely leads to transfer of Bad Assets from one entity to another. 
    4. No long-term Impact:Does not address the core underlying problems which led to increase in NPAs in first place
    5. International Experience:As seen in Sweden, Bad Bank works best in case of NPAs in small value housing loans. However, in case of India, the NPAs are present across multiple sectors.
    6. Financing: Difficult to mobilise finances for setting up Bad Bank.

    Thus, setting up of Bad Bank would only be a superficial and band-aid solution to long-term problems. Hence, Government must focus on 4 R’s of Banking Reforms- Reform, Recognition, Recapitalization and Resolution before setting up Bad Bank.

     

    UPSC Current Affairs: India mulls E20 fuel to cut vehicular emissions | Page–14

    UPSC Syllabus:| Prelims: Environment | Mains: GS Paper III – Environment, Ecology & Biodiversity 

    Sub Theme: Adoption of E20 fuel |Biofuel | National Biofuel Policy | Blend of Ethanol & Gasoline | UPSC

    Context: The government has proposed the adoption of E20 fuel — a blend of 20% of ethanol and gasoline — as an automobile fuel in order to reduce vehicular emissions as well as the country’s oil import bill. The Ministry of Road Transport and Highways has published a draft notification and invited comments from the public for adoption of the fuel. The current permissible level of blending is 10% of ethanol though India reached only 5.6% of blending in 2019. The notification not only facilitates the development of E20-compliant vehicles but will also help in reducing emissions of carbon dioxide, hydrocarbons, etc. It will help reduce the oil import bill, thereby saving foreign exchange and boosting energy security.

    Ethanol as a fuel

    • The use of ethanol as a fuel for internal combustion engines, either alone or in combination with other fuels, has been given much attention mostly because of its possible environmental and long-term economical advantages over fossil fuel.
    • The use of ethanol as an automobile fuel is as old as the invention of the internal combustion engine itself. Ethanol was examined as an automotive fuel by Nikolas A Otto in 1897 during his early engine studies. Brazil has been using this fuel since 1920s.
    • Ethanol can be combined with petrol in any concentration up to pure ethanol (E100). Anhydrous ethanol, that is, ethanol without water, can be blended with petrol in varying quantities to reduce the consumption of petroleum fuels, as well as to reduce air pollution.
    • Ethanol is increasingly used as an oxygenate additive for standard petrol, as a replacement for methyl t-butyl ether (MTBE), the latter chemical being responsible for considerable groundwater and soil contamination. Ethanol can also be used to power fuel cells and to produce bio diesel.
    • Ethanol, an alcohol fuel, provides high quality, high octane for exceptional engine performance and reduced emissions. Ethanol has been used in cars since Henry Ford designed his 1908 Model T to operate on alcohol.

    Some facts about ethanol as a fuel

    • With a 113 octane rating, ethanol is the highest performance fuel on the market and keeps today's high-compression engines running smoothly.
    • Because the ethanol molecule contains oxygen, it allows the engine to more completely combust the fuel, resulting in fewer emissions.
    • Since ethanol is produced from plants that harness the power of the sun, ethanol is also considered a renewable fuel.
    • Ethanol-blended fuel keeps the fuel system clean for optimal performance because it does not leave gummy deposits.
    • Ethanol helps prevent wintertime problems by acting as a gas-line antifreeze.

    Ethanol as a fuel in India

    • The Ministry of Petroleum and Natural Gas (MoPNG) issued a notification in September 2002 for mandatory blending of 5 % ethanol in 9 major sugar producing states and four union territories from 2003.
    • In 2008, the Ministry of New & Renewable Energy established a National Policy on Biofuels to limit the country's future carbon footprint and dependence on foreign crude. Under this, the blending level of bio-ethanol at 5 % with petrol was proposed from October 2008, leading to a target of 20 % blending of bio-ethanol by 2017.
    • It also laid down a roadmap for the phased implementation of the programme. This was taken up by the oil marketing companies (OMCs) in 20 states and 4 union territories. The government has fixed the interim refinery gate price of ethanol at Rs.27 per litre.

     Challenges faced in using Ethanol as a fuel in India

    • The major source for production of bio-ethanol in India is from molasses, a by-product of sugarcane. The availability is hence dependant on the cane and sugar production that are cyclical in nature.
    • Ethanol has many other alternative uses such as potable alcohol and use in chemical and pharmaceutical industry. Hence its use as a fuel faces stiff competition from such uses.

    National biofuel policy

    In order to promote biofuels in the country, the Union Cabinet has approved National Policy on Biofuels, 2018. The policy expands the scope of raw material for ethanol production thereby aims to reduce dependency on crude oil and at the same time enhance the income of farmers, besides promoting a cleaner environment and providing health benefits.

    Category of Bio-fuels

    • The Policy categorises biofuels as "Basic Biofuels" and “Advanced Biofuels”.
    • Basic Biofuels comprise First Generation (1G) bioethanol and biodiesel.
    • Advanced Biofuels comprise- Second Generation (2G) ethanol, Municipal Solid Waste (MSW) todrop-in fuels + Third Generation (3G) biofuels, bio-CNG etc.
    • This category has been done to enable the extension of appropriate financial and fiscal incentivesunder each category.

    Drop-in fuels are those renewable fuels which can be blended with petroleum products, such asgasoline, and utilized in the current infrastructure of pumps, pipelines and other existing equipment.

    Scope of raw material

    The Policy expands the scope of raw material for ethanol production by allowing use of –

    • Sugarcane Juice,
    • Sugar containing materials like Sugar Beet,
    • Sweet Sorghum, Starch containing materials like Corn, Cassava.
    • Damaged food grains like wheat, broken rice, Rotten Potatoes etc. unfit for human consumption.

    Usage of Surplus food Production

    • The policy allows the use of surplus food grains for production of ethanol for blending withpetrol with the approval of National Biofuel Coordination Committee.
    • This measure will benefit farmers who can now get appropriate price for their produce during the surplus production phase.

    Viability gap funding

    • With a thrust on Advanced Biofuels, the policy indicates a viability gap funding scheme for 2ndGeneration ethanol bio-refineries of Rs.5000 crore in 6 years, in addition to additional tax incentives, higher purchase price etc. as compared to 1stGeneration biofuels.

    Supply Mechanism

    • The Policy encourages setting up of supply chain mechanisms for biodiesel production from non-edible oilseeds, Used Cooking Oil, short gestation crops.

    Roles & Responsibilities

    • Roles and responsibilities of all the concerned Ministries/Departments with respect to biofuels have been captured in the policy document to synergise efforts.

    Benefits

    Saving of Forex - The policy will entail more supply of ethanol which will reduce the pressure for importing crude oil resulting in saving of forex in the country. Ethanol supply of around 150 crore liters in 2017-18 alone have saved foreign exchange worth over Rs. 4,000 crores.

    Cleaner Environment - The policy promotes the ethanol production, usage of which helps in controlling emission of CO2in the environment. Further, by reducing crop burning and conversion of agricultural residues/wastes to bio fuels there will be a further reduction in Green House Gas emissions.

    Health Benefits - Prolonged reuse of Cooking Oil for preparing food, particularly in deep-frying is a potential health hazard and can lead to many diseases. Used Cooking Oil is a potential feedstock for biodiesel and its use for making biodiesel will prevent diversion of used cooking oil in the food industry.

    Infrastructural Investment in Rural Areas - One 100klpd 2G bio refinery can contribute 1200 jobs in plant operations, Village Level Entrepreneurs and Supply Chain Management.

    Additional Income for Farmers - By adopting 2G technologies, agricultural residues/waste which otherwise are burnt by the farmers can be converted to ethanol and can fetch a price for these wastes if a market is developed for the same. Also, farmers are at a risk of not getting appropriate price for their produce during the surplus production phase. Thus, conversion of surplus grains and agricultural biomass can help in price stabilization.

    Addressing Supply Side Constraints - The policy primarily tries to address supply-side issues that have discouraged the production of biofuels within the country.

    Cost Reduction - Availability of more raw materials to be used as inputs to produce ethanol will reduce the cost of producing biofuels and improve affordability for consumers, particularly during times when oil prices reach discomforting levels

    Strategic Importance - Biofuels in India are of strategic importance as it augers well with the ongoing initiatives of the Government such as Make in India, Swachh Bharat Abhiyan, Skill Development and offers great opportunity to integrate with the ambitious targets of doubling of Farmers Income, Import Reduction, Employment Generation, Waste to Wealth Creation etc. NBP is a step towards Energy security and reduced dependence on fossil fuel imports. 

     

    UPSC Current Affairs: High Court notice to Uttar Pradesh on conversion law | Page - 10

    UPSC Syllabus: Prelims: Polity, Governance & Constitution | Mains – GS Paper II Polity, Governance & Constitution

    Sub Theme: Right to Religion for All | Article 25 | Article 26 | UPSC

    Context: Allahabad High Court in its Judgment highlighted the importance of Article 25 of the Indian Constitution and stated that Article 25 provides that all persons are equally entitled to freedom of conscience and the right to freely profess, practice and propagate religion.    

    Backdrop to this Judgment   

    The present matter relates to forced conversion against a Muslim labourer Mr. Nadeem under Uttar Pradesh Prohibition of Unlawful Conversion of Religion Ordinance, 2020. Police had filed an FIR against Mr. Nadeem for forced conversion. The HC prohibited the state of UP from taking any coercive action as the allegations were prima facie based on suspicion.

    About Religion, its practices and its regulation

    • Religion has its system in the basis of beliefs and doctrines which are regarded by those who profess that religion as conducive to their spiritual well-being. A religion may not only lay down code of ethical rules for its followers to accept, but may also prescribe rituals and observances, ceremonies and modes of worship which are regarded as an integral part of that religion.
    • These forms and observances might extend even to matters of food and dress. So, constitutional guarantee regarding freedom of religion contained in Article 25(1) extends even to rites, ceremonies associated with a religion.
    • Article 25(2)(a) states that state can make law to regulate or restrict any economic, financial, political or other secular activity which may be associated with religious practice. It means that state is empowered to regulate secular activities associated with religious practice and not the religious activities themselves.
    • However, the question remains whether the activity to be regulated is ‘Secular’ or ‘Religious’ as state can only regulate secular activities associated with religion and not religious activities themselves. For example, in the case of Tilkayat, Supreme Court held that right to manage the properties of a temple was a purely secular matter and could not be regarded as a religious practice under Article 25(1) or as amounting to “matters of religion” under Article 26(b).

    Matters of Religion

    • The term ‘matters of religion’ used in Article 26(b) is synonymous with the term religion as used in Article 25(1). It thus includes religious beliefs but also such religious practices and rites as are regarded to be an essential and integral part of religion.

    Freedom to manage Religious Affairs

    • Article 26 gives special protection to religious denomination. Article 26 mentions that every religious denomination or a section thereof has the right –
    • To establish and maintain institutions for religious and charitable purposes
    • To manage its own affairs in matter of religion
    • To own and acquire movable and immovable property
    • To administer such property in accordance with law
    • However, this right is subject to public order, morality and health.
    • While Article 25 confers the particular rights on all persons, Article 26 is confined to religious denominations or any section of denominations. So, we can say that Article 26 guarantees collective freedom of religion.

    Religious Denomination  

    • The term religious denomination in Article 26 means a religious sect having a common faith and organisation and designated by a distinctive name. The word religious denomination takes their root from the word ‘religion’.
    • Therefore, in case of denomination, there must be a common faith of the community based on religion, and the community members must have a common religious tenets peculiar to themselves. To form a religious denomination, three conditions must be fulfilled:
    1. It is a collection of individuals who have a system of beliefs which they regard as conducive to their spiritual well being,
    2. They have a common organisation &
    3. Collection of these individuals has a distinctive name
    • Such religious denomination have a fundamental right to establish and maintain institutions for charitable purpose under Article 26(a) of the constitution subject to public order, morality and health.
    Comments