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Q.1) America wants to be India’s most “reliable partner” in an increasingly uncertain world. In the light of this statement highlight the present India-U.S. relations. How  both nations can further develop their relationship? (GS 2)

Ans.

Indo-US relations:

1-   Economic dimensions:

  • India ranks just 130th on the World Bank’s annual survey on the ease of doing business. Yet Tillerson cited the growth of the two countries’ economic partnership, saying 600 American companies work there and that U.S. investment in the country has risen 500 percent in two years.
  • Bilateral trade will climb beyond the record $115 billion reached last year, noting that a U.S. shipment of crude oil arrived in India this month for the first time.
  • Citing India’s role as the world’s most populous democracy, Tillerson said the two nations “share a vision for the future.” He called for closer defense ties, referring to a range of hardware the U.S. is prepared to sell India

Trade relations:

  • The U.S. is India’s second largest trading partner, and India is its 11th largest trading partner.
  • In 2015, the US exported $ 21.5 billion worth of goods to India and imported $ 44.8 billion worth of Indian goods.
  • Major items imported from India include information services, textiles, machinery, gems, and diamonds, chemicals and iron and steel products, coffee etc.
  • Major items imported by India include aircraft, fertilizers, computer hardware, scrap metal and medical equipment.

2-       Civil Nuclear Partnership:

  • The bilateral civil nuclear cooperation agreement was finalized in July 2007 and signed in October 2008. During Prime Minister Modi’s visit to the US in September 2014, the two sides set up a Contact Group for advancing the full and timely implementation of the India-US Civil Nuclear Cooperation Agreement, and to resolve pending issues.The India-United States Civil Nuclear Agreement also referred to as the “123 Agreement” signed  in 2008 is a bilateral agreement for peaceful nuclear cooperation which governs civil nuclear trade between American and Indian firms to participate in each other’s civil nuclear energy sector.  For the agreement to be operational, nuclear vendors and operators must comply with India’s 2010 Nuclear Liability  Act which stipulates that nuclear suppliers, contractors and operators must bear financial responsibility in case of an accident.

Counter terrorism:

  • Cooperation in counter-terrorism has seen considerable progress with intelligence sharing, information exchange, operational cooperation, counter-terrorism technology and equipment. India-US Counter-Terrorism Cooperation Initiative was signed in 2010 to expand collaboration on counter-terrorism, information sharing and capacity building.

Energy and climate change:

  • The U.S.-India Energy Dialogue was launched in May 2005 to promote trade and investment in the energy sector, and held its last meeting in September 2015 in Washington DC. There are six working groups in oil & gas, coal, power and energy efficiency, new technologies & renewable energy, civil nuclear cooperation and sustainable development under the Energy Dialogue.
  • Recently, Indian Oil Corp. Ltd received its first crude oil shipment from the US on Monday, after Washington re-entered the export market last year, increasing competition in an already depressed oil market.

Recent development on their relations:

  • The two countries have now advanced to $115 billion, with the surplus in India’s favour.
  • Still there are multiple obstacles remain in boosting two-ways trade to the proclaimed goal of $500 billion.
  • America has become a major arms supplier for India.
  • The volume of Indian defence imports has grown from near zero at the turn of the century to about $15 billion presently.
  • And now, both Trump and Tillerson have signalled renewed strategic enthusiasm for India.
  • In the last couple of decades, both the nations made progress by setting aside their differences on Pakistan and China.
  • America has begun to clear the path for strategic regional coordination between two nations.

Way ahead:

  • India should resist the temptation for an endless debate on whether America can move away from China and Pakistan and be India’s reliable partner. Delhi should focus, instead, on strengthening practical cooperation wherever possible with Trump’s Washington.
  • New Delhi must seek to stiffen America’s resolve to confront the Pakistan Army’s sponsorship of terror, encourage him to discard the residual bureaucratic hesitations in Washington about supporting India’s rise and delineate the pathways for constructing a stable balance of power system in the Indo-Pacific.
  • Both the countries need to work together on the political and security challenges across the Indo- Pacific region, from mounting tensions with North Korea, the Rohingya crisis, and India’s own standoff with China over Dokhlam to the lingering challenges in Afghanistan

Q.2) What do you mean by term “Non-Performing Assets (NPA)”? What are its implications on the Indian economy?  What are the steps taken by the RBI, the Government of India in achieving lower NPAs through legal mechanisms? (GS-3)

Ans.

The Centre recently unveiled an ambitious plan to infuse Rs 2.11 lakh crore capital over the next two years into public sector banks(PSBs) saddled with high, non-performing assets and facing the prospect of having to take haircuts on loans struck in insolvency proceedings.

What are Non-Performing Assets?

  • A loan or lease that is not meeting its stated principal and interest payments.
  • A loan is an asset for a bank as the interest payments and the repayment of the principal amount create a stream of cash flows.
  • Banks usually treat assets as non-performing if they are not serviced for some time. If payment has not been made as of its due date then the loan gets classified as past due.
  • Once a payment becomes really late the loan gets classified as non-performing. A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.

Impacts of NPAs:

  • The higher is the amount of non-performing assets (NPA)  the weaker will be the bank’s revenue stream.
  • Indian Banking sector has been facing the NPA issue due to the mismanagement in the loan distribution carried by the Public sector banks.
  • As the NPAs of the banks will rise, it will bring a scarcity of funds in the Indian markets. Few banks will be willing to lend if they are not sure of the recovery of their money.
  • The shareholders of the banks will lose of money as banks themselves will find it tough to survive in the market.
  • This will lead to a crisis situation in the market.
  • The price of loans, interest rates will shoot up badly. Shooting of interest rates will directly impact the investors who wish to take loans for setting up infrastructural, industrial projects etc.
  • It will also impact the retail consumers, who will have to shell out a higher interest rate for a loan.
  • All these factors hurt the overall demand in the Indian economy.
  • Finally, it will lead to lower growth and higher inflation because of the higher cost of capital.

Steps proposed by RBI:

  • Restructured standard account provisioning has been increased to 5% making it easier for banks to go for restructuring. On the flip side, this has the potential to enhance tendency of evergreening of loans.
  • RBI has directed banks to give loans by looking at CIBIL score and is encouraging banks to start sharing information amongst themselves
  • RBI has directed banks to report to Central Repository of Information on Large Credit (CRILC) when principal/interest payment not paid between 61-90 days
  • RBI has asked banks to conduct sector wise/activity wise analysis of NPA
  • SEBI has eased norms for banks to convert debt of distressed borrowers into equity

5/25 scheme

  • For existing and new projects greater than 500 crores and also for existing projects which have been classified as bad debt or stressed asset, bank can provide longer amortization periods of 25 years with the option of restructuring loans every 5 or 7 year
  • The advantage of this scheme is that it provides for longer lending period with inbuilt flexibility. Shorter lending periods leads to companies stretching their balance sheet to pay back loan.
  • From bank’s point of view it is helpful as freshly restructured asset is considered as bad debt and requires 15% provisioning by banks against such loans leading to erosion of profitability for banks

Strategic Debt Restructuring Scheme

  • This scheme provides for an alternative to restructuring. Wherever restructuring has not helped, banks can convert existing loans into equity. The scheme provides for creation of Joint Lenders Forum which is to be given additional powers with respect to:
  1. Management change in company getting restructured
  2. Sale of non core assets in case company has diversified into sectors other than for which loans were guaranteed
  3. Decision by JLF on debt restructuring by a majority of 75% by value and 60% by number
  4. On the positive side, willful defaulters are dissuaded as they fear the loss of their company

Issues with the scheme:

  • Banks do not have expertise of managing companie
  • The Joint Lenders Forum mechanism has an inherent conflict between large banks and small lenders. The large banks have huge exposure and thus they want to restructure the loans so as to avoid provisioning. The smaller lenders fear arm twisting by large banks. Since they have less exposure they are unwilling to throw good money after bad and prefer to sell their exposure to ARCs as HDFC did in case of EssarSte

Assessment of SDR

  • SDR is not performing too well. Of the 21 cases in which SDR has been invoked, only 4 have been closed. The problems are:
  1. Difficulty in finding buyers
  2. Buyers demanding prices that are unacceptable
  3. Creditor’s concern over their source of funding and credibility
  4. In the absence of potential buyers, bank wouldn’t want to hold onto these assets indefinitely. Unless and until a mechanism is devised which charts out a course of what to do thereafter, it doesn’t make much sense to do this conversion
  5.  Disagreement over valuations
  6. Banks not willing to take severe haircuts.
  7. Problem particularly acute in the infra sector where the valuations have drastically declined over the past 2-3 years
  • Scheme for sustainable structuring of stressed assets – This allows banks to split the stressed account into two heads – a sustainable portion that the bank deems that the borrower can pay on existing terms and the remaining portion that the borrower is unable to pay(unsustainable). The latter can be converted into equity or convertible debt giving lenders a chance to eventually recover funds if the borrower is unable to pay. The Scheme will help those projects which have started commercial operations and have outstanding loan of over Rs 500crore. Banks will also need to set aside higher provisions if they choose to follow this route.

Advantages of new scheme

  • To help restore credit flow to stressed sectors such as steel etc as credit lending condition have been eased in the scheme
  • Banks can rework their stressed accounts under the oversight of an external agency. This means greater transparency in functioning of banks. This is a provision of the scheme itself. Banks had earlier complained of activism by investigative agencies in probing bad debt which made it difficult for them to go for restructuring in even genuine cases
  • This scheme would not only strengthen the lender’s’ ability to deal with stressed assets, but would also put real assets back on track, benefitting both banks and the promoters of troubled entities.

Government initiatives to tackle NPAs:

Promulgation of Banking Regulation (Amendment) Ordinance: It helps in the following ways:

  • It empowers the RBI to direct Banks to initiate insolvency resolution, wherever such need arises.
  • It also give advice to baking agencies on ways of tackling with its stressed asset problems.
  • It aims to check this menace in a time bound manner and helps in timely recovery of the stressed assets.

Incorporation of SARFAESI ACT:

  • The Securitization and Reconstruction of Financial assets and Enforcement of Security Interest Act 2002 empowers the banking systems to auction residential or commercial properties (except agricultural land) to recover their loans.

Debt Recovery Acts:

  • These laws established debt recovery tribunals with the power to recover debts of Banks and Financial Institutions.

Concept of Bad Banks:

  • In this concept the banking institutions sell their bad loans to an intermediary and thus they write off their bad loan and intermediary has to recover the loan from the defaulter.

Mediation for loan recovery:

  • This concept was introduced so that genuine defaulter, who are unable to pay off their loans, but are not able to put forward their situations with the banking authorities, hire a mediator, who discusses this with the banking officer and come to a solution.

Strategic Debt Restructuring (SDR):

  • Creditors could take over the assets of the firms and sell them to new owners.

Sustainable Structuring of Stressed Assets (S4A):

  • An independent agency hired by the banks will decide on how much of the stressed debt of a company is sustainable

The government recently passed an ordinance to amend certain sections of the Banking Regulation Act, 1949:

  • This allow the banking companies to resolve the issue related to stressed assets by initiating the insolvency proceedings whenever required. This is in addition to the recently promulgated  Insolvency and Bankruptcy Code, 2016 which provides for time bound resolutions of stressed assets.

Government promulgated the Banking Regulation(Amendment) Ordinance, 2017 with the following features:

  • It was passed to deal with stressed assets, particularly those in consortium or multiple banking arrangements.
  • It authorize the RBI to direct banking companies to resolve the issue related to specific stressed assets, by initiating insolvency resolution process wherever required.

Public asset reconstruction agency(PARA):

The Public Sector Asset Rehabilitation Agency (PARA) colloquially called Bad Bank is a proposed agency to assume the Non-Performing Assets (NPA) of public sector banks in India and to deal with the recovery of the bad loans. This agency has been proposed in Economic Survey 2016-17.

Conclusion:

Looking at the giant size of the banking industry, there can be hardly any doubt that the menace of NPAs needs to be curbed. It poses a big threat to the macro-economic stability of the Indian economy. An analysis of the present situation brings us to the point that the problem is multi-faceted and has roots in economic slowdown; deteriorating business climate in India; shortages in the legal system; and the operational shortcoming of the banks.  The recommendations given by RBI are a welcome step in this regard.

Q.3)  Child marriage has historically cast a shadow over rape law reform in India. In the light of the statement highlight the reasons for prevalence of Child Marriage in India. What are the consequences of child marriage in India?

Ans.

Child marriage has historically cast a shadow over rape law reform in India. But the  recent judgement by the Supreme Court makes it clear that  sexual consent can only be given by an adult woman of 18 years.

The apex court holds that the “the girl child must not be deprived of her right to choice”. The right to choose includes freedom from parental pressure to marry early, freedom from forced marriages, freedom of  choice of sexual orientation, and freedom to find self-fulfillment through study, work, profession, vacation or talent.

Reasons of child marriage :

Major Reasons for prevalence of Child Marriage in India:

Economies of marriage:

  • Poverty and marriage expenses such as dowry may lead a family to marry off their daughter at a young age to reduce these costs.
  • Patriarchal Indian society considers a girl as an economic burden. Marrying her off at an early age is a way to transfer this burden to the marital family.
  • There is another dimension to the economies of marriage. The marriage of the boy brings home an additional hand to assist the unpaid household and economic activities.

Lack of education:

  • Poor educational opportunities for girls, especially in rural areas increase the vulnerability of a girl child to be married off early.
  • Also, in the current patriarchal setup of the Indian society a girl’s right to education is regarded as a secondary priority to her labour in the household. This aggravates the situation as the girls’ power to resist marriage and opt for alternative aspirations is decreased.
  • Patriarchy and gender inequalities prevailing in the Indian society is one of the major reasons for persisting high incidence of child marriages.
  • Prevailing cultural perspectives to encourage the child marriage to thrive in.
  • Inadequate implementation of laws is a major reason for persisting menace of child marriage in the country.

Impacts of child marriage:

  • On women’s health: Issues related to early pregnancy. Mental health is also a major concern. Violence and abuse at marital home can lead to post-traumatic stress and depression.
  • On Education: Girls are forced to drop out schools. There lies a cause and effect relationship between lack of education and child marriage.
  • On fertility: Lower age at marriage directly affects fertility rates. Lower the rate of age at marriage higher is the fertility rate.
  • Maternal mortality: Maternal mortality is high among women who have conceived at an early age. Risks associated with pregnancy are higher.
  • Infant Mortality: Mortality rates of children born to very young mothers are high. The children that survive are likely to develop health problems and are more at risk of transmitting HIV/AIDS.
  • Violation of Rights of Children: The Rights of Children are denied by early marriage. The Convention on the Rights of the Child is designed to guarantee certain individual rights. Child marriage denies the following rights:
  • The right to education,
  • The right to be protected from physical and mental violence, injury or abuse, including sexual abuse, rape and sexual exploitation,
  • The right to the enjoyment of the highest attainable standard of health,
  • The right to rest and leisure, and to participate freely in cultural life,
  • The right to not be separated from parents against the child’s will,
  • The right to protection against all forms of exploitation affecting any aspect of the child’s welfare and
  • The right to eventual employment

 

 

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