9 PM Daily Brief – November 19, 2020

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GS 1

Urbanisation and pandemic

GS 2

Government interventions

Federal water governance ecosystem

GS 3

Moratorium on Lakshmi Vilas Bank

Export: A key to economic growth


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FACTLY


Urbanisation and pandemic

Source: The Hindu

Syllabus: GS-1- Urbanisation

Context: Prime Minister Narendra Modi’s call for a reimagining of urban planning and development to make cities and towns healthy and liveable after COVID-19.

More on news:

  • PM emphasised resetting the mindset, processes and practices for safe urban living, and acknowledged that governments actually do little for the working millions at the Bloomberg New Economy Forum.

Discuss the spread of pandemic in urban areas and associated issues.

  • Spread of pandemic: The top 10 cities affected worldwide accounted for 15% of the total cases, and data for populous Indian cities later showed large spikes that radiated into smaller towns.
  • Reason for the spread: Rapid transmission in Mumbai, Delhi, Bengaluru and Chennai was the unavoidable outcome of densification and an inability to practise distancing norms.
  • In Dharavi, which has one of the world’s highest slum densities, epidemiologists point an apparently low viral impact to screening and herd immunity.
  • Social impact: The pandemic’s full social impact, especially among the poorer people has not been adequately measured here or elsewhere.
  • Housing: Good and affordable housing is the basis of a sustainable and healthy city.
  • Well-designed rental housing that is the key to protecting migrant labour and other less affluent sections remains poorly funded.
  • Mumbai is estimated to have added only 5% of rental housing in new residential construction (1961-2000), and that too led by private funding.
  • Enforcement of laws:  Laws on air pollution, municipal solid waste management and water quality are hardly enforced, and tokenism marks the approach to urban mobility.

What can be done?

  • Schemes: An opportunity to make schemes such as the Centre’s Affordable Rental Housing Complexes deliver at large scale and focus on new good houses built by the state.
  • Demand and supply: The Ministry of Housing could work by digitally combining and transparently publishing data on demand and supply for each city.
  • Learning from the past:  Past menaces such as cholera, the plague and the global flu pandemic a century ago led to change such as sewerage, waste handling, social housing and health care that reduced disease. Something on the same lines should be done about the pandemic.
  • Government should show the political will to reinvent cities after the pandemic is over.

Government interventions

Source- The Hindu

Syllabus- GS 2- Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and Bodies constituted for the protection and betterment of these vulnerable sections.

Context – The Government’s core belief in ‘minimum government’, which ties its hands when it comes to fiscal measures even in such harsh economic conditions.

What are the reasons for the failure of stimulus packages?

  1. Lack of Demand– The aggregate demand for goods and services again is dependent on the income and purchasing power of people, which has come down drastically, at the aggregative level, due to the COVID-19 lockdown.
  • Nothing to stimulate demand – many economists have opined that the government stimulus tries to resolve only supply-side issues. There is nothing to generate demand. This could only be done by putting money in the hands of people.
  1. Risk of taking housing loans – Though the consumer or housing loans are easily available at lower rates of interest, still people are not taking the household loans, as they are in doubt of their future incomes or dwindling current one.
  2. Bank burdened with bad loans- On the supply side, the big constraint on fresh lending is the burden of non-performing assets (NPAs).
  3. Credit easing will not work immediately– Credit easing by the RBI is not direct government expenditure and banks will be hesitant to lend the money available with them.

What are the possible solutions?

  1. Relax FRBM target– Fiscal Responsibility and Budget Management (FRBM) should be kept in a state of suspension for both Centre and the States.
  2. Cash transfer to Households– The government needs to announce a ₹10 lakh crore fiscal stimulus package providing universal food ration and cash transfers for households in order to revive the economy at this time.
  3. An urban employment guarantee law– This could help improves worker incomes and have multiplier effects on the economy.
  4. Improving health infrastructure– The government needs to build a robust public health infrastructure on the principle of public provisioning instead of walking down the insurance route.
  5. Investment in Green Deal- – A comprehensive green deal can be planned, which changes the energy mix of the economy and also makes the poor and the marginalized a part of a sustainable development process.

Way forward-

The current COVID-19 pandemic has given an opportunity to rethink of health, economic and climate policies.

Federal water governance ecosystem

Source- The Indian Express

Syllabus- GS 2- Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.

Context- Importance of Centre-States coordination to deal with the emerging challenges of inter-state water governance.

How the two bills on water can attend the longstanding issue of inter-state externalities

  1. The Interstate River Water Disputes Amendment Bill 2019– The bill seeks to improve the inter-state water disputes resolution by setting up a permanent tribunal supported by a deliberative mechanism, the dispute resolution committee.
  2. The Dam Safety Bill, 2019– The bills provides for the surveillance, inspection, operation, and maintenance of specified dams, with the help of a comprehensive federal institutional framework comprising committees and authorities for dam safety at national and state levels.
  • It also provides for an institutional mechanism to ensure the safety of such dams.

However, these two bills were passed by Lok Sabha and are pending in Rajya Sabha.

What is the importance of Jal Jeevan Mission JJM?

  • The chief objective of the Mission is to provide piped water supply (Har Ghar Jal) to all rural and urban households by 2024.
  • The Jal Jeevan Mission will converge with other Central and State Government Schemes to achieve its objectives of sustainable water supply management across the country.
  • The central assistance through JJM is an opportunity to open a dialogue with the States to address federal water governance gap.

Why a coordinated response from the Centre and states is vital?

  1. Systematic federal response– Emerging concerns of long-term national water security and sustainability, the risks of climate change, and the growing environmental challenges, including river pollution needs systematic federal response where the Centre and the states need to work in a partnership mode.
  2. For implementation of current national projects– Centre-States coordination is also crucial for pursuing the national projects. For example Ganga river rejuvenation or inland navigation or inter-basin transfers.
  3. Critical for Jal Jeevan Mission’s success.
  4. To pursue development and sustainability goals

What is the way forward?

  1. Absence of authoritative water data- Data systems related to water in the country are limited in their coverage, robustness and efficiency. The sector suffers from the following key data problems-
  2. Limited coverage,
  3. Unreliable data
  4. Limited co-ordination and sharing.

Therefore, the Centre can work with the states in building a credible institutional architecture for gathering data and producing knowledge about water resources.

  1. Jal Jeevan Mission presents an opportunity to get states on board for a dialogue towards stronger Centre-states coordination and federal water governance ecosystem.

Moratorium on Lakshmi Vilas Bank

Source: Indian Express

Gs3: Mobilisation of Resources- Banking Sector & NBFCs

Context: RBI has imposed a moratorium on Lakshmi Vilas Bank and drafted a scheme for a merger.

Why it is a concern?

  • Already, India’s banking system is distressed due to the failures of IL&FS, Punjab & Maharashtra Cooperative Bank and DHFL, followed by the bailout of Yes Bank.
  • Now, the Reserve Bank of India decision to put in place a draft scheme for the amalgamation of Lakshmi Vilas Bank with DBS Bank India, a subsidiary of DBS of Singapore, has raised concerns about the safety of the financial system.

Why this decision was taken?

  • Erosion of the bank’s net-worth: Deposits has undergone a steady decline, with continuous losses over the last three years.
  • Experiencing low levels of liquidity: Inability to raise adequate capital from market and due to continuous withdrawal of deposits.
  • Increase in Non-performing assets: Almost one fourth of the bank’s advances have turned bad assets. Its gross non-performing assets (NPAs) stood 25.4% of its advances as of June 2020

What has been the regulatory response to these failures?

  • The announcement of moratorium by banking regulator.
  • Followed by a reconstruction plan.
  • Followed by the Capital infusion by banks and financial institutions by investing in the equity capital of the reconstructed entity

Issues faced by old-generation private banks?

  • Lack of promoters: For example, the South Indian Bank and Federal Bank have been operating as board-driven banks without a promoter. In Karur Vysya Bank, the promoter stake is 2.11%, and in Karnataka Bank, there’s no promoter making them targets for mergers or forced amalgamation.

Are the depositors and the financial system safe?

  • For small depositors, the Deposit Insurance and Credit Guarantee Corporation (DICGC), an RBI subsidiary gives insurance cover on up to Rs 5 lakh deposits in banks.
  • Apart from this, additional infusion of capital and the proposed amalgamation will make the combined balance sheet of DBS India and LVB healthy.

What happens to the investors in these banks?

  • Equity capital is being fully written off. This means that existing shareholders face a total loss on their investments unless there are buyers in the secondary market.
  • The Equity Capital refers to that portion of the organization’s capital, which is raised in exchange for the share of ownership in the company.
  • In the case of Yes Bank, too, some individual investors faced a total loss on their investments in AT-1 bonds.
  • As per RBI rules based on the Basel-III framework, AT-1 bonds have principal loss absorption features, which can cause a full write-down or conversion to equity.

How far the loan stress caused by the pandemic impact the banking system?

  • The impact will differ depending upon the sector, as segments like pharmaceuticals and IT seem to have benefited in terms of revenues whereas sectors like hospitality, tourism, aviation have been hit the most.
  • However, due to the Pandemic, the Corporate sector debt that remains under stress has increased (worth Rs 37.72 lakh crore that is 72% of the banking sector debt to industry).
  • An expert committee headed by K V Kamath recommended for a one-time loan restructuring window for corporate borrowers under stress due to the pandemic.

Export: A key to economic growth

Source: IndianExpress

Gs3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context: Arvind Panagariya’s new book, India Unlimited: Reclaiming the Lost Glory, discuss systematically how to reconstructs a path to higher growth.

What is the present scenario?

  • Public sectors confronting a mountain of debt, the fiscal will need to be reined in post-COVID across several emerging markets.
  • COVID-19 will accentuate the prevailing export pessimism, as global potential growth is damaged and protectionist instincts are stoked.
  • The choice and sequencing of reforms will depend critically on the growth philosophy India embraces.

What are the possible strategies?

  • India’s size provides fertile ground for import substitution. However, this approach was not successful in the past.
  • The most significant is to underscore the necessity of export-led growth to India’s prospects.
  • No emerging market has been able to sustain 7-8 per cent growth for any length of time without relying on the Siamese twins of exports and investment.
  • Dismantle the underpinnings of export pessimism.

Why there is need to focus on exports?

  • Prospects in exports: Global merchandise exports stood at almost $18 trillion in 2017 (more than six times India’s GDP) with India commanding an export share of just 1.7 per cent (versus China’s 12.8 per cent).
  • Doubling exports: Even if the global market shrinks to $15 trillion, India could double its exports by raising its global market share to just 4 per cent. India’s 2002-2010 growth boom was underpinned by exports, which grew 18 per cent a year for eight years.
  • Labour-intensive manufacturing: For many labour-intensive tasks, automation is still infeasible. Adidas, for example, produces only 1 million of its 360 million pairs of shoes in automated factories.
  • Geopolitical reasons: Chinese real wages are rising; the workforce is shrinking and the embattled relationship with the US.
  • Integration: integrate into the Asian supply chain by attracting multinational companies seeking a China hedge in the region.
  • Create jobs: exports can create manufacturing jobs which will serve as a powerful magnet to attract labour away from agriculture. By 2030, agriculture will constitute less than 10 per cent of GDP while still employing 35-45 per cent of the workforce.

What are the challenges that lie in front of India?

  • India’s fragmented industrial structure: It’s estimated almost 60 per cent of India’s manufacturing workforce is employed in firms with five or less workers, and 75 per cent in firms with 50 or less workers.
  • Low productivity and low wages: For example, 92 per cent of workers in the apparel sector worked in firms with less than 50 workers. In contrast, 57 per cent of China’s apparel workforce were employed in firms with more than 200 employees.

What needs to be done?

  • Avoiding the import-substitution trap.
  • Reduce Import tariff which are equivalent to an export tax.
  • Ensuring the rupee remains competitive.
  • Boosting free trade agreements and trade facilitation.
  • Creating autonomous employment zones (AEZs) where factors of production are less distorted.
  • Reduce the gulf in per-capita incomes between agriculture, industry and services.
  • Create higher-wage jobs in industry and services for agricultural workers to migrate to.

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