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Today’s important articles/news in various newspapers (7th March)

Dear aspirants, following are the links of various articles taken from various newspapers. Click the link to read further. To get notification, follow the blog. Thank you

1. Why India’s banking sector is among the most vulnerable in G-20 economies today

The capital adequacy ratio of India’s banking system is much worse than that of peers.

What is capital adequacy ratio?

Capital Adequacy Ratio (CAR) is the measure of a bank’s financial strength expressed by the ratio of its capital (net worth and subordinated debt) to its risk-weighted credit exposure (loans).

It is also called CRAR-Capital to Risk-weighted Assets Ratio.The Reserve Bank of India (RBI), currently prescribes a minimum capital of 9% of risk-weighted assets, which is higher than the internationally prescribed percentage of 8%.

  • Banks must maintain an adequate capital base to protect themselves against “bank runs” and NPAs. Therefore, BASEL Committee on banking supervision has prescribed certain norms.
  • First: they must maintain a minimum capital to risk weighed asset ratio (CRAR). RBI has prescribed limits and deadlines for its compliance.
    • BASEL is a city of Switzerland.
    • BASEL norms were initially designed in 1988. Later updated in 2004 and 2011. They prescribe ‘safe-lending’ norms to banks.
    • At present we are at BASEL-III norms stage.
    Classification of Bank capital
    Tier-1 Tier-2
    common shares Debts (bonds)
    preferential shares hybrid instruments such as “optionally fully convertible debentures”
    highest liquidity i.e. can be sold easily to gather cash and ward off any crisis. less liquid than Tier-1 capital
    This capital is further classified into Upper T2 and lower T2. But such technicalities are not asked in competitive exams or generic interviews so ignore it.
    • Anyways, point being- if a bank wants to loan 100 crore money (risk weight assets) then it ought to have 9 crore as “total capital adequacy”.
    • if not, then they need to arrange money by borrowing via debt or equity route.

2. The gap between a single-party system and democracy

If democracy is about checks and balances against the reign of brute majorities, then China’s one-party system is far from it.

The Chinese Communist Party has ruled the country since 1949, tolerating no opposition and often dealing brutally with dissent.

The country’s most senior decision-making body is the standing committee of the politburo, heading a pyramid of power which tops every village and workplace.

Politburo members have never faced competitive election, making it to the top thanks to their patrons, abilities and survival instincts in a political culture where saying the wrong thing can lead to a life under house-arrest, or worse.

Formally, their power stems from their positions in the politburo.

Salient Features of the China’s Constitution

  • Preamble

The paramount position of Marxism, Leninism and Mao’s teachings has been acknowledged in relation to ideological goals of the political system. Traditional principle of Democratic Centralism has also been given due place within the Constitutional setup. The old definition of China as a “Dictatorship of the Proletariat” has been replaced with “People’s Democratic Dictatorship.”

The Preamble clearly recognizes Taiwan as an integral part of China and its liberation is declared as a liability of Chinese People. Five points have been set as the underlying principles to be observed in the field of foreign relations. These include:

  1. Respect and Preservation of the territorial integrity of all nations
  2. Avoidance of aggression
  3. Non-interference in the internal affairs of other countries
  4. Promotion of international cooperation
  5. Peaceful coexistence
  • Nature of Constitution

It has close affinity in letter and spirit, with the constitution of the former Soviet Union. It is neither too rigid nor too flexible.

  • Basic Principles

Under the Constitution, People’s Republic of China is a Socialist State established in the name of People’s Democratic dictatorship, wherein Communist Party performs a leadership role to guide the people. People are declared as fountain of power and authority and they will exercise it through National People’s Congress.

  • Unitary System

The People’s Republic of China is a unitary multi-national state created jointly by the people of all its nationalities. In China, a strong central government exists while regional governments, as distinct entities, have not been created under the Constitution. Therefore, In order to encourage people’s participation in policy-making and preserve their interest in public affairs, decentralization has been introduced in the governmental affairs. The central government has delegated much authority and powers to the regional and local administrative units.

  • Democratic Centralism

Like the political system of former Soviet Union, the principle of “Democratic Centralism” prevails in People’s Republic of China as well. Keeping in view democratic norms, elective principle has been introduced at all levels not only within the governmental institutions but also within the Party organization. All the citizens have been secured the right to vote on the basis of adult suffrage.

  • One Party System
  1. The Communist Party enjoys almost dictatorial powers within the constitutional framework and has been regarded as the sole source of political authority for all practical purposes.
  2. Party organization runs parallel to that of the governmental institutions. Party elite hold all top-notch positions in the government.
  3. In practice, no other political party enjoys real freedom to act.

Certain youth organizations, loyal to the party and working groups affiliated with the Party, enjoy the right to participate in decision-making.

Legislature

  1. The National People’s Congress (NPC) comprises the legislative branch.
  2. It is a unicameral legislature with more than 3000 members.
  3. Theoretically, it is the top decision making body in China. It has the ultimate say on policies, amendments and appointment of ministers in the government.
  4. It has been declared as an organ through which the people exercise state power.
  5. Congressmen are elected by regional Congresses, by autonomous regions, by Municipalities working under the central government and by People’s Liberation Army, each according to its quota.
  6. The mode of election is based on secret ballot, while the constitution guarantees holding of free and fair elections.
  7. The real work of NPC is done by a smaller body known as Standing Committee of NPC, consisting around 150 members.

Executive

  • State Council

The State Council is the Cabinet or Executive of China. It is headed by the Premier, four Vice Premiers and State Councillors. Under the Constitution, State Council is the chief executive organ of the government. All its members are elected by the Congress and accountable to it. Enforcement of law, formation and execution of the administrative policy is the major function of the Council. The members of the State Council introduce the bills on the floor of the Congress in the form of proposals and later manage to get these translated into law on parliamentary lines.

  • Premier

The Premier performs a very important role as head of the administration and holds a pivotal position within the administrative set up.

  • President
  1. The President of the Republic is regarded as head of the state.
  2. He is elected by the Congress for a period of five years.
  • The President enjoys the most prestigious position in the administrative setup.

Judiciary

China has a committed Judiciary, i.e. committed to the goal of Socialism. The highest organ is the Supreme People’s Court. China also has a Court of Procuratorates – it deals with corruption cases of officials. Chinese law has never been codified in a systematic form. Most of the disputes and controversies are settled in quasi-judicial institutions. The Chinese judicial system has been held together more by conventions, rather than by laws.

  • Central Military Commission
  1. The party and the government maintain control on the military through the Central Military Commission
  2. Military is also described as the defenders of the Communist Party.

3. Strengthening State Legislatures Background Note for the Conference on Effective Legislatures

State legislatures are responsible for making laws on key subjects like land, police and health. They are also tasked with approving the expenditure of money for their respective states every year. This note examines certain aspects related to the functioning of state legislatures, and ways in which they can be strengthened.

Responsibilities of state legislatures:
The primary responsibilities of the legislature of every state include passing laws, approving government expenditure, and scrutinising the functions of the Executive. The Constitution has specified the subjects on which Parliament and state legislatures can legislate upon. While Parliament legislates on matters such as defence, citizenship and banking, state legislatures pass laws on subjects like land, police and health. Further, there are certain subjects on which the centre and states can legislate upon concurrently. In the last few years, significant legislative reforms in some concurrent areas such as land acquisition, labour and taxation are being carried out at the state level.

For example, in 2014, Rajasthan passed amendments to three central labour laws, including the Industrial Disputes Act, 1947 and Factories Act, 1948. The introduction of the Goods and Services Tax (GST) regime has empowered states to impose indirect taxes on both goods and services.
State legislatures are also tasked with approving the budget. Expenditure of states is focused on providing essential services such as, infrastructure like roads and schools, public safety, and subsidies. Further, the last few years have seen an increased devolution of funds from the centre to the states. This is expected to result in greater
autonomy in decision making at the state level. In 2015-16, all states together budgeted to spend Rs 23.4 lakh crore: this was 30% more than the centre’s budget.

4. ‘It is time to have a debate on proportional representation’

The former Chief Election Commissioner on the problem with electoral bonds, the unnecessary controversy over EVMs, and electoral reforms.

First Past the Post

In India, all key representatives except President, Vice President, Members of Rajya Sabha and Members of state legislative council are elected via FPTP system.  In recent times, questions have been raised as in 2014 election, NDA won only 31% of the total votes cast and that, therefore, 69% of those who voted did not vote in favor. Due to this system, the groups of parties which managed to get less than 50% of the total votes polled have managed to get more than 75% of the total seats in the parliament. The argument is that due to FPTP, certain groups of people will never get a share in the power structure.

Merits of FPTP system

Simplicity

The most significant advantage of the FPTP system is its uncomplicated nature using single-member districts and candidate-centred voting. Moreover, the FPTP system allows voters to choose between people as well as parties, with voters having the opportunity to assess the performance of a candidate rather than having to accept a list of candidates presented by a party, as under the list system.

Stability

The FPTP system has been known for stability in the electoral system of India. The Supreme Court in RC Poudyal v. Union of India (1994) had categorized the FPTP system as possessing ‘the merit of preponderance of decisiveness over representativeness’. This implies that the FPTP system presents the advantage of producing a majority government at a general election by being decisive, simple and familiar to the electorate. This, at least in theory, assures stable terms for the party in power, with the requisite numbers in the House to ensure implementation of its policies.

In practice, India has seen both stable majority and unstable coalition governments under the FPTP system, indicating that it is not this factor alone that assures the stability of the electoral system in India.

Other Merits

FPTP system encourages political parties themselves to have more broad-based participation. Moreover, it ensures that there is a link between a constituency and its representative in the legislature, and incentivizes representatives to serve their constituents well.

Demerits of FPTP

The principal criticism leveled against the FPTP system is that it leads to the exclusion of small or regional parties from the Parliament. There is commonly a discrepancy in the vote share and seat share in results, where votes given to smaller parties are ‘wasted’ since they do not gain a voice in the legislature.

FPTP system, which boasts of the fact that it provides a majoritarian (and hence more democratic) government, is itself not able to adequately uphold majoritarianism in a multiparty system, since the winning candidate wins only about 20-30% of the votes. For example, the Indian National Congress won only about 49.10% of the total vote share in the 1984 General Elections to the Lok Sabha, but had a sweeping majority of 405 out of 515 seats in the House.

Smaller parties, when they have a broad base across constituencies, rather than a concentrated following in a few constituencies, may fail to win even a single seat even if their vote share is significant.

Analysis of FPTP System

FTPT is useful because it is simple to use and easy to understand. It provides clear-cut choice for voters between two main parties. It allows voters to choose between people rather than just between parties. Thus, voters can assess the performance of individual candidates rather than just having to accept a list of candidates presented by a party. It gives a chance for popular independent candidates to be elected. However, the issue is that the victorious party has most often not secured the majority of votes. It is possible for a party to win majority of the seats with just 20-26% of vote share; by the same token, a party may not get a simple majority even with 74% of vote share. There is, hence, a mismatch between the number of seats won and the percentage of vote secured by the party.  Further criticisms of FPTP are as follows:

  • Distortion of electoral process
  • Excludes smaller parties from fair representation
  • Encourages caste, religion, Ethnicity and regional politics.
  • Exaggerates the phenomenon of ‘regional fiefdoms’

We note here that during the drafting of the Constitution, various systems of proportional representation were considered, but the FPTP system was eventually adopted to avoid fragmented legislatures and to facilitate the formation of stable governments.

Proportional Representation (PR)

Proportional representation (PR) is a concept in which the number of seats won by a party or group of candidates is proportionate to the number of votes received.

Key Variants of PR

The system of proportional representation has many variants, out of which two systems are most popular viz. List system and System of single transferable vote.

List system

In the list system, political parties present lists of candidates in advance, who are awarded seats in proportion to their party’s vote share, usually with some minimum prescribed thresholds.

Method of the single transferable vote

In this system, the voters make an electoral college and while voting, they rank candidates in order of preference. Their vote is allotted to their first preference, and if no one emerges with a majority, the least voted candidate is removed from consideration and the second choices of those who voted for him are taken into consideration. This process continues till a winner with a majority emerges.

PR System in India

India is not new to PR system; in our country, the following elections are held on the basis of proportional representation:

  • President
  • Vice President
  • Members of Rajya Sabha
  • Members of state legislative council

Analysis of Proportional Representation

Proportional representation undoubtedly falls second in competition with the FPTP system in terms of simplicity in voting, but it scores higher in terms of convenience during campaign. Candidates can simply focus pointed attention on defined groups to appeal to, and consequently, the problems of campaign financing do not feature as prominently in the process.

Proportional System and Stability

Because parties are granted seats in accordance with their vote share, numerous parties get seats in the legislature in the proportional representation system, without any party gaining a majority. This detracts from the stability of the system. Coalition government becomes inevitable, with challenges to such governments also becoming frequent. This is also why the Constituent Assembly decided that proportional representation would not be suited to the Parliamentary form of government that our Constitution lays down.

Proportional System and  Representativeness

Proportional representation, tries to ensure that the election results are as proportional as possible, by curbing the inconsistency between the share of seats and votes. It ensures that smaller parties get representation in the legislature, particularly when they have a broad base across constituencies. It also encourages new parties to emerge and more women and minorities to contest for political power.

Proportional representation ensures honesty in the election process both from the side of the candidate, who can choose their ideological commitments freely, and from that of the voter, who can vote freely.

Proportional System and Voter-Candidate Connect

One potential drawback of this system is that the relationship between a voter and the candidate may dilute, for the candidate may now be seen as representing the party and not the constituency. The other way of looking at this is that a constituent could approach any representative of their choice in case of a grievance, which plays out as an advantage of this system.

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