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Today’s important articles/news in various newspapers (27th August)

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. Ayushman Bharat and concepts of insurance

  1. Nearly 500 million people or 40% of India’s population will have health insurance as the government gears up to launch Ayushman Bharat, a health policy for the under-privileged.
  2. Modalities with respect to its pricing are still being worked out, but the scheme will be financed by the centre and the state governments.

Trust Model for Premium Payment

  1. Many states have agreed to launch Ayushman Bharat through a trust model and not the insurance model.
  2. Under the trust model, the premium will not be paid to an insurance company, but will be pooled into a trust.
  3. It is this trust that will manage and administer the health scheme and also pay the claims.
  4. Under the insurance model, the state will pay premiums to an insurance company just like you do to your health insurer.
  5. The onus will be on the insurer to administer and pay the claims.
  6. Both insurance and trust models depend on two basic principles: pooling of risk and law of large number.

Pooling of risk

  1. What are the chances of a theft occurring in the entire neighborhoods at once?
  2. Close to zero, but chances that one house gets robbed are much higher.
  3. Now imagine the entire neighbourhood gets together and pools money to insure them against the common threat of theft. So if one house gets burgled, the pool can compensate for that burglary.
  4. This is called pooling of risk. Here, the risk of an event is spread out among all the people facing the risk who are prepared to pay a small sum or premium to get protection from that risk.

Law of large numbers

  1. But pooling of risk is just one part, it’s important for this pool to be large to avoid adverse selection and improve the predictability of a risky event actually taking place to be able to price the product right.
  2. This predictability increases as more people join the pool. This is called the law of large numbers.
  3. According to this law, the average of the results obtained from a large number of trials will be closer to the expected result. Insurers can predict risk more accurately through this law.
  4. So the larger the sample size, the greater is the predictability for insurance—this also leads to pricing the risk right.
  5. This is what Ayushman Bharat model depends on given that it’s meant for 500 million people.

2. Council conundrum: on States having a Legislative Council

Odisha is all set to get a Legislative Council like several other States in the country. Odisha’s plan calls for a national policy on the utility of a second chamber (the Legislative Council) in the States. Odisha wants to join the group of States that have an Upper House. The State Cabinet has approved a 49-member Legislative Council, accepting the report of a committee set up in 2015 to study the functioning of the second chamber in other States and make recommendations.

Legislative Councils:

  • The legislative council is permanent body but 1/3rd of its member retire every 2 years. The members of the council elect a chairman which is called “presiding officer”. The council also elects the Deputy chairman.
  • Total Number of the Legislative Council should not exceed the 1/3rd of the total number of members of the Legislative assembly, but it should not be less than 40 (Article 171).
  • Jammu & Kashmir is an exception to this where the upper house has strength of 36 only. This is because; J & K assembly is created as per the J & K constitution and Part VI is not applicable to Jammu & Kashmir.

Details:

  • There are only seven such Councils across the country in the states of Andhra Pradesh, Bihar, Jammu and Kashmir, Karnataka, Maharashtra, Telangana, and Uttar Pradesh.
  • Section 168 of the Indian constitution speaks about the Constitution of Legislatures in States and Article 169 speaks about “Abolition or creation of Legislative Councils in states”.
  • Indian Constitution does not adhere to the principle of bicameralism in case of every legislature. Whether there should be a legislative council in the state or not, is decided by legislative assembly of the state itself.
  • But it does not mean that legislative assembly can itself create a legislative council. The constitution of India has full provisions about the creation of legislative council and its abolishment.
  • The power of abolition and creation of the State legislative council is vested in Parliament of India as per article 169. But, to create or to abolish a state legislative council, the state legislative assembly must pass a resolution, which must be supported by majority of the strength of the house and 2/3rd majority of the present and voting (Absolute  + Special Majority).
  • The resolution to create and abolish a state legislative council is to be assented by the President also.
  • Though when a legislative council is created or abolished, the Constitution of India is also changed, it is not considered as a Constitution Amendment Bill.

Is there a need for Legislative Council in all the States?

The framers of the constitution as well as members of the Constituent assembly had in mind that it may not be possible for all the states to support two houses, financially as well as for other reasons. For instance, some of the members of the Constituent assembly criticized the idea of bicameral legislature in the states as a superfluous idea and a body which is unrepresentative of the population, a burden on the state budget and causing delays in passing legislation. That is why, it was left for the legislatives of the state assembly to decide whether or not there should be a legislative council in the state.

Arguments in favour of Legislative Councils in every state:

  • An Upper House provides a forum for academicians and intellectuals, who are arguably not suited for the rough and tumble of electoral politics.
  • It provides a mechanism for a more sober and considered appraisal of legislation that a State may pass.
  • Legislative Councils make the governments more accountable.
  • The members of Legislative Council through their experience can act as the friend, philosopher and guide of the Legislative Assembly.

Arguments against Legislative Councils in every state:

  • The absence of Legislative council in every state itself suggests the lack of any real advantage, apart from the absence of a broad political consensus on the issue.
  • The process of creating an Upper House is lengthy. Two Bills introduced in the Rajya Sabha in 2013 for establishing Legislative Councils in Assam and Rajasthan are still pending, indicating the lack of support for such a move.
  • Rather than fulfilling the lofty objective of getting intellectuals into the legislature, the forum is likely to be used to accommodate party functionaries who fail to get elected.
  • It is also an unnecessary drain on the exchequer.
  • Another issue is that graduates are no longer a rare breed; also, with dipping educational standards, a graduate degree is no guarantee of any real intellectual heft.

Way Forward:

  • There has to be a national policy on having an Upper House in State legislatures to be framed by the Union government, so that a subsequent government doesn’t abolish it. There has to be a uniformity and strong policy for its creation, revival and abolishment.
  • The provision in the law for Councils to have seats for graduates and teachers needs to be reviewed.
  • A national consensus must be evolved on the establishment of Legislative Councils.

3. Until dams do us part

The tragedy in Kerala has highlighted the dangers of excess water accumulation in dams. More than 20 dams released water that cascaded down the hills, leaving behind a trail of destruction. India’s policy on dams has to be urgently reviewed.

Details:

  • The opening of the gates of the Idukki dam caused the Periyar River to swell rapidly and discharge seven lakh litres of water per second.
  • There are many debates in favour of dams stating that they provide drinking water and water for agriculture which are being scientifically rejected in the current scenario.
  • For independent geologists and hydrologists, dams represent a nightmare, a momentary triumph of engineering over common sense and the natural sciences.
  • Increasingly, it is evident that dam proponents are ignoring crucial decision-making data now available on patterns of rainfall, geology and climate change.

Why are dams built?

Dams have two main functions.

  • The first is to store water to compensate for fluctuations in river flow or in demand for water and energy.
  • The second to raise the level of the water upstream to enable water to be diverted into a canal or to increase ’hydraulic head’ –– the difference in height between the surface of a reservoir and the river downstream. The creation of storage and head allow dams to generate electricity; to supply water for agriculture, industries and households; to control flooding; and to assist river navigation by providing regular flows and drowning rapids.
  • Other reasons for building large dams include reservoir fisheries and leisure activities such as boating.

Issue:

Dams are far more hazardous than any other infrastructure project, except nuclear plants. Even as Kerala and Tamil Nadu have battled over the safety of the 116-year-old Mullaperiyar dam, according to the India Water Portal, there are, over 100 dams in India which are over a century old, and more than 500 large dams which are 50-100 years old, many of which have major defects and need urgent repair. It is also accepted today that dams can trigger seismic events.

Why Dams are considered a momentary triumph of engineering over natural sciences in today’s world?

  • Dams store millions of tonnes of fresh water in large reservoirs, submerging prime forests, villages, farms and livelihoods.
  • The 4,700 large dams built since 1947 have cumulatively displaced 4.4 million people. This makes dams the single largest cause for displacement post-Partition.
  • Dams take decades to come up and only a fraction of their output is for the household sector and clearly does not do much in solving the drinking water crisis
  • Over 85% of the dams are used in agriculture for producing cash crops such as sugarcane. Dams have displaced the poorest of India’s people in favour of richer farmers and urban residents, often with little or no compensation.
  • It is also accepted that dams can trigger seismic events. The reservoir-induced seismicity (RIS) from the weight of the reservoir has resulted in earthquakes in various parts of the country: of the 75 cases of RIS reported worldwide, 17 have been reported from India.

Way Forward:

  • There has never been a greater urgency to review India’s policy on dams and to act on decentralised alternatives that involve water recycling and reuse.
  • The immediate task that has to be taken up is to critically review every dam in the country, decommission those that are at end-of-life.
  • Sound safety protocols need to be established and building new dams must be stopped.

4. Reservoirs not managed using a scientific, decision-support system: M. Rajeevan

  • As Kerala grapples with the aftermath of unprecedented rains and inundation, Secretary, Ministry of Earth Sciences M. Rajeevan explained to The Hindu the challenges of forecasting floods in the State with relatively small rivers prone to flash floods, inaction at the local level despite weather alerts and dam management.

In terms of weather-modelling, how well did our rain forecast models capture the possibility of such heavy rains in Kerala?

  • As far as Kerala is concerned, in August we had two spells — on the 4th and the 14th — and both of these were captured by our short range weather prediction system. Each of them were forecast three days in advance. We (The India Meteorological Department) gave a forecast for heavy rains district-wise — in the form of orange and red alerts.

But did these maps give an estimate of the quantum of rains expected—after all rains were on average 50% and some places double the normal?

  • A ‘red alert’ means that you must initiate action. It means that the IMD is expecting heavy rains, so State officials shouldn’t just be waiting.
  • Typically our authorities don’t strongly react based on a red alert alone…
  • That’s a different issue but from the IMD’s side, we’ve already warned. An ‘orange’ means ‘be on alert’ and a ‘red’ means take action. So for instance, if a dam is full and you’ve been warned of heavy rains, then that means you should have been careful.
  • Unfortunately, I’ve been given to understand that Kerala has no flood warning system. The Central Water Commission (CWC) doesn’t have a flood warning station in Kerala. But they do monitor rivers and the water levels in river.
  • In Kerala, the rivers are relatively small. For instance, if it rains in a hilly region, it can flood within 25 minutes and in an hour the water will come. Rivers like Cauvery and Narmada have huge basins and such inundations are much slower.

Is there any reason there’s no flood warning system in Kerala?

  • Well, it’s said that this kind of a calamity hasn’t happened in the past anywhere. As I said, the focus [by the CWC] is on large rivers and especially those that traverse multiple States.
  • The point is that, any river can be flooded and any place can be flooded.
  • But from the earth sciences perspective, can’t these flows be observed via satellites and forecasts prepared? You use them for studying the oceans.
  • Frankly speaking, we don’t have the mandate. This is entrusted to the CWC. We (IMD) have 11 flood warning offices such as in Ahmedabad, Bhubaneshwar etc.
  • They interact with the CWC everyday during the monsoon. Every river is divided into basins and we give a two to three-day forecast for each basin and we give a quantity — the average rainfall over the basin and how much is likely — and we run them in weather models to generate a forecast. This is given to the CWC and they in turn use it to estimate how much water is likely in a river.Now might be a good time to establish one in Kerala.
  • Unfortunately the lead time would still be short…a river can flood in half-hour. We can also use radars… during all this time, we have a radar in Thiruvananthapuram and Kochi.
  • Our local meteorology offices there used to give CWC ‘nowcasts’ (forecasts valid for two hours). This is based on how convective clouds form and the way they move. All these products are being given. However, they have to be intelligently used by the recipient.
  • In India, none of our reservoirs are managed using a scientific, decision-support system. It’s left to a few individuals to take a decision.

Is it because reservoirs are the property of States and managed entirely by them?

  • Dams are managed by States and they worry about their own personal requirements such as, hydro-power management.
  • You [dam managers] should know that (in the case of Kerala this year) it’s July, the dams are full, there are two months of monsoon left…I’ll stop at that and don’t want to interpret further. Decisions should be made by talking to the meteorological office, factoring inputs. I don’t think there’s such a mechanism in place.

What is the forecast for Kerala? Have we passed the worst of the season for the State?

  • Over the next four to five days, there’s no major rain expected in Kerala. Beyond that we can’t be sure. Our extended range forecasts (15 days and ahead) suggest that only north India will be getting more rain.
  • The southern and interior part won’t get much rain. The west coast, however, will still see rain — Karnataka, Maharashtra but not really Kerala.

5. New copters to enable tech transfer

  • The Defence Ministry is shortly expected to release project-specific implementation guidelines for the 111 naval utility helicopters to be procured under the Strategic Partnership (SP) model. However, foreign companies say there is still some clarity required on crucial legal, liability and technology transfer issues.
  • “There are two important issues that need clarity. One is legal. We can’t sell a submarine or fighter jet to a private company. Global regulations do not allow that. It has to be to a government-owned company. So, there has to be a government-to-government component in the end,” a top executive of a foreign company said.

Large infrastructure

  • For the first time, under the SP model, Indian private companies will get to tie up with global original equipment manufacturers (OEMs) and build major defence platforms in India under technology transfer. So far, it was defence public sector undertakings (DPSUs) which played the lead role.
  • The other issue, he said, was about the liability of the end product. “For us to stand guarantee to the finished product built by a local company is a problem. There has to be a back-end mechanism to enable us,” he said.
  • This liability issue was one of the major reasons the earlier medium multi-role combat aircraft (MMRCA) deal for 126 jets got derailed at the contract negotiation stage, after Dassault Aviation refused to stand guarantee to the aircraft manufactured by Hindustan Aeronautics Ltd. (HAL).
  • Another senior executive observed that there is large infrastructure already present in the country with DPSUs and this must be utilised for the benefit of both the country as well as form a business sense.
  • “We hope to try and use that. There is no point reinventing everything. It will be risk mitigating for everyone,” he said.
  • There is need for some clarity from the MoD on production transfer and technology transfer as well, the executive added.
  • In July-end, the Defence Acquisition Council (DAC) cleared the general as well as project-specific implementation guidelines for the naval helicopters that would lay emphasis on transfer of technology and high absorption of indigenous content. The guidelines and the qualification guidelines are yet to be communicated to the industry.
  • All procurements under the SP model would be executed by specially constituted empowered project committees (EPC) to ensure timely execution, the Ministry said. Apart from the helicopters, the projects to be processed under the SP model are fighter aircraft, P-75I submarines and armoured vehicles.

Indian choppers to remain in Male

  • The two Indian military helicopters, gifted to the Maldives, are likely to stay back along with a 48-member crew and support staff for at least the next few months as talks between the two countries on their continued deployment in the island nation were “positive”, diplomatic and military sources said on Sunday.
  • The lease agreement of the two helicopters, given to Maldives in 2013, has expired and the island nation had conveyed to New Delhi that it would not like to retain them.
  • After several rounds of talks, however, there has been indication from the Maldives on its willingness to keep the two helicopters along with the crew and support staff, sources said.
  • They said the preliminary outcome of talks between the two countries on the issue has been positive and there was a possibility of the choppers being stationed there for a longer duration. “The helicopters and the support staff are not being brought back,” a highly-placed source said. Sources said the Maldives was extending visas of the Indian staff.

6.  Time for catastrophe bonds?

  • The recent floods in Kerala have set off a debate about the need for timely aid required to kickstart the relief process.
  • There is a market mechanism for providing relief to the people in a timely manner. The idea that catastrophe risk could be securitised and that it could be dispersed among a wide number of investors was first mooted in the nineties after hurricane ‘Andrew’ caused massive damages in the United States.
  • The market for catastrophe bonds was initially pegged in the range of $1-2 billion dollars in the initial years of 1998-2001. Today, the total size of the catastrophe bond market is more than $30 billion
  • The outstanding bonds in the first quarter of 2018 amounted to $35 billion. Catastrophe bonds are issued by insurance companies which have exposure to property and calamity insurance. There is also insurance bought by U.S. State governments against calamities.
  • The cost of issuing and managing catastrophe bonds is cheaper than the cost of reinsuring these risks and does the same function of transferring risk. Hence, insurance companies prefer issuing catastrophe bonds.
  • The instrument is a bond where the investor loses a part or whole of the capital based on certain pre-agreed conditions being triggered. These could be:
  • Indemnity on losses faced by the insurer; or modeled losses; or, losses indexed to the total loss faced by the industry.

Helps investors diversify risk

  • For investors, there are two advantages. One is that of diversifying risk. This is perhaps the only class of bonds that is not tied to economic performance parameters which would be the case in equity.
  • Second, the investors are compensated by a rate of return which is higher than that of normal government or corporate bonds.
  • The primary investors in catastrophe bonds are long-term bond investors such as life insurers, and primary pension fund managers.
  • This helps them get extra returns on investment which in turn helps them to meet liabilities especially in a scenario where low interest rates have made meeting liabilities difficult in the west. Most rating agencies have started to rate these class of bonds. The rating given is normally a notch below the investment grade.
  • This instrument reduces the stress on the balance sheets of the governments at the State and the Centre.

Drives preparedness

  • Since investors will always have an eagle eye on the preparedness of dealing with catastrophes, it cuts the slack and bolsters more investments into technology and into people keeping an eye out for such events.
  • It is high time that such instruments are introduced in India so that relief and reconstruction work in areas affected by natural disasters goes on unimpeded and are no stalled for only want of capital.

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