Today’s important articles/news in various newspapers (12th September)

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. Avoidable suspense: on Indian-origin FPIs

  • On 10th April 2018, the market watchdog, SEBI asked category II and III FPIs (not well-regulated in their countries of origin) to conform to a higher degree of KYC norms in order to curb round tripping of illicit money and strengthen anti-money laundering measures.
  • It asked category II and III FPIs to provide the list of their beneficial owners (BO) along with their identification and verification in a certain format within six months.
  • The measures were mainly targeted towards “high-risk” nations with a history of money-laundering, terrorism and so on.
  • On Sept 10th 2018, lobby group Asset Management Roundtable of India or AMRI said that the immediate impact of the new SEBI norms, if not amended, will be that $75 billion worth foreign portfolio investment managed by overseas citizens of India (OCIs), persons of Indian origin (PIOs) and non-resident Indians (NRIs) will be disqualified from investing in India, and the funds will have to be withdrawn and liquidated within a short time frame.
  • This created quite a scare in the capital market, especially at a time when the rupee is in freefall and struggling under external pressure and has raised questions about SEBI’s handling of the issue and the need for wide consultation before drafting such regulations.

Who are Foreign Portfolio Investors?

  • In India, the term “Foreign Portfolio Investor” refers to FIIs. FPI stands for those investors who hold a short term view on the company, in contrast to Foreign Direct Investors (FDI). FPIs generally participate through the stock markets and gets in and out of a particular stock at much faster frequencies.
  • Foreign portfolio investment differs from foreign direct investment. In foreign portfolio investment the investor purchases stocks, securities and other financial assets but does not actively manage the investments or the companies that are issuing the assets. So, in FPI the investor does not have direct control over the securities or businesses.
  • This means that FPI tends to be more liquid. The relatively high liquidity of FPI’s makes them much easier to sell than FDI’s. Hence FPI investments are considered volatile compared to FDI and is termed as ‘Hot Money’.
  • FPI route is also preferred by those who are seeking to launder black money and hence SEBI closely regulates the flow of FPIs.
  • Portfolio Investment by any single investor or investor group cannot exceed 10% of the equity of an Indian company, beyond which it will now be treated as FDI.

Concerns of SEBI

  • SEBI called AMRI’s warning as “preposterous and highly irresponsible”.
  • SEBI’s April 10th rules were framed in line with anti-money laundering norms and the Prevention of Money Laundering Act.
  • FPIs have invested in securities worth at least $450 billion in Indian equities. Of this, NRIs have invested around $75 billion through India-focused funds in which majority owners are FPIs.
  • So there is an urgent to monitor and regulate the flows to prevent round tripping of illicit money.
  • SEBI had said that FPIs should provide information of the real owners or effective controllers of those companies and trusts.
  • Sebi had said that if the beneficial owner (BO) exercises control through means like voting rights, agreements and arrangement then that should also be specified.
  • Such BOs, it added, should not be from jurisdictions that are combating financing of terrorism deficiencies to which counter measures apply or those that have not made sufficient progress in addressing these deficiencies.
  • Sebi had setup a committee under the chairmanship of former deputy governor of RBI, H.R. Khan to review the FPI rules. The panel will also look into the issues raised with regard to the April 10th circular. 

Concerns of FPIs:

  • The Asset Managers Roundtable of India (AMRI) warned that India’s booming stock markets will be in for a tight bear-hug and the embattled rupee could face even greater pressure if the April 10th diktat of SEBI is not scrapped.
  • AMRI argued that the SEBI circular disqualifies about $75 billion of portfolio investments into India made by FPIs backed by domestic institutions, NRIs, Persons of Indian Origin and Overseas Citizen of India card-holders.
  • The H.R. Khan Committee set up by SEBI has recommended changes that may be made to the regulator’s directive, addressing most of the concerns raised by the FPIs.
  • The panel’s report clarified that NRIs, OCI card-holders and resident Indians can manage the investments of any FPI registered with SEBI and, more importantly, hold up to 50% of an FPI’s assets under management.
  • This has removed any ambiguity and provided relief to foreign investors who were left guessing how the term ‘majority’ — as stated in the April circular — would be determined by SEBI while applying the beneficial ownership test.
  • The committee also said the deadline for complying with the circular, which was already extended from August 31 to December 31, must be extended further, and funds with investments breaching the final thresholds that the regulator decides upon should be granted 180 days to unwind positions.
  • FPIs have appealed to the PM to have a relook at the SEBI circular and have asked SEBI to have a process of consultation before notifying such rules.

Way Forward:

  • SEBI has now announced public consultations before it finalises these norms, and in the process created some breathing space for FPIs to remain invested.
  • There should be no issues with attempts to curb round-tripping of illegal domestic wealth into the Indian market through the foreign investments route.
  • But treating all FPIs with Indian-origin managers as potential suspects and conduits of money laundering is unwise.
  • SEBI could have managed all of this as an independent regulator had it held public consultations and timely dialogue with stakeholders before framing these norms.
  • Such uncertainty in policy and frequent U-turns will do little to enhance India’s credibility among global investors and FPI being a part of India’s capital account and balance of payments, it plays a crucial role in balancing the deficit and hence SEBI needs to adopt a more consultative approach.

2. The centre holds: on the Sweden elections

  • In the recent elections in Sweden the vote share of centrist parties has shrunk and that of far-right parties has increased considerably.
  • This echoes the growing anti-immigrant mood in the Nordic nations and across Europe.

Sweden’s electoral verdict:

  • The incumbent Social Democrats have emerged as the single largest party, but they are short of a clear majority.
  • Their narrow lead over the centre-right will complicate Prime Minister Stefan Löfven’s bid to form another minority government.
  • But the most notable phenomenon of the election has been the extreme-right Sweden Democrats, who have been riding the populist wave over immigration and rising domestic crime.

The immigrant issue in Europe:

  • Conservative far-right parties in Europe have adopted a very shrill voice to argue against the liberal policies of centrist parties to allow immigrants in to their countries.
  • Few European governments including Sweden, Germany etc. had adopted a favourable policy towards the huge inflow of immigrants in to Europe coming from the conflict torn regions of Syria, Libya etc. on humanitarian grounds.
  • The far right’s criticism of the government’s policy to admit Syrian refugees in 2015 as a strain on Sweden’s generous provision of social welfare has already gained some traction.
  • Similarly, it has also stoked the anti-immigrant sentiment by playing on security concerns arising from terrorist attacks in several parts of Europe.
  • The cause for alarm is the ties of these far-right outfits with fascist and neo-Nazi ideologies.

Way Forward:

  • With healthy economic growth and relatively low levels of unemployment, the challenge for the new Swedish government is to address the mounting demands on the country’s public health care and education services.
  • That would be an effective counter to the populist rhetoric of the extreme right.
  • The region’s next big democratic test will be the 2019 elections to the European Parliament.
  • The history of the European Union-wide elections bears little evidence of popular enthusiasm. Nor have the Members of European Parliament been effective in addressing the authoritarian challenge in, say, Hungary and Poland.
  • But the common threat of right-wing extremism could well trigger a popular pan-European response.

3. Dial a service

  1. Delhi government’s ambitious phone-a-sahayak scheme to get doorstep delivery of government services within a limited time frame is set to be an eye-catching exercise in urban-centric administration
  2. The scheme promises to offer 40 services at Rs 50 each and has roped in VFS, a global outsourcing agency, to execute it

Efficacy of the scheme

  1. The test of this new initiative will not be the range of services it offers
  2. It will depend on how efficiently it guides consumers past administrative red tapes, that often straitjacket such application procedures

Right to services act

  1. Recently, the Manipur government announced a single-window services centre in Imphal, to be operational from November, that will also include door-to-door delivery of government services
  2. In August 2010, Madhya Pradesh had become the first state in India to enact the RSA
  3. Several other states enacted similar laws to ensure delivery of services to residents
  4. Most states, however, have failed to fully capitalise on the RSA’s potential, meeting with moderate to poor success rates

Way Forward

  1. In a country where policy-making has largely addressed itself to and focussed upon the rural electorate, the Delhi government’s endeavour indicates a recognition of the changing dynamics of new India, where urban migration is fast reworking the rules of engagement between the metropolitan and the rural
  2. The success of this new scheme could contribute to the still-evolving template of urban politics in a fast urbanising country

4. Small loans could turn bad: Rajan

Small loans could turn bad: Rajan

  1. Former RBI Governor Raghuram Rajan has cautioned that the next crisis in India’s banking sector could come from loans given to the unorganised micro and small businesses, called MUDRA loans, and credit extended through the Kisan credit card.
  2. MUDRA loans are offered under the Prime Minister Mudra Yojana launched in 2015 by the NDA government.
  3. A total of Rs. 6.37 lakh crore has been disbursed under the scheme by public and private sector banks, regional rural banks and micro-finance institutions till date, as per data from the MUDRA website.

Other Suggestions

  1. In a note on NPAs, Rajan said the government should refrain from setting ambitious credit targets or from waiving loans.
  2. Both MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk.
  3. He also flagged the Credit Guarantee Scheme for MSMEs, run by the SIDBI calling it “a growing contingent liability” that needs to be examined with urgency.
  4. A large number of bad loans originated in the period 2006-2008 when economic growth was strong the banks are more prone to make mistakes.

Pradhan Mantri MUDRA Yojana

  1. PMMY is a flagship scheme of Government of India to enable a small enterprise come into the formal financial system and get affordable credit to run his/ her business.
  2. Any Indian Citizen who has a business plan for a non-farm sector income generating activity
  3. Credit need: Less than Rs 10 lakh
  4. Under the aegis of PMMY, MUDRA has already created the following products / schemes.
  • Shishu : covering loans upto 50,000/-
  • Kishor : covering loans above 50,000/- and upto 5 lakh
  • Tarun : covering loans above 5 lakh and upto 10 lakh
  1. There is no subsidy for the loan given under PMMY. However, if the loan proposal is linked some Government scheme, wherein the Government is providing capital subsidy, it will be eligible under PMMY also.

MUDRA Bank and its role in the MUDRA Yojana

  1. MUDRA Bank = Micro Units Development and Refinance Agency Bank
  2. The Rs 20,000 crore MUDRA Bank aims to provide refinancing to small and medium enterprises, particularly those from SC & ST
  3. The idea is to refinance micro-finance institutions through Pradhan Mantri Mudra Yojana
  4. This bank would be responsible for regulating and refinancing all MFIs which are in the business of lending to MSME

5. Greenhouse gas emissions from Indian paddy fields Very High: NY based Study

  1. Rice farming across the world could be responsible for up to twice the level of climate impact relative to what was previously estimated, according to a study conducted in India.
  2. The study, published in PNAS, found that intermittently flooded rice farms can emit 45 times more nitrous oxide as compared to the maximum from continuously flooded farms that predominantly emit methane.

Highlights of the Study

  1. According to a global analysis by Environmental Defense Fund (EDF) in the US, methane and nitrous oxide emissions from rice farms could have the same long-term warming impact as about 600 coal plants.
  2. The full climate impact of rice farming has been underestimated because nitrous dioxide emissions from intermittently flooded farms have not been included.
  3. The researchers investigated GHGs emission from rice farms across southern India.
  4. They found that nitrous oxide emissions from rice can contribute up to 99 % of the total climate impact of rice cultivation at a variety of intermittently flooded farms.
  5. These contribute to global warming far more than the estimate of 10% previously suggested by multiple global rice research organizations.

Methane emissions

  1. The researchers found an inverse correlation between methane and nitrous oxide emissions from rice farming.
  2. Water and organic matter management techniques that reduce methane emissions can increase nitrous oxide emissions.
  3. This is crucial because nitrous oxide is a long-lived greenhouse gas that traps several times more heat in the atmosphere than methane over both 20 and 100-year time frames.

Impact of Rice Cultivation

  1. Rice is a critical source of nutrition for the world’s rapidly growing population, providing more calories to humans than any other food.
  2. However, growing rice is also resource-intensive: rice cultivation covers 11 % of the Earth’s arable land, consumes one-third of irrigation water.
  3. The researchers found that carefully chosen farming techniques can reduce net GHG emissions by as much as 90% by integrating shallow (mild-intermittent) flooding with co-management of nitrogen and organic matter.
  4. If all irrigated rice farmers only used the proposed shallow flooding instead of intense forms of intermittent flooding, estimates shows that the rice farms with irrigation have the potential to reduce their global climate impact by 60%.

CO2 equivalents

  1. Each greenhouse gas (GHG) has a different global warming potential (GWP) and persists for a different length of time in the atmosphere.
  2. The three main greenhouse gases (along with water vapour) and their 100-year global warming potential (GWP) compared to carbon dioxide are:
  • 1 x – carbon dioxide (CO2)
  • 25 x – methane (CH4) – I.e. Releasing 1 kg of CH4into the atmosphere is about equivalent to releasing 25 kg of CO2
  • 298 x – nitrous oxide (N2O)
  1. Water vapour is not considered to be a cause of man-made global warming because it does not persist in the atmosphere for more than a few days.
  2. There are other greenhouse gases which have far greater global warming potential (GWP) but are much less prevalent. These are sulphur hexafluoride (SF6), hydrofluorocarbons (HFCs), and perfluorocarbons (PFCs).
  3. There are a wide variety of uses for SF6, HFCs, and PFCs but they have been most commonly used as refrigerants and for fire suppression.
  4. Many of these compounds also have a depleting effect on ozone in the upper atmosphere.

6. BIMSTEC embarrassment for India

  • India is facing an embarrassing situation at the first-ever military exercise of the regional grouping BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) with Nepal and Thailand backing out from sending full contingents.
  • Nepal also conveyed that its Army Chief would not be able to attend the Chiefs’ conclave at the exercise.
  • All participating nations except Nepal have confirmed their Army Chiefs would attend the Chiefs’ conclave. The reason was their new Chief has just taken charge and has a large number of commitments.

Nepal’s new chief

  • Nepal, which had initially confirmed a full contingent, pulled out in the last minute and instead sent three observers. General Purna Chandra took charge as the Chief of Nepal Army on Sunday.
  • The exercises were proposed by Prime Minister Narendra Modi during his speech at the BIMSTEC summit in Kathmandu last month that brought together leaders of India, Nepal, Bangladesh, Bhutan, Sri Lanka from South Asia and Myanmar, and Thailand.
  • Interestingly, Nepal is scheduled to hold its second military exercise with China next week.
  • Thailand, which was the last to confirm its participation in the exercise, conveyed that it could only send observers.
  • The MILEX 18 exercise, being held from September 10 to 16 at the Aundh Military Station in Pune, is aimed at helping BIMSTEC nations practise “planning and conduct of counter terrorist operations”.
  • Each country was asked to send a contingent of 30 personnel including five officers and 25 soldiers in addition to three observers.
  • Thailand Ambassador to India Chutintorn Gongsakdi said, Thailand is absolutely committed to BIMSTEC.This level of participation is due to fiscal year ending in September and MILEX being an unforeseen event.

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