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Today’s important articles/news in various newspapers (18th 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. Himalayan divide: on the drift in India-Nepal ties

Despite confirming its participation in the BIMSTEC multilateral exercise in India, the Nepalese Army withdrew its contingent stating a ‘political’ decision.

Background:

BIMSTEC:

  • Bay of Bengal Initiative on Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) is a sub-regional grouping involving seven countries in South Asia and South East Asia.
  • The BIMSTEC states are those which are on the shore or are adjacent to the Bay of Bengal and are dependent on it.
  • They are Thailand, Myanmar from South East Asia and Sri Lanka, Bhutan, Bangladesh, Nepal and India from South Asia.
  • The international organization was formed on 6th of June 1997, through the Bangkok declaration and is headquartered at Dhaka in Bangladesh.

Objectives of BIMSTEC:

Technological and economic cooperation among south Asian and south East Asian countries along the coast of the Bay of Bengal.

  • BIMSTEC is a sector driven cooperative organization and covers cooperation in sectors like communication, leather, textiles, transport, fisheries, human resource development, tourism, agriculture, investment, technology and commerce etc.
  • Currently, there are fourteen priority sectors and each member country voluntarily leads one or more sectors.
  • Counter terrorism & transnational crime and telecommunication & transport are dealt with by India.
  • The grouping is a bridge between South Asia and South East Asia and constitutes a reinforcement of relations between the seven countries.
  • It is of utmost significance to India as it is a major support in implementing its Act East Policy and the development of its ambitious ‘Sagar Mala’ project.

Issue:

  • Despite several attempts at a reset, ties between India and Nepal continue to be a cause for concern.
  • The disconnect between the two governments was most visible at the seven-nation BIMSTEC military exercises that recently concluded.
  • Officials in Prime Minister K.P. Oli’s office said that they were upset with Prime Minister Narendra Modi’s “unilateral” announcement of the multilateral exercises during the BIMSTEC summit on August 30-31, without having formally proposed it to the hosts.
  • India’s explanation that it had broached the issue with BIMSTEC members directly did not seem to pacify Kathmandu
  • Sources say that the ruling party in Nepal, the Nepal Communist Party, is divided on the BIMSTEC military exercise, with many feeling that such a multilateral exercise will be seen as the formation of a military block. This will go against Nepal’s history of not belonging to any such block.
  • Additionally, the contingent from Thailand also did not join the counter-terror exercises because of lack of adequate notice.
  • Nepal’s decision to join China for a 12-day Mt Everest Friendship Exercise in Sichuan province, also focussed on anti-terrorism drills, drives the wedge in further.
  • Despite New Delhi signalling its discomfiture with the volume of Chinese investment in hydropower and infrastructure and transport projects, Nepal went ahead recently and finalised an ambitious connectivity proposal that will eventually link Kathmandu to Shigatse by rail; this will give Nepali goods access to Chinese sea-ports at Tianjin, Shenzhen, Lianyungang and Zhanjiang, and land ports in Lanzhou, Lhasa and Shigatse.
  • India is still blamed for the 2015 economic blockade against Nepal. It is also held responsible for attempts to destabilise Mr. Oli’s previous tenure as Prime Minister during 2015-2016.

Way forward:

  • India and Nepal don’t just share an open border; they have shared the deepest military links, with both countries traditionally awarding each other’s Army chiefs the honorary rank of General. Such unique ties must not be undermined due to lack of communication.
  • New Delhi and Kathmandu must put an end to the unseemly controversy by renewing diplomatic efforts over the issue.
  • The larger geopolitical context of the discord over the military exercises must not be ignored.
  • New Delhi cannot turn a blind eye to the rebuffs, and must address them.
  • At such a time, the Army chief, General Bipin Rawat’s statement on BIMSTEC, that “geography” will ensure that countries like Bhutan and Nepal “cannot delink themselves” from India, could have been avoided; such comments unnerve India’s smaller neighbours and are misleading. Modern technology and connectivity projects could well take away geography’s role as a guarantor of good relations.

2. Merger of Dena Bank, Vijaya Bank and Bank of Baroda

  • The Centre proposed the unification of state-owned Bank of Baroda, Dena Bank and Vijaya Bank to create India’s third largest bank with a total business of more than ₹14.82 trillion as parts of reforms in the public sector banking segment.

Alternative Mechanism

  • It will oversee proposals of amalgamation of public sector banks.
  • After getting in-principle approval, the banks will take steps in accordance with the law and SEBI requirements.
  • The final scheme will be notified by the Central government in consultation with the Reserve Bank of India
  • The alternative mechanism will include a panel of ministers, whose members will be decided by the Prime Minister.
  • The merger will be based purely on commercial considerations.

Background

  • The proposal of fewer but stronger state-run lenders was originally mooted in 1991
  • Narasimhan report on banking reforms had recommended merger of public sector banks to make them stronger
  • It had envisaged a three-tier banking structure with three large banks with international presence at the top, eight to 10 national banks at tier two, and a large number of regional and local banks at the bottom.

Procedure for merger

  • Under the Bank Nationalisation Act 1969, there are provisions allowing such mergers. However, such decisions must be approved by Parliament.
  • Section 44A of Banking Regulation Act 1949 lays down the norms for voluntary mergers and “forced” mergers are done under Section 45 of the Act.

Details

  • The merged entity, comprising two relatively stronger banks and a weak one, will be the third-largest lender in India after State Bank of India and HDFC Bank Ltd
  • One of the core reasons behind the choice of these banks was perhaps the fact that all three use the same core banking system—Finacle from Infosys—making the task of merging the technology platforms and back-ends relatively easier.
  • The government has also moved to offload its majority stake in IDBI Bank to Life Insurance Corporation of India.
  • No employee will face any adverse service conditions after the amalgamation

Why was the decision taken?

  • India aspiring to be the fastest growing economy has to be supported by stronger and globally competitive banks with increased choices to the stakeholders.
  • Dena Bank has been placed under the prompt corrective action framework (It is in a bad shape with higher NPAs, higher cost to income and falling profitability).
    • So the idea is to merge the weaker bank with stronger bank (BoB and Vijaya Bank) so that it would be a strong competitive bank with economies of scale.
    • The entity would also be positioned for substantial rise in customer base, market reach and operational efficiency.
  • The amalgamation is aimed at catering the massive credit requirements of the growing economy, and cutting costs as well as dependence on the government for capital infusion in the longer term.

What else can the Govt consider while apart from weak strong banking?

  • Merger Based on Geography
    • Corporation Bank and Canara Bank are known for a better network in the South while Punjab National Bank is more prominent in the North.
    • Merger of banks based on geography will result in lesser disruption in terms of rationalization of branches and people.
  • Merger to Create Niche Banks
    • In a new emerging banking model, there are already niche players like payment banks (retail payments), Small Finance Banks (doing micro loans ), full scale banks ( Axis or an HDFC Bank) and universal  banks (ICICI Bank or a Kotak Bank).
    • There is a space for creating certain niche entities like an SME focused bank or an MSME focused bank.
    • This can be achieved by merging few PSBS with a new mandate to cover a particular sector.

Similar Steps taken in the past

  • The Government had taken comparable step with the merger of the five associate banks of SBI.
  • The merger had resulted in a sharp jump in the combined entity’s bad loans portfolio, crimping its profit.

Merits

  • It is expected to reduce the amount of capital it needs to pump into these lenders and help clean their balance sheets.
  • A bank merger helps institution scale up quickly and gain a large number of new customers instantly. Not only does an acquisition give your bank more capital to work with when it comes to lending and investments, but it also provides a broader geographic footprint in which to operate
  • Banks benefit from a merger or acquisition because of the increase in talent at leadership’s disposal

Demerits

  • There is no evidence that merger of banks would strengthen the banks or make it more efficient.
  • Earlier examples also show that it could result in closure of branches, increase in bad loans, reduction of staff, reduction in business
  • One of the biggest challenges for the merger is likely to be human resources management
    • Even though they are public sector banks, each one have different culture. The approach and attitude is not to change quickly.

3. Machines will rule workplace by 2025’

  • “The Future of Jobs 2018” report by WEF predicts that the rise of robotics will result in machines performing more tasks on the job than humans by 2025. It also estimates that while that trend could displace 75 million jobs globally by 2022, it’ll create 133 million new positions.
  • The report surveyed executives from different industries around the world, aiming to get a look at how new technologies, like artificial intelligence, will affect the global labor force.

Details

  • In 2018, humans performed an average of 71% of total task hours across the 12 industries spanning manufacturing, services and high tech.
    • By 2025, that will drop to just 48%, according to the WEF. Machines will perform the remaining 52%.
  • Globally, almost half of all companies expect automation to cut their full-time workforce in the next four years;
    • However, new jobs will still lead to a net gain in employment opportunities if sufficient reskilling is done.
  • In India, 54% of employees in these sectors will need reskilling by 2022
    • Of this 35% would need at least six months’ worth of reskilling,
    • 10% would need more than a year of training in order to meet the demands of the new economy

Significance

  • Roles that rely on human skills, like sales, marketing and scientific-based positions, will likely see an increase in demand.
  • The report calls on businesses and government leaders around the world to create a support system for their employees and ensure a smooth transition as the workforce evolves.

Concerns

  • They expect that some routine-based human-held positions will become non-essential in the future, like data entry or payroll clerks.
  • There could be risk of widening skill gaps, heightening inequality and raising polarisation if managed poorly.

Way Forward

  • WEF says reskilling and upskilling of employees as an urgent imperative.

4.  From Plate to Plough: Drowning in sweetness

Overstock & payments crisis in sugarcane sector

  1. The sugar sector is heading for a major crisis of plenty
  2. The industry’s production estimate for 2018-19 is 35.5 MMT against an annual consumption of about 26 MMT
  3. Another problem is the rising arrears to cane farmers, which stood at Rs 21,675 crore on April 15, up from Rs 8,784 crore a year earlier
  4. These arrears might spike further by 50 to 100 per cent by April 2019, if no bold corrective action is taken quickly by the government

Why this high amount of arrears id pending?

  1. The root cause of the mounting cane arrears is that in 2016-17, domestic sugar production was as low as 20.3 MMT, necessitating imports, and domestic sugar prices (ex-mill) crossed Rs 36/kg
  2. Global sugar prices were also high ($490/tonne in October 2016)
  3. This led to an expansion of the area under the crop, and with a good monsoon, improved yield and recovery ratio, lead to dramatic increase in sugar production from 20.3 MMT in 2016-17 to 32.3 MMT in 2017-18
  4. This production boost substituted imports and replenished stocks, but it became a problem when the world prices of sugar dropped by almost 50 per cent to $244/tonne by August 2018
  5. This made Indian sugar non-competitive in global markets

Pricing of sugarcane

  1. The GoI announces Fair and Remunerative Price (FRP) for Sugarcane
  2. For the 2018-19 season, while the GoI is trying to ensure 50 per cent margin over cost A2+FL for Kharif crops, in case of sugarcane this is already 87 per cent at all India level
  3. The Rangarajan Committee on the pricing of sugarcane had recommended 75 per cent of the sugar price to be given to farmers as cane price
  4. If we force the sugar industry to pay irrationally high prices of cane, it will be pushed towards sickness, large NPAs, and an even bigger mess

Policy options for the sugar sector

  • Trade policy
  1. In June 2016, India had imposed an export duty of 20 per cent to discourage exports as domestic production was low and sugar prices high
  2. In 2017-18 export duty was removed and import duty raised from 50 to 100 per cent in February 2018
  3. Although the import duty of 100 per cent seems very high, yet the direction of trade policy is broadly right
  • Exporting 5-7 MMT of sugar
  1. At prevailing world prices, this is not feasible
  2. Unless the rupee falls further and global prices improve, the export situation may remain grim
  3. Exporting sugar through heavy subsidisation has its limits, as exporting countries like Brazil, Thailand, and Australia may drag India to the WTO
  • Create a larger buffer stock
  1. This may help India stabilise prices in lean years
  2. It includes higher expenditure on stocking
  3. Given the surplus supplies and low domestic prices, the sugar industry cannot bear this burden without the government underwriting a part of the stocking costs
  • Divert cane to ethanol
  1. The government has already taken a bold step by allowing ethanol from sugarcane juice or B-molasses
  2. It will help the industry diversify and reduce risk
  3. The Government of India (GoI) has also announced soft loans to the sugar industry for capacity expansion to produce ethanol

Way Forward

  1. This should not be seen as crisis instead it should be turned into an opportunity to reform sugar policies

5. Saving rivers

  1. A finding of Central Pollution Control Board shows that the number of critically polluted segments of India’s rivers has risen to 351 from 302 two years ago
  2. The study also underscores the failure of many national programmes run by the Centre for river conservation, preservation of wetlands, and water quality monitoring
  3.  This is a strong indictment of the departments responsible for environmental protection

Why rivers are becoming more polluted?

  1. There is poor infrastructure available in a large number of cities and towns located near rivers
  2. Managing sewage requires steady funding of treatment plants for all urban agglomerations that discharge their waste into rivers, and also a reliable power supply
  3. Rapid urbanisation is widening the gap since infrastructure planning is not keeping pace with growth in housing

Measures that need to be taken

  1. Sustained civil society pressure on governments is vital to ensure enforcement of laws by the SPCBs and Pollution Control Committees
  2. On the industrial side, the plan to bring all liquid effluent discharge from textile units and tanneries to zero has to be pursued vigorously, giving industries the assistance to help them choose the best technologies for the recovery of waste water for reuse

Way Forward

  1. A 2013 World Bank study estimated that environmental degradation is costing India at least $80 billion a year, of which losses to rivers form a significant part
  2. Urgent measures are needed to revive India’s many dying rivers, protect its agriculture, and prevent serious harm to public health from contaminated water

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