Today’s important articles/news in various newspapers (19th 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. Ten years on, in uncharted waters

  • There have been various economic crises in the past over which economists the world over have deliberated upon and have submitted their observations and analysis.
  • The most notable crisis was that of the financial crisis of 2007.

A look at the causes of the financial crisis of 2007

  • There were multiple causes to the crisis of 2007.
  • Among them included,
    a) global macroeconomic imbalances,
    b) a loose monetary policy system followed by the U.S.,
    c) the housing bubble in the U.S.
    d) a misplaced belief in efficient markets, greedy bankers, and the existence of incompetent rating agencies. All of these factors played their part.
  • However, a major causative factor for the implosion of the financial sector in 2007-08 was in the failure of regulation.

The Failure of Regulation:

  • Let’s take a brief look at the way this failure had taken place:
    Firstly, banks were allowed very high levels of debt in relation to equity capital.
    Secondly, banks in advanced economies moved away from the business of making loans to investing their funds instead in complex assets known as “securitised” assets.
  • These securitised assets consisted of bundles of securities derived from sub-prime loans, i.e, housing loans of relatively higher risk.
  • The switch which was made from loans to securitised assets had enormous implications for banks. It is important to note that with a loan, losses are recognised over time. As housing prices began falling and securitised assets lost value, it translated into enormous losses for the banks.
  • As a consequence, these losses eroded bank capital and created panic among those who had lent funds to banks.
  • The third element in the failure of regulation was allowing banks an excessive dependence on short-term funds. Besides this, there were other failures of regulation. These included:
    a) Banks had low standards for making housing loans.
  1. b) Global nature of the failure: These were not confined only to the U.S. They were witnessed across banks in Europe and some in Asia as well.

How did such a massive failure of regulation occur?

Experts attribute this to two things a) ‘regulatory capture’ b) ‘revolving door’ syndrome.

  • The term regulatory capture refers to the ability of financial institutions to influence policies of governments and regulators. It is important to note that financial institutions are a big source of political funding.
  • ‘Revolving door’ syndrome: This refers to the situation wherein we observe that bankers in the U.S. and Europe hop on to jobs in government and regulation. On the other hand, we also witness that government officials and regulators land lucrative jobs and assignments with banks.
  • As a consequence of the ‘revolving door’, we witness havoc in matters concerning regulation. This also explains the lack of accountability of bankers for the havoc they created. No top banker has been prosecuted or jailed.
  • As a matter of fact, banks have paid up massive fines for assorted violations- with the fines coming from the pockets of shareholders.

The Indian Perspective:

  • India hasn’t suffered much on account of the financial crisis.
  • Although growth has slowed down to 7%,  but these figures are in line with the trend rate over the past two decades.
  • Many forward-looking policies have helped India. For example, she has not embraced full capital account convertibility. India has kept short-term foreign borrowings within stringent limits.
  • Further, India did not open up to foreign banks despite pressure from the U.S. and the international agencies. In the wake of the crisis, foreign banks retreated from overseas markets- this caused a severe credit crunch in places such as Eastern Europe. India was insulated from this.

Core Issues that Need Addressal:

  • Significantly, there are three issues that need to be addressed. Firstly, there has been a tradition wherein some banks, just by the virtue of them being large, are deemed to be such that they cannot be allowed to fail. This notion needs to be changed.
  • The second aspect is the very size of debt itself in various forms in the world economy.
  • As a matter of fact, the overhang of debt itself for the global economy as a whole, poses some serious challenges.
  • The third aspect is that financial globalisation makes the world vulnerable to U.S. monetary and fiscal policy.

Concluding Remarks:

  • The current crisis which one is witnessing in emerging economies underscores the fact as to how vulnerable emerging markets are to the vagaries of American economic policy.
  • The world needs to be slowly nudged away from its dependence on the dollar.

2. Celestial misfit

  • In the year, 2006 the International Astronomical Union (IAU) voted to remove Pluto’s planetary status.
  • This decision ended years of debate on whether or not Pluto is a planet.
  • The IAU, in 2006, designated Pluto as a ‘dwarf planet’.
  • This designation was done along with Ceres in the asteroid belt and Xena, which is an object in the Kuiper belt.

What is the Kuiper belt?

  • The Kuiper belt is an icy ring of frozen objects that circle the solar system beyond Neptune’s orbit.
  • The Kuiper Belt is a doughnut-shaped ring of icy objects around the Sun, extending just beyond the orbit of Neptune from about 30 to 55 AU.
  • Short-period comets (which take less than 200 years to orbit the Sun) originate in the Kuiper Belt.

Why in the news?

  • Presently, some researchers are challenging the decision made by the International Astronomical Union (IAU) in the year 2006.
  • These researchers cite the manner in which scientific tradition has dealt with the taxonomy of planets.

Criteria for a celestial object to be called a planet:

There are three conditions for a celestial object to be called a planet:
1) It must orbit the Sun;

2) It should be massive enough to acquire an approximately spherical shape;

3) It has to ‘clear its orbit’, which means that the object that exerts the maximum gravitational pull within its orbit.
The situation seen with Pluto:

  • Pluto is affected by Neptune’s gravity.
  • Further, Pluto also shares its orbit with the frozen objects in the Kuiper belt. Based on this, the IAU deemed that Pluto did not ‘clear its orbit’.
  • Dwarf planets, on the other hand, need only satisfy the first two conditions.

A counter-narrative:

  • The above rationale was questioned by Philip Metzger whos is a planetary physicist. He and his team have come up with several exceptions to the third rule.
  • In a paper published in the journal Icarus, they point out that the only work in history that used this rule to classify planets was an article by William Herschel in 1802.
  • They further argue that this work was based on reasoning and observations that have since been disproved.

Concluding Remarks:

There are several questions that arise if if Pluto were to be re-designated a planet.

In fact, many more complications would arise.

Some of them are listed as below:

  1. Charon, which is Pluto’s moon, is much too large to be called a satellite. Judging by this, the Charon-Pluto system should then rightly be called a binary planet system.
  2. If this is done, it would then lead to classifying several other sets of bodies as binary planets.
  3. Further, recent research shows that both the Kuiper Belt and the Oort cloud, contain objects that can then be called planets, thereby complicating the issue.

A Note on the Oort Cloud:

  • The Oort Cloud is essentially an extended shell of icy objects that exist in the outermost reaches of the solar system. It is a shell of objects that surrounds the entire solar system far beyond the Kuiper belt.
  • This region of space is named after astronomer Jan Oort, who was the first who theorised its existence.
  • The Oort Cloud is roughly spherical, and is thought to be the origin of most of the long-period comets that have been observed till date.

3. India’s challenge will be fighting non-communicable diseases

It is important to relate this article to the concept of Universal Health Coverage. Pursuant to this, we have taken the liberty towards giving a broader context to the larger issue which needs to be understood by students.

Larger Background:

  • The poor condition of healthcare in the country is not a secret, especially in India’s villages where infrastructure is in a dilapidated state. Government hospitals often fail to provide necessary health services to the poor, with private hospitals being out of the reach of most people. The country’s growing population and lack of resources has made matters worse. According to the 2011 census, India’s population is over 1.2 Billion, make it the second most populous nation in the world after, China.
  • Many organizations, including the United Nations have estimated that by 2025, India would be the most populated nation in the world, surpassing China.
  • More than 32% of total deaths in India are due to heart-related ailments. According to the Global Burden of Disease study, India is ranked low in the Healthcare index; India stands at a rank of 154. This index is out of 194 countries. But despite this, the budget allotment on healthcare services is extremely low.
  • India spends less than 2% of her GDP on public healthcare. But now the Government is working on improving public healthcare services. The National Health Protection Mission or Ayushman Bharat Yojana, launched by the Government is the first major step in this direction. Ayushman Bharat Yojana is a program which aims to create a healthy, capable and content new India. It will also focus on the poor and weaker sections of the society. It aims to provide insurance of upto 5 lakh rupees to each family. The new scheme also intends to improve secondary and tertiary healthcare services for crores of Indians.

There are two flagship initiatives under Ayushman Bharat:

  1. The first is to create a network of health and wellness centres that will bring the healthcare system closer to the people. The centres will provide comprehensive healthcare, including treatment for non-communicable diseases and maternal and child health services. Besides this, they will also provide free essential drugs and diagnostic services; also Rs. 1200 crore have been allocated for this flagship programme.

The scheme will cover more than 10 crore poor families, which is approximately 50 crore persons. It will also setup wellness centres which will give poor people OPD facility near their homes.

  1. The second flagship programme under ‘Ayushman Bharat’ is the ‘National Health Protection Scheme’. The National Health Protection Scheme will cover over 10 crore poor and vulnerable families. It will provide coverage up to 5 lakh rupees per family, per year for secondary and tertiary care hospitalization.

Context of the Article:

  • This article is essentially a narration of an interview with the the group chairman of Apollo Hospitals, Prathap C. Reddy.
  • In this interview, he speaks on a number of issues, including:
    a) the need for increased government spending on health,
    b) the right pricing strategies for the soon-to-be-launched Central scheme of Ayushmaan Bharat, and
    c) the scope for medical tourism in India.

His views on the Private health-care model:

  • He mentions the point that about thirty-five years ago, private health care was not really considered as a doable model.
  • It was essentially just the charitable and government sectors that were providing health care.
  • Unfortunately, India, which at one point in time, did have medical institutions at par with the best in the world, fell back because of lack of upgradation of infrastructure for over 30 years.
  • He also goes on to add that we as a society need to recognise that the doctor is important, and that continuous training on the job is essential, in order that he gives the highest calibre of skills to the patient.

Some Important Statistics:

  • In 2017, the size of the Indian health-care sector was estimated at $160 billion,
  • Currently, the Indian health-care sector is projected to grow to $372 billion by 2023.
  • As a matter of fact, the hospital sector alone was worth $62 billion in 2017, and is expected to grow to $133 billion by 2023, with the private sector accounting for about 74%.
  • There are around 40-45 million admissions per year in private hospitals in India.

Views Expressed on Non-Communicable Diseases:

  • By 2020, diabetes will pose to be a major challenge. Currently, China has the highest number of diabetics in the world. India, at the rate at which she is going is bound to catch up in a few years.
  • India also has the unfortunate tag of being the cancer capital of the world, the stroke capital, and the heart disease capital of the world.
  • According to a World Economic Forum study, the world will spend $30 trillion by 2030 and India’s share of that would be $4.8 trillion.
  • Currently, India is battling to raise the health allocation to at least 3% of the GDP from about 1.5%.

Views Expressed on Medical Tourism:

  • Currently, over 3.5 lakh persons from over 150 countries visit India every year for treatment.
  • According to the data presented in the Lok Sabha earlier this year, the Ministry of Tourism’s estimate was 4.27 lakh people in 2017.
  • Currently, we see that the government has hiked the medical visa fee for patients and attenders. Further, while patients could come in on a tourist visa earlier, today, they need a valid medical visa to seek treatment in India now.
  • A different narrative is witnessed in countries such as Singapore, Thailand and Malaysia, more recently even Korea. The nations are trying to woo patients with easy entry formalities.

Concluding Remarks:

  • The solution to all of this is early detection and prevention.
  • Adequate protection needs to be provided for doctors. Doctors want to do the best for the patient, but on occasions, they are in the position of making crucial decisions when the patient is critically ill. Thus, if the patient does not make it, then people rampage through hospitals.
  • The demand-supply gap in healthcare is still huge; the government should encourage people to establish new infrastructure.
  • To further illustrate this point, currently, India has 1.1 beds per 1,000 people, while the global average is 2.7 and the WHO recommendation is 3.5. India needs to work towards increasing that, and increasing the doctor-patient ratio as well.
  1. The list of campuses of public-funded higher education institutions where anger is simmering or has flared up is too long
  2. The dissent arises from an attempt to reformulate education as a marketable service that people should have to buy, and from the idea of students pursuing higher education are a drain on public funds

Suppression of dissent

Through a concerted and violent suppression of dissent on various university campuses, the stage is being set to knock down two well-established principles

  1. One, that public funding of higher education is the only way to ensure that students from all kinds of socio-economic background can access it
  2. Second, that if higher education is to be seen as a means of fostering a democratic, equitable society it must be governed through democratic decision-making with the inclusion of all stakeholders in universities

Granting autonomy a way of suppression

  1. The terms such as “autonomy” and “institutions of eminence” are being used as a façade behind which the commercialisation of higher education can take place
  2. The process has already been set in motion when, recently, the MHRD Ministry granted “graded autonomy” to universities across India
  3. Each university in India is formed through an act of the Parliament and is meant to be an autonomous entity. To grant autonomy to institutions that are inherently autonomous is a strange move

How autonomy will hamper research/access to education

  1. In the universities anointed “autonomous” the VCs are essentially getting a free hand to run the university
  2. Lack of public funding would deal a death blow to the research, writing and publication by the faculty
  3. It will also reduce access for students from the marginalised sections of society to higher education
  4. It would also mean that nearly no students from SC/ST/OBC/PH categories will be able to enter the institutions
  5. Nearly all students who do get to pursue higher education will either be from rich families or will have to incur debilitating education loans

Idea of HEFA

  1. The Higher Education Financing Agency (HEFA) proposes to fund civil and laboratory infrastructure projects in universities through 10-year loans
  2. Access to loans will be regulated by asking universities to escrow their existing funds to HEFA
  3. The universities will have to raise their own funds through fees and research earnings to pay the loans back
  4. Universities will be turned into corporate entities, entangled in a web of real-estate and finance dealings

Knowledge Commission recommendations

  1. The Sam Pitroda-led Knowledge Commission argued unambiguously for increasing government spending on education to 6 percent of GDP
  2. It suggested pegging an actual figure — 1.5 per cent of the GDP exclusively for higher education
  3. The Commission did argue that since even this will not suffice for a “massive expansion of higher education”, sources of financing higher education may be diversified to complement the increase in public expenditure
  4. The argument for enhanced funding from both public and private sources came with carefully-crafted caveats related to the protection of students from deprived sections

Way Forward

  1. The humiliation of teachers and threat of physical attacks must be seen as attempts to break the spirit of those who are resisting and critiquing this cannibalisation of public institutions of higher education
  2. Citizens — teachers, students and parents — must not fail to resist these sweeping changes that will transform the very character of public universities, one that fosters the spirit of academic excellence and upholds the principles of diversity and social justice

5. The economics of RCEP and potential outcomes for India

  1. The Regional Comprehensive Economic Partnership (RCEP) agreement is under negotiation and has remained a much-contested subject in recent times
  2. If India is out of the RCEP, it would make its exports price uncompetitive vis-à-vis other RCEP members’ exports in each RCEP market
  3. The ensuing export-losses contributing to foreign exchange shortages and the subsequent extent of depreciation of the rupee can only be left to imagination

RCEP a comprehensive agreement

  1. This is because it helps to tap the economic complementarities that get generated due to the interlinkages among various segments of trade
  2. These inter-linkages are particularly important when India endeavours to integrate with a region, which has been the most successful region of the world in terms of thriving regional value chains (RVCs)
  3. These RVCs necessitate freer movement of professionals across countries in the region

Reaping benefits for the demographic dividend

  1. The vector of India’s demographic dividend is concomitant to the vector of the “ageing” population in most RCEP countries
  2. This skill-matching needs to be focused in the realm of RCEP negotiations by signing an RCEP Agreement on Movement of Natural Persons Harnessing Regional Skill-Complementarities

India’s efforts in ensuring private sector exports

  1. India’s policymakers are trying to balance the objectives of efficiency-yielding calibrated import liberalization, without sacrificing on the domestic sensitivities
  2. It has to be matched with ensuring reciprocal market access for the Indian private sector’s exports in the markets of RCEP

Gains for India

  1. There are enormous export gains that could accrue to India from RCEP under varying scenarios
  2. This assumes even greater importance since our focus has been on products with favourable terms of trade for India
  3. Thus per-unit foreign exchange realization from these products will be greater than per-unit foreign exchange expenditure on imports of similar products within intra-industry trade pattern
  4. Some of the sectors that have been identified as potential sources of India’s export growth impulses under RCEP to the tune of approximately $200 billion

Way Forward

  1. There are more compelling trade and economic reasons for RCEP to become India-led in future
  2. India must play its due role to get its due place in the regional economic configurations

6. Banking on mergers

  1. The Union government has proposed the merger of three public sector banks — Bank of Baroda, Dena Bank and Vijaya Bank
  2. This merger will create an amalgamated entity that will become the country’s third-largest lender
  3. The merger is part of the government’s efforts to consolidate the banking industry with an eye on overcoming the bad loan crisis
  4. The current merger comes after the government let State Bank of India’s associate banks merge with their parent last year and the Life Insurance Corporation of India take over the troubled IDBI Bank this year

Impact of forced mergers

  1. Forced mergers such as the current one make little business sense for the stronger banks as the weaker banks tend to be a drag on their operations
  2. They are also unlikely to solve the bad loan crisis that has gripped the banking system as a whole
  3. From a corporate governance perspective, however, the merger sends out rather poor signals
  4. Here a dominant shareholder in the form of the government is dictating critical moves that impact the minority shareholders, who are left with no say in the matter
  5. The move to merge banks is understandable, but shareholders should have been consulted

Managing mergers

  1. There are too many public sector banks in India and thus consolidation is a good idea in principle
  2. It needs to be ensured that the merger fallout is managed prudently
  3. Identifying synergies and exploiting scale efficiencies will be crucial

Way Forward

  1. Asking healthy banks to take over weak banks appears to be the strategy to handle the bad loans crisis
  2. It is important to ensure that such mergers do not end up creating an entity that is weaker than the original pre-merger strong bank.

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