Today’s important articles/news in various newspapers (3rd October)

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. Rescuing IL&FS (Covering the issue of defaults by the IL&FS)

  • Infrastructure Leasing & Financial Services Ltd. (IL&FS) was set up in 1987 by the legendary M.J. Pherwani (former chairman of Unit Trust of India, National Housing Bank, etc.) to finance and promote infrastructure projects in the country.
  • This holding company is now a financial behemoth with assets of over Rs. 1,15,000 crore and a  debt of Rs. 91,000 crore.
  • IL&FS Finance, which is a group company of the holding IL&FS company, defaulted in late August on a commercial paper repayment. This development was followed by a default by IL&FS on repayment of a Rs. 1,000 crore deposit to Small Industries Development Bank of India (SIDBI).
  • Pursuant to this, a series of defaults by the holding company and group outfits followed. These defaults ran into the weeks leading up to the annual general meeting of IL&FS on September 29.
  • Infrastructure Leasing & Financial Services Ltd. (IL&FS) is listed as “systemically important” by the Reserve Bank of India. The company has over Rs. 1,15,000 crore of assets and Rs. 91,000 crore of debt. Thus, it is too big to fail. This is further underlined by the fact that interlinkages between IL&FS and other financial sector entities such as banks, mutual funds and infrastructure players are too strong and the company would have taken them all down with it if it were allowed to fail.

A Note on IL&FS:

  • IL&FS is a holding company that operates through 169 other companies.
  • These 169 other companies are either subsidiaries, group companies or joint ventures with others. It has been in the past and is currently as well, associated with landmark projects.
  • A few among these projects include the tunnel under the Zoji La Pass, Delhi-Noida toll bridge, Gujarat International Finance Tec-City (GIFT) and a host of road, power, water and port projects.
  • Three of IL&FS’group companies are listed on the stock markets.
  • These group companies are IL&FS Investment Managers Ltd., IL&FS Engineering and Construction Company Ltd. and IL&FS Transportation Networks Ltd.
  • IL&FS was originally promoted by the Central Bank of India, Unit Trust of India and HDFC. Orix Corporation of Japan, Abu Dhabi Investment Authority, LIC and SBI joined in as co-promoters later.

How did this crisis take place?

Essentially, the company borrowed many times its equity. This figure is rumoured to be between 10-18 times its equity. This money was borrowed to fund its infrastructure projects, most of which bring in returns over 20-25 years.

To compound matters, IL&FS’s borrowings were all repayable in the short to medium-term of roughly 8-10 years.

The chokepoint for IL&FS came from the fact that its projects were stalling and not being completed due to various reasons. These reasons ranged from:

  1. statutory approvals not coming in
  2. problems of land acquisition and
  3. projects simply becoming unviable as it happened in the case of power plants.

Further, with returns from these projects not coming in, IL&FS was forced to borrow more. Lenders pulled the plug leading to trouble for IL&FS.

It is important to note that assets and receivables were exaggerated in the financial statements and the top managers took home large pay-outs and continued to pay dividends to shareholders despite the financial situation. An investigation has been ordered by the Serious Fraud Investigation Office.


  • Recently, the Centre moved to supersede the Board of Directors.
  • The decision to change the management has ushered in the appointment of experienced people, such as Uday Kotak, who has rich experience in the finance sector; G.C. Chaturvedi, former bureaucrat and non-executive chairman of ICICI Bank; and G.N. Bajpai, former chairman of the Securities and Exchange Board of India and the Life Insurance Corporation. It is believed that these appointments should lend confidence to lenders and investors.
  • The Centre has explicitly stated its intent, which is to “ensure that needed liquidity is arranged for IL&FS from the financial system”.
  • By doing so, the Centre has sent out an unambiguous message to the markets that it will not allow the company to fail.
  • It is believed that any rescue plan for the company obviously had to begin with replacing the existing management that was responsible for mismanaging its affairs.
  • Currently, the problem appears to be one of liquidity and not solvency.
  • It is believed that this is a classic case of over-leveraging, and an asset-liability mismatch caused by funding projects of 20-25 years payback period with relatively short-term funds of 8-10 years.

Concluding Remarks:

  • In conclusion, there are some important questions that need to be answered.
  • If IL&FS was a systemically important company, how did its over-leveraging escape the notice of the Reserve Bank of India?
  • What did the periodic inspections of the company by RBI reveal? How did the developing situation pass the attention of shareholders? Did they look the other way since their dividends were serviced?
  • Finding answers to these questions is as important as rescuing IL&FS.
  • Finally, it is felt that there is a need for long-term finance sources for infrastructure projects.
  • Currently, the LIC and some insurance companies are the only domestic sources and they too do not lend beyond 10 to 12 years.
  • Thus, the Centre and the RBI should look at ways to deepen the debt markets where infrastructure players can borrow long-term.
  • Moreover, it also needs to be analysed as to how a company listed as “systemically important” managed to fly under the radar with misgovernance. It is important to note that the debt pile-up due to over-leveraging did not happen overnight.

2. A flight path with obstacles

With the publication of the drone regulations in late August 2018, the Ministry of Civil Aviation has attempted to give some structure to the development of drone infrastructure in India.

  • What are drones?
  • Drones are a technology platform which has wide-ranging applications from photography to agriculture, from infrastructure asset maintenance to insurance. Drones range in size from very small and those that can carry multiple kilograms of payload.

The Ministry of Civil Aviation has been working for several years to establish a world leading drone ecosystem in India.  To that end, it was necessary to develop global standard drone regulations that would permit, will appropriate safeguards, the commercial application of various drone technologies.

India’s regulations separate drones into five categories. These categories are

  1. nano,
  2. micro,
  3. small,
  4. medium and
  5. large.

There is very little regulation for flying a nano up to 50 metres height, except for not flying near airports, military sites or in segregated airspace.

A Long Procedure

  • For drones that fall under the micro category, operators have to start with the application for a unique identification number (UIN) for each drone. There is a long list of documentation including security clearances from the Ministry of Home Affairs (MHA) in several cases.
  • Once the UIN is obtained, operators get to move to the next step. They have to apply for an Unmanned Aircraft Operator Permit (UAOP). This implies more forms.
  • To compound matters, in the current system, even to fly a micro drone below 200 ft, users have to intimate the local police station 24 hours prior. (One application requires that it be submitted with seven copies.)
  • These provisions curb manufacturers of drones as well as technologists and researchers who have to test fly these drones frequently, often several times a day. The very structure of these regulations makes the possibility of a red tape-free flight very slim. There is also a chance that operators could be slapped easily with real and perceived violations.
  • Critics further point out that although the regulation provides a list of identified areas for testing and demonstration, the locations provided are so far from technology and development hubs that it is unclear how practical these will be. Although one must concede that flying drones in these areas comes with less paperwork.

International Perspective: Switzerland

  • “Agroscope”, is the ‘Swiss centre of excellence for agricultural research’, in Nyon, Switzerland.
  • Here, agriculture scientists fly a drone to study nitrogen level in leaves, not for a farm as a whole, but for each individual plant.
  • The drone takes a large number of images, which after being fed into a computer model with data on a) soil condition, b) weather, c) time of the year and other information, helps analyse which plants are deficient in nitrogen.
  • This technique enables farmers to add corrective fertilizer only where necessary.
  • “Sensefly”, which is a Swiss drone manufacturer, has customers around the world, whose use of drones have resulted in higher yield.
  • This higher yield has been more than 10% in observed case studies. Further, significantly lower usage of fertilizers and herbicides have been observed.

International Perspective: China and USA

  • China’s drone economy, which includes both manufacturing and development will be worth $9 billion in 2020.
  • The U.S’s commercial drone market is expected to be $2.05 billion by 2023 (According to Global Market Insights).
  • For India to compete against these giants, it already has a lot of catching up to do.
  • Filing a series of applications in multiple copies and waiting for various government departments to respond is not the best way to get started.

Concluding Remarks:

  • One must concede that the security and privacy risks of allowing drones to fly in an unregulated manner are high.
  • Importantly, it may be recalled that in August 2018, a drone was used in an attack on Venezuelan President Nicolás Maduro during a public meeting. This development underscores the threat that drones can cause.
  • India needs to figure out a more balanced manner of regulation.
  • The current rules are a start, but only in the sense that they free all drones from their previous illegality. The real impact of drones will be in the many applications they will be put to. Agriculture is just one such. They are likely to be the disaster prevention systems, rescue operation leaders, and even public transport providers in the not too distant future.
  • It is believed that missing out on working on these applications early enough will likely have serious repercussions to India’s future competitiveness in the field.

3. Up in the air — on stubble burning

Editorial Analysis:

  • For sometime now, the onset of the winter season has come to be associated with toxic atmospheric pollution in north India.
  • It is important to note that although road dust and pollution from heavy vehicles are primarily responsible for the noxious air that sets on Delhi and other urban centres, the burning of paddy stubble by farmers further compounds the issue.
  • This practice is followed by farmers to clear their fields for the next crop, but this is considered to be responsible for 20% of the smog.

Government Initiatives:

To address this issue, and under directions from the Supreme Court-constituted Environment Pollution (Prevention and Control) Authority, or EPCA, the Centre is partnering with the states of Punjab, Haryana and Uttar Pradesh to provide farmers with a range of mechanised implements to clear their fields of paddy crop residue to prepare for sowing wheat.

  • Specifically, there is a 50% subsidy to farmers, and a 75% waiver to cooperative societies, agencies that rent out equipment, farmers’ interest groups or gram panchayats to buy such machines.
  • Further, states have got nearly Rs. 650 crore to help farmers buy subsidised equipment such as Happy Seeder, paddy straw choppers and Zero Till Drill.
  • Moreover, the state of Punjab, which of the three States has the largest acreage under paddy, has a target of procuring 24,315 machines by October 15.
  • A task force, headed by the Principal Secretary to the Prime Minister and comprising Environment Ministry officials and Chief Secretaries of these States, have been meeting since January to prepare for the winter season.

Voices of Concern:

  • Certain reports suggest that many farmers, particularly those with land holdings of less than 5 acres, remain sceptical of the efficiency of these machines.
  • These farmers have concerns of whether or not these machines will affect productivity.
  • As a matter of fact, many farmers have told officials that they are worried that there could be damage to the soil.
  • Hence, it is believed that just making technological tools available may not be enough and that there needs to be proactive engagement to both persuade and reassure farmers.

Concluding Remarks:

  • Surprisingly, it was technology that contributed to the problem in the first place.
  • It was the rising cost of labour that prodded farmers to adopt mechanised equipment which, while efficient, left behind much longer stalks of paddy than what the traditional practice of removing them by hand did.
  • The current state of affairs: the greater availability of machines and the zero-tolerance policy, need to be seen as works in progress to derive lessons on how to refine the crop-clearing process in an ecologically sound manner.
  • There must also be a sense of proportion, as 80% of the atmospheric pollution in Delhi in winter draws from sources other than burning stubble.
  • Lastly, given Delhi’s geography, low wind speeds and a spike in local pollution, which is caused largely from vehicles, biomass burning, firecrackers, etc, raise the particulate matter count dramatically during winter.
  • Thus, to be effective, the fight against pollution must necessarily be broad-based.

4. In the court of last resort

  • In January 2018, a warning was issued by four judges of the Supreme Court, in an unprecedented press conference.
  • These judges objected to the manner in which the then Chief Justice of India was using his power to allocate cases to different benches of the Court.
  • One amongst these dissenting judges was Justice Ranjan Gogoi, who now takes oath as the new Chief Justice of India.

The National Register of Citizens (NRC) Case:

  • Between the years 2009 and 2012, public interest petitions were filed before the Supreme Court. These public interest petitions challenged Section 6A of the Citizenship Act, and also asked for the updating of the National Register of Citizens (NRC) for the State of Assam.
  • This was to be done in accordance with the Assam Accord.
  • Further, it was argued that this was urgently required to check illegal migration from across the border, and detect and deport non-citizens living in Assam.
  • In the beginning, the court only monitored the government’s progress, asked for status reports, and prodded the administrative authorities.
  • However, the stance adopted by the Court, that of monitoring the government’s progress changed, in late 2014.
  • Firstly, a bench of the court headed by Justice Gogoi directed the State Coordinator of the NRC to submit in a “sealed cover” a report indicating the “steps and measures” that he was taking to complete his work of updating of NRC.
  • Critics allege that this development suggested that the court was no longer content with mere oversight, but would direct both the modalities and the implementation.
  • Further, on December 17, 2014, a two-judge bench of the court, which was again presided over by Justice Gogoi, referred the constitutional challenge to a larger bench, but also passed a detailed order (authored by Justice R.F. Nariman) setting out a time schedule requiring the draft NRC to be completed by the end of January 2016.
  • Critics further assert that the bench of Justices Gogoi and Nariman then virtually took over the task of preparing the NRC.
  • They believe that there are three incidents which lend credence to this. These incidents are as follows:
  1. Firstly, in the month of February 2017, the NRC Coordinator placed a “power point presentation” before the Court, which set out the “steps involved” (both present and future) in the preparation and upgradation of the NRC. The court did not make this public.
  • Subsequently, however, it was reported that the court had approved an entirely new method of ascertaining citizenship, known as the “Family Tree Verification”.
  • In the month of July the same year, the State Coordinator stated that on the basis of the Family Tree Method, 65,694 cases had been “discovered to be false”. But as it was also reported, for instance not only did people from the hinterlands have little awareness about this method, but putting together a family tree (in the unique sense in which it is being used in this case) was a big challenge especially for women. Unfortunately, none of this was taken into account by the Court.
  1.                    b) Secondly, it became increasingly clear that the time schedule was unrealistic. Extensions were requested, which the court granted grudgingly.
    c) Finally, on the publication of the final draft NRC at the end of July 2018, around 4 million people had been left out.

The Gravity of the Situation:

  • It is important to note that depriving an individual of her citizenship is a very serious matter.
  • It is for this very reason that our Constitution envisages a detailed system of checks-and-balances. First, it is the Parliament that must pass a law.
  • Moreover, the executive, which is best acquainted with the facts and circumstances on the ground, must implement it. And finally, courts review legislative and executive action for constitutional compliance.
  • Critics believe that the current practice deprives the individual of a vital, constitutional remedy.
    An important question arises: Where is the individual to go if she wants to challenge the contents of the reports filed in sealed cover?
  • They further allege that such an exercise in which the court decides, in secret consultation with the State Coordinator, undermines both open justice, and judicial review. The executive court has set itself up as the first and final tribunal, without appeal or recourse.

5. For the first time, India gets its soil moisture map

  1. With the Rabi season around the corner, a countrywide forecast is prepared at the end of the monsoon season.
  2. This forecast, following a joint exercise by IIT Gandhinagar and the India Meteorological Department (IMD), for the first time, provides a country-wide soil moisture forecast at seven and 30-day lead times.
  3. Soil moisture is crucial for agriculture since it directly affects crop growth and how much irrigation is required for the area.
  4. It suggests deficit soil moisture conditions are likely in Gujarat, Bihar, Jharkhand, Tamil Nadu and southern Andhra Pradesh.

Variable Infiltration Capacity Model

  1. The experts used the ‘Variable Infiltration Capacity’ model to provide the soil moisture prediction.
  2. The product, termed ‘Experimental Forecasts Land Surface Products’, is available on the IMD website.
  3. It has been developed using the hydrological model that takes into consideration soil, vegetation, land use and land cover among other parameters.
  4. The team has been working on high-resolution soil database that is essential for soil parameters used in the modelling.
  5. However, the database is not available for the entire country currently.

Why need Moisture Map?

  1. Crucial information needed for agriculture is not revealed only through rainfall data.
  2. Even if there’s a normal rainfall, if the temperature is abnormally high, it can rapidly deplete the soil moisture.
  3. So essentially soil moisture gives us more information on what is needed for crop growth in different parts of the country.
  4. Forecasting of soil moisture holds significance for the rabi season.
  5. As per official data, the total area sown under rabi crops is around 625 lakh hectares of which wheat takes up 300 lakh hectares.
  6. Timely soil moisture forecasts will help target interventions, in terms of seed varieties for better planning in agriculture.

Leap over Kharif uncertainties

  1. In Bundelkhand, most farmers keep their land fallow or just grow some fodder crop during the kharif season since the rains are unpredictable and there could be extended dry spells after sowing.
  2. They then mainly cultivate the rabi crop using the soil moisture left behind by the monsoon rains.
  3. It is a similar trend in Bihar, in low lying areas of Seemanchal and Kosi belt, where no crop is grown during Kharif because of inundated lands.
  4. This means that if there is not enough rainfall in one or two months, these are regions which will demand heavy irrigation whether that comes from groundwater or surface water storage (reservoirs).
  5. Based on observed conditions at present, Gujarat, parts of Maharashtra, Chhattisgarh, Jharkhand, Tamil Nadu and parts of Andhra Pradesh are deficient in terms of soil moisture right now.

6. From Plate to Plough: Get smarter on the farm

  1. India needs a good blend of investments and subsidies in its agriculture policy
  2. There is not a severe constraint on resources to invest in rural areas, be it roads, water (irrigation), sanitation, and even housing
  3. Including agri-research and development (R&D) and quality education in this list of rural investments would ensure handsome payoffs — reducing poverty and propelling agri-growth at a much faster pace than has been the case so far

India’s policy so far

  1. Most countries support agriculture to ensure food security and/or enhance farmers’ income, so does India
  2. The main policy instruments to support farmers in India include subsidised fertilisers, power, agri-credit and crop insurance on the input side, and minimum support prices for major crops on the output front
  3. A recent study, conducted jointly by the OECD and ICRIER, estimated that India’s trade and marketing policies have inflicted a huge negative price burden upon the country’s farmers
  4. The Producer Support Estimate (PSE) for India works out to be minus (-) 14 per cent of the gross farm receipts for the period 2000-01 to 2016-17
  5. This is primarily because of restrictive export policies (minimum export prices, export bans or export duties) and domestic marketing policies (due to the Essential Commodities Act, APMC, etc)

Return on investments low

  1. Public capital formation in agriculture has been declining from 3.9 per cent of agri-GDP in 1980-81 to 2.2 per cent in 2014-15
  2. Input subsidies on fertilisers, water, power, crop insurance and agri-credit have risen from 2.8 per cent to 8 per cent of the agricultural GDP during the same period
  3. The rapid increase in input subsidies has squeezed public investments in agriculture
  4. Therefore, India has not got the biggest bang for its buck being spent in the agriculture space
  5. The results show that expenditure incurred on Agri-R&E (Research and Education), roads or education are five to 10 times more powerful in alleviating poverty or increasing agri-GDP than a similar expenditure made on input subsidies

Impact of excessive subsidies

  1. Excessive input subsidies have caused large-scale inefficiencies in the agriculture system
  2. For example, fertiliser subsidies, especially on urea, have led to the imbalanced use of soil nutrients
  3. The subsidy on irrigation water has resulted in an inefficient use of scarce water
  4. Highly subsidised power has led to over-exploitation of groundwater
  5. Subsidy on the interest rates on crop loans has diverted substantial amounts of agri-credit to non-agricultural use

Policy suggestions

  • Investment in public irrigation is very expensive, as it involves long lags, and the gap between the potential created and potential utilised has increased over time
  1. To give higher returns, this leaky system must be fixed, it should be made more transparent and the gap between potential created and utilised bridged
  • The present system of delivering subsidies through the pricing policy needs to be shifted to an income policy, which could be well-targeted, and leakages minimised— on the lines of JAM trinity
  1. Many OECD countries, as well as emerging countries such as China, are moving in that direction
  2. Indian farms can also benefit from this move where input subsidies at least are given as DBT on a per hectare (ha) basis
  • Investments need to be prioritised towards agricultural research and development, roads and education
  1. At the global level, the private sector is leading in agri-R&D
  2. If India needs to access that technology, it needs to develop a proper IPR regime, which is in the interest of farmers as well as investors

Way Forward

  1. India needs to make moves to give its farmers access to the best technologies in the world
  2. This, in turn, can augment their productivity and incomes and give the nation long-term food security

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