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Detailed News Articles: 24 May 2019

1. Study pinpoints source of ozone-depleting gas

Rogue emissions of a gas that harms the ozone layer are coming from eastern China, primarily from two heavily industrialised provinces, an international team of researchers said.

Details:

  • The findings confirm what many scientists, environmental groups and policymakers had suspected after an initial study a year ago reported new global emissions of the gas, CFC-11, but could only locate the source generally as East Asia.
  • It also confirms the results of several investigations, including one by The New York Times, which found evidence that factories in Shandong, one of the provinces specified in the study, were still making or using the gas to manufacture foam insulation.
  • After the initial study last year, China denied that there were serious violations of the ban on the chemical, but also promised to eradicate any illegal production.
  • The new research will add to international pressure on the Chinese government to curtail the illegal use of CFC-11.

Chlorofluorocarbons:

  • CFC-11 is one of a class of compounds called chlorofluorocarbons that destroy atmospheric ozone.
  • They are also potent greenhouse gases that contribute to atmospheric warming.
  • Chlorofluorocarbons were outlawed for almost all uses by the Montreal Protocol, an international pact negotiated decades ago to preserve the layer of ozone that blocks ultraviolet radiation from the sun.
  • Excessive amounts of some types of UV radiation can cause skin cancer and eye damage in people and are harmful to crops and other vegetation.

2. An economic agenda for New India

Analysis:

  • In 2014 when Narendra Modi came to power, there were several challenges; India had a large number of people below the poverty line, so elimination of poverty in absolute terms was an important issue.
  • The second was the large scale leakages in the delivery mechanism of the government’s social security schemes.
  • There were gaps in the tax compliances. Macroeconomic parameters such as inflation, fiscal deficit, GDP growth rate were in unhealthy terrain.
  • Concentration of wealth was a big concern. However, in the last five years, Modi has been successful in addressing some of these issues; others are part of our unfinished agenda.

An aspirational middle class:

  • India’s aspirational middle class is rising again, looking for opportunities and ease of living.
  • Experts point out that this middle-income group will be driving consumption demand and setting up businesses.
  • As a matter of fact, in the past, India and China together accounted for almost 60 per cent of the global trade.
  • If the government successfully removes certain capacity constraints like credit availability, high interest rates, land acquisition, tax complexities, connectivity and logistic support etc, it will help propel economic growth.
  • The government has planned massive infrastructure investment over the next five years on roads, railways, airports, and housing.
  • Employment growth is very important for the economy.
  • The current government’s emphasis has been on entrepreneurship and self-employment, focusing on the manufacturing sector particularly MSME, which has been termed as the missing link.
  • Currently, the government is working on achieving the 50th rank on Ease Of Doing Business (EODB). Further, it also has an investment- driven roadmap to become a $5-trillion economy by 2024 and $10-trillion by 2032.
  • At present, most macroeconomic parameters are looking healthy. Inflation is low, GDP growth rate is high, fiscal deficit is under 3.5 per cent and tax-to-GDP ratio is at 12 per cent. But there are some challenges to be overcome.

A look at the challenges that need to be overcome:

  • Various chambers of commerce are worried about the high real interest rates.
  • Cost of deposits is an important cost component of our banking system. Fixed interest rate saving schemes determine the deposit rates. Central and State governments’ borrowings have a bearing on the deposit rates.
  • The government is maintaining its fiscal deficit targets; but with rising GDP there will be space for borrowing without disturbing the fiscal deficit. The RBI Governor too has said that there is a limit to which lowering of repo rate can be transmitted to lower real interest rate.
  • What the country needs currently are some structural changes to achieve low real interest rates.
  • The second important cost component for the banks is the risk premium determined by the level of NPAs and stressed assets. With reforms like IBC, NCLT and other legal changes, the government has set up the institutional mechanism to resolve the NPA problem.

Banking reform:

  • Further, of the 11 banks under the Preventive Corrective Action (PCA), five are out of it.
  • The government is infusing capital and merging some of the weak banks.
  • Credit off take, after an initial slow down, has now recovered. Last year (2018), the credit growth was around 14-15 per cent year-on-year.
  • The benefits of the current government’s reforms are being felt after a time lag.
  • The government is also working on project revival under the ‘Pragati’ initiative. It is trying to sort out certain complex problems faced by some NBFC and infrastructure companies like the IL&FS.
  • Earlier the Financial Sector Legislative Reform Commission (FSLRC) had recommended certain reforms. Most of them have been implemented.
  • Financial Resolution and Deposit Insurance (FRDI) has to be implemented. Setting up Development Financial Institutions (DFI) to finance long-term gestation projects is also on the government’s agenda.
  • Further, Indians need to understand the sanctity of taxpayer’s money. Every penny that the government spends is the taxpayer’s money. These are governance issues involved with the exchequer.
  • It is also important to note that the government is one of the biggest borrowers. Giving out doles will add to the inflationary pressure and fiscal deficit will rise. Thus, efficiency and transparency in government expenditure are important. If government borrowing is used for asset creation, it expands the economy.
  • If we invest ₹100 lakh crore in infrastructure development in the next 5-10 years, it will help the economy.
  • Further, better targeting through the direct benefit transfer (DBT) scheme is an important goal for the government. The Central government refrained from giving a farm loan waiver despite the pressure. Good economics is good politics.
  • Big-ticket reforms in land, labour and capital are very important for the industrialisation of the country.
  • The government could not amend the Land Acquisition Act. However, land being a State subject, it is the States which are making changes. The Centre is pushing for digitisation of land records and land lease agreements; this will help in establishing ownership of land. Even for ease of doing business (EODB) ranking, the transfer of title is an important consideration.
  • On the labour front, there have been efforts on the formalisation of labour. Ninety-three per cent of our labour force is in the informal sector. The working conditions in this sector are very poor. Provident Fund (PF), ESI, job security, social security etc. are not available. The government plans to consolidate the Labour Code and promote fixed-term contracts.

Concluding Remarks:

  • Foodgrain production in the country has moved from shortages to surplus.
  • However, the agricultural policies are still being formulated with a ‘deficit mind set’.
  • It is a priority area for the new government to change this.
  • Earlier all our commodity import-export policy was aligned with the requirement of consumers.
  • Now it is being aligned to ensure that farmers get better price for their produce.
  • Currently, low inflation with high growth rate is ideal but not at the cost of lower price realisation to farmers. A big challenge is doubling of farmers’ income by 2022.

3. On the cards: Consumption, liquidity issues, labour reforms on the table of the new govt

Analysis:

  • Experts opine that the next phase of reforms roadmap is expected in the backdrop of a cyclical downturn.
  • Gross Domestic Product (GDP) growth figures for January-March 2019, to be released on May 31, 2019 are expected to depict a loss of momentum in India’s growth.
  • As the new government takes shape, among its initial key focus areas are likely to be:
  1. revival of economic growth,
  2. repair of the financial sector,
  3. pursuit of direct tax and labour market reforms.
  • A downward slide has already been seen in Index of Industrial Production (IIP), which contracted to a 21-month low of 0.1 per cent in March, 2019 on the back of weak investment and consumption demand.
  • For the 2018-19 financial year as a whole, IIP growth stood at 3.6 per cent, much lower than 4.4 per cent recorded in previous financial year.
  • Also, India’s slowing consumption story and subdued growth in exports are factors which are expected to keep the country’s growth rate under pressure in the months to come. While the automobile sector has been witnessing a subdued growth and the passenger car segment saw a decline of 16 per cent in the month of April 2019, the FMCG sector has also been seeing a slowdown in volume growth.
  • It is important to note that currently, the economy is going through a cyclical downturn. The GDP growth in the second half of 2018-19 had fallen to around 6.5 per cent — below the trend rate of growth of India (7 per cent).
  • Further, consumption demand, which was the bulwark of the economy, has weakened and private investment is yet to show signs of a pickup.

Some Measures that can be implemented:

  • Apart from measures from the Reserve Bank of India, a key element in the growth revival process will be speeding up bad loan resolution process under the Insolvency and Bankruptcy Code (IBC), which will free up resources for banks to lend further.
  • Addressing liquidity issues of the Non Banking Financial Companies’ sector is expected to be another priority, as crisis in the NBFC sector threatens to engulf the entire financial sector.
  • A number of NBFCs has put a stop to fresh loan disbursements while many are on the verge of defaulting on their repayments.
  • The government is also expected to further step up capital infusion in public sector banks and pursue consolidation by merging weak banks with strong banks.
  • Economists and market experts say that while the NBFC sector is choked for funds, their revival is critical for the economy as they account for a large part of credit disbursal in tier II and tier III towns.
  • Besides, while the infrastructure segment has seen a pick up in credit demand over the last one year and additional credit to the segment rose by 1.65 lakh crore or 18.5 per cent in FY19, the credit growth for the industrial segment continues to remain weak.
  • There is a sense in the market that the private sector investment needs to revive as it may provide the necessary leg up to the economy. The overall credit demand for the industry went up by only 6.9 per cent in FY19 despite a strong demand from infrastructure segment.
  • The IBC has been the most significant financial sector reform launched by the NDA government, aimed at speedy resolution of stressed assets of more than Rs 10 lakh crore.
  • While a recovery rate of around 43 per cent points to early success of the law, delays in successful resolution in nearly 48 per cent of the cases has been its main hurdle. The IBC requires a corporate insolvency resolution process (CIRP) to be completed in 180 days, which can be extended by another 90 days to a maximum of 270 days. These time limits have been set to ensure that recovery of non- performing assets (NPAs) in a time-bound manner.

What does data from the Insolvency and Bankruptcy Board of India tell us?

  • However, according to data from the Insolvency and Bankruptcy Board of India, as on March 31, 2019, out of total 1,143 that were undergoing resolution under the IBC, a total of 548 cases exceeded the 180-day deadline.
  • This reflects that in nearly 48 per cent of the cases (or 548 CIRPs), a resolution could not be achieved within 180 days.
  • A total of 362 cases — or 31.67 per cent of the ongoing CIRPs — surpassed the outer limit of 270 days set out in the IBC.
  • Ensuring that time lines set out in the law are adhered to is crucial for timely recovery of the loans, which will boost capital available, helping improve credit availability and supporting growth.
  • Post poll, the government expenditure would require a commensurate growth in revenue collections, an area where the government struggled in the previous financial year.
  • Both direct tax revenue and Goods and Services Tax (GST) revenue have fallen short of the revised budget estimates for 2018-19 by at least Rs 1 lakh crore.

Areas that may receive attention:

  • Going ahead, meeting the already declared direct tax targets for this financial year is going to be a slippery slope, which could prompt the tax department to scale down its targets in the full Budget for 2019-20 expected to be presented by the new government in mid-July, 2019.
  • On the GST front, no major rejig of tax rates, barring few minor items where there could be some discrepancy, is in the offing.
  • The focus for this financial year is expected to be more on boosting compliance, simplifying procedures and perhaps a move towards inclusion of some of the items that are currently out of GST’s ambit such as natural gas and aviation turbine fuel.

Concluding Remarks:

  • A dedicated focus on compliance and maintaining rates is being seen necessary for protecting the gross GST revenue target which may falter given the steep monthly aim of Rs 1.15 lakh crore.
  • Labour reforms did not complete the course mapped out by the government in its first term.
  • In his independence day speech in August 2015, Prime Minister Narendra Modi had spoken about codification of labour laws into four codes.
  • The labour and employment ministry had drafted four labour codes: industrial relations, wages, social security and welfare, and occupational safety, health and working conditions by amalgamating, simplifying and rationalising the relevant provisions of the existing 44 central labour laws, yet not even a single code got enacted through the legislative route.
  • Lastly, employment generation, especially of good quality and with decent wages, would be crucial, especially in absence of a strong economic growth.
Q1. Consider the following statements:
  1. The Montreal Protocol is an international treaty designed to protect the ozone layer.
  2. The Montreal Protocol currently calls for a complete phase-out of HCFCs by 2020.

Which of the given statement/s is/are correct?

a. 1 only
b. 2 only
c. Both 1 and 2
d. Neither 1 nor 2

Answer: a

Explanation:

The Montreal Protocol on Substances that Deplete the Ozone Layer (a protocol to the Vienna Convention for the Protection of the Ozone Layer) is an international treaty designed to protect the ozone layer by phasing out the production of numerous substances that are responsible for ozone depletion. The Montreal Protocol currently calls for a complete phase-out of HCFCs by 2030.

 

Thank you!

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