Polavaram project: appsc

 

Banking health and the ‘K Curve’

dynamics

Depositors in Lakshmi Vilas Bank Limited (LVB) recently got bailed out by the RBI. The non- banking financial companies, or NBFCs are also in trouble.

 

More on news:

 

●        The implications of this financial turmoil will reflect on the price performance of individual banks.

●        Price action of banks in the market can provide useful insights about the financial system dynamics that will change in the coming years.

 

‘Price to Book Value’ ratio (P/BV)

 

●        The key metric for financial companies is the ‘Price to Book Value’ ratio (P/BV).

●        The P/BV reflects on two critical features:

ü  Adequacy of current capital and

ü  Runway available to the entity for profitable growth

●        Meaning of the values associated:

ü 
A P/BV ratio above 1 indicates that the market believes that the company can grow and generate Return on Equity (RoE) above the hurdle rate that investors expect.

■        The faster it can grow above the hurdle rate, the greater the P/B multiple (above 1).

ü  A P/BV below 1, indicates that the market either does not believe the bank has recognised all its bad loans or has the business model to deliver returns above the hurdle rate.

■        It may be because the bank does not have a good deposit franchise, has bad cost discipline or a broken lending model.

●        There are banks that have a P/BV above 4 while some others are at much below 1, even at 0.25. Some NBFCs have values in excess of 7.

 

Alpha banks

 

●        Private sector banks: Major banks have always had their P/BV above 3 on a consistent basis.

ü  Capital is available in plenty for these banks and the market is optimistic that these banks will generate attractive RoE.

ü  Therefore, they have disproportionate incremental market share on both assets and liabilities.

●        Banks having P/BV of above 1.5: These banks have access to sufficient capital.

 

Both the above sets of banks are called Alpha banks. They would form one arm of the K, having adequate access to capital and the intrinsic ability to grow market share. The only constraint for these banks would be their ability to grow their liability franchise as changes in market share on deposits are much slower than changes on the asset side.

 

Private sector banks having a P/BV of 1 or below:

 

●        Business model issue: The new generation banks amongst these have to demonstrate consistent growth and stability on the liability side to earn their stripes for a higher P/BV again.

●       
The market perceives issues with their lending practices and thereby, asset quality. That is the reason their P/BV is at very low levels.

●        They need to transform themselves by upgrading technology, add skilled manpower and improve management quality and governance.

 

Way forward

 

●        For public banks

ü  Their current governance model depresses their P/BV.

ü  These banks should run in a professional manner with an ability to decide their own destiny.

ü  Along with the government move to consolidate PSU banks into few large banks, these banks must have differing value propositions to offer to the market.

ü  Clear level playing field amongst all banks: Government should move towards transparent and fair compensation for services rendered to various State-sponsored programmes to all players.

ü 
PSU banks should be free to adopt human resource practices to on-board lateral talent to fill in skill set gaps and adapt to the new digital world.

●        More Alpha banks needed: The Alpha banks widen the K Curve and squeeze out the weak banks. However, there is clearly more room for banks to migrate into the Alpha banks set.

ü  For NBFCs, there is no clear path. The more valued NBFCs can become part of the Alpha banks in the long term.

Amalgamation of Lakshmi Vilas Bank with DBS Bank India Limited

The Union Cabinet, chaired by the Prime Minister has given its approval to the Scheme of Amalgamation of Lakshmi Vilas Bank Limited (LVB) with DBS Bank India Limited (DBIL).

 

Benefits of amalgamation:

 

●        There will be no further restrictions on the depositors regarding withdrawal of their deposits.

●       
It is in line with the Government's commitment to a clean banking system while protecting the interests of depositors and the public as well as the financial system.

 

Prompt Corrective Action (PCA)

●        It is a framework under which banks with weak financial metrics are put under watch by the RBI. ●        Applicable: The PCA framework is applicable only to commercial banks and not to co-operative banks and non-banking financial companies (NBFCs). ○        It may be noted that of the 21 state-run banks, 11 are under the PCA framework. ●        It aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector. ●        Essentially PCA helps RBI monitor key performance indicators of banks, and taking corrective measures, to restore the financial health of a bank. ●        The PCA framework deems banks as risky if they slip some trigger points - capital to risk weighted assets ratio (CRAR), net NPA, Return on Assets (RoA) and Tier 1 Leverage ratio. ●        It has three risk threshold levels (1 being the lowest and 3 the highest) based on where a bank stands on these ratios.   Measures under PCA ●        Depending on the threshold levels, the RBI can place restrictions on dividend distribution, branch expansion, and management compensation. ●        Only in an extreme situation, breach of the third threshold, would identify a bank as a likely candidate for resolution through amalgamation, reconstruction or winding up.

 

 

 

 

 

 

 

 

 

GST inflows top ₹1 lakh cr for

second month in a row

Signs of recovery

In line with the recent trend of recovery, the revenues for November 2020 are 1.4% higher than the GST revenues in the same month last year.

 

●        Gross revenues from the Goods and Services Tax (GST) crossed the ₹1 lakh crore mark for the second month in a row, with ₹1,04,963 crore collected in November 2020.

●        November’s GST collections were boosted by festive spending.

●       
The pick-up in GST revenues over the last two months could reduce the shortfall in GST compensation dues to States.

●        The average pace of growth in GST collections in October-November 2020 stood at a moderately healthy 6%.

 

Cumulative loss due to lockdown: Cumulatively, the GST revenues from the first eight months of 2020-21 add up to ₹6,64,709 crore, reflecting a 17.4% dip from the ₹8,05,164 crore collected in the same period of 2019- 20.

 

●        GST revenues had collapsed to just ₹32,172 crore in April this year as economic activity was crippled following the national lockdown.

●        Fall in generation of e-way bills: The sharp moderation in growth in the generation of GST e-way bills in November 2020 relative to the previous month, signals the impact of the change in working days related to the shift in the festive calendar.

Lottery, gambling, betting taxable under GST Act: SC

The Supreme Court held that lottery, gambling and betting are taxable under the Goods and Services Tax (GST) Act.

 

●        The Court was responding to arguments made by Skill Lotto Solutions and other lottery agents that the lottery is not ‘goods’ and GST on it was illegal.

●        Skill Lotto Solutions Pvt. Ltd. filed the writ petition impugning the definition of goods under Section 2(52) of the Central Goods and Services Tax Act, 2017 (“CGST Act”) and consequential notifications to the extent it levies tax on lotteries.

●        The Petitioner sought declaration that the levy of tax on lottery is discriminatory and violative of Article 14, 19(1)(g), 301 and 304 of the Constitution of India.

 

Takeaways from the judgment

 

●        The court held that lottery, betting and gambling are “actionable claims” and come within the definition of ‘goods’ under Section 2(52) of the Central Goods and Services Tax Act, 2017.

●        It said the levy of GST on lotteries does not amount to “hostile discrimination”.

 

●        But the court said the Parliament had an absolute power to go for an “inclusive definition” of the term ‘goods’ to include actionable claims like lottery, gambling and betting.

●        The power to make laws as conferred by Article 246A fully empowers the Parliament to make laws with respect to goods and services tax and expansive definition of goods.

●       
The court accepted the government’s stand that the Parliament has the competence to levy GST on lotteries under Article 246A of the Constitution.

●        Besides, the court said Section 2(52) of the GST Act was in line with the Constitution Bench judgment of the Supreme Court in the Sunrise Associates case, which had held that “the sale of a lottery ticket amounts to the transfer of an actionable claim”.

 

Investment Promotion Award 2020: United Nations Declares Invest India the Winner

The United Nations (UNCTAD) has declared Invest India - the National Investment Promotion Agency of India - as a winner of the 2020 United Nations Investment Promotion Award.

 

 

About the award:

●        The award recognizes and celebrates the outstanding achievements and best practices of Investment Promotion Agencies (IPAs) across the globe.

●        The evaluation was based on UNCTAD’s assessment of work undertaken by 180 IPAs.

●       
The response of IPAs to the pandemic became the basis for the evaluation of the 2020 United Nations Investment Promotion Award.

ü  The COVID-19 pandemic has led to numerous challenges for Investment Promotion Agencies forcing them to shift focus from routine investment promotion and facilitation towards crisis management.

 

Significance:

●        The award is a testament to the vision of making India a preferred investment destination.

●        It bears testimony to the focus on Ease of Living, Ease of Doing Business and creating an Aatmanirbhar Bharat.

 

Investing in India’s youth

With the largest youth population in the world, India faces the difficult task of educating every citizen to become a productive member of society.

 

Background

 

●        Evidence shows that many people develop 21st century skills on the job, or from courses that focus on practical application of skills.

●        This indicates that vocational education can be a route for many to gain specific skill sets and knowledge which they can directly apply in their jobs.

●        Technical and Vocational Education and Training (TVET).

ü  ‘Technical and vocational education and training’ (TVET) is understood as comprising education, training and skills development relating to a wide range of occupational fields, production, services and livelihoods.

ü  TVET, as part of lifelong learning, can take place at secondary,post-secondary and tertiary levels and includes work-based learning and continuing training and professional development which may lead to qualifications.

 

ü  TVET also includes a wide range of skills development opportunities attuned to national and local contexts.

ü  Learning to learn, the development of literacy and numeracy skills, transversal skills and citizenship skills are integral components of TVET.

 

Govt. initiatives

 

●        India’s Right to Education Act guarantees free and compulsory education for the ages of 6 to 14 years, and is based on books and written examinations.

●        The National Skill Development Policy was launched in 2009 and revamped in 2015, recognising the challenge of skilling with speed and high standards.

●        The Skill India Mission was launched soon after, and Prime Minister Narendra Modi announced his vision for making India the “skill capital” of the world.

●        The new National Education Policy (NEP) aims to provide vocational education to 50% of all learners by 2025.

ü  Schools are encouraged to provide students access to vocational education from Grade 6 onwards and to offer courses that are aligned to the local economies and can benefit local communities.

 

Challenges:

●        One of the biggest challenges for expanding the reach of TVET-related courses has been the lack of aspiration and stigma attached to jobs such as carpentry and tailoring.

 

Way forward:

 

●        UNESCO’s State of the Education Report for India 2020 focuses on vocational education and training and showcases the growth of the skills development sector, along with emerging challenges.

●        Public information campaigns involving youth role models, would go a long way in improving the image of vocational education. At the same time, some common myths around TVET need to be debunked.

●        It emphasizes the need for expanding evidence-based research as one of its key recommendations.

●        High-quality research based on careful data-gathering and analytics can add value to all aspects of TVET planning and delivery but is especially useful for creating evidence behind the value of vocational education.

ü  Considering that many employers are unable to find skilled candidates for jobs, promoting skills development and hiring skilled workers can make the economy stronger.

 

A massive expansion in vocational education will be possible only if the existing skills development systems are leveraged effectively. Hence, for the vision of the National Education Policy to be fulfilled, a robust coordination mechanism for inter-ministerial cooperation will be necessary for bringing the skills development and vocational education systems together.

 

N.K. Singh calls for a fresh look at the Seventh Schedule

Fifteenth Finance Commission chairman N.K. Singh has called for a fresh look at the Constitution’s Seventh Schedule, which forms the basis for allocating subjects to the Centre and States.

 

●        He hinted at the need to fill an ‘institutional vacuum’ created by the abolition of the Planning Commission.

Key takeaways from the statement:

●        The symmetry in the working of the GST Council and the Finance Commission deserves serious consideration.

ü  The Finance Commissions look at projections of expenditure and revenue, but issues of GST rates exemptions, changes, and implementation of the indirect taxes are entirely within the domain of the GST Council.

ü  This leads to unsettled questions on the ways to monitor, scrutinise and optimise revenue outcomes.

●        With the abolition of the Planning Commission, many economists and policy makers have argued about an institutional vacuum.

ü  We need to give serious consideration for a consultative forum for credible policy dialogue between the Centre and the States.

●        Erosion of division of power: The division of functions enshrined under Seventh Schedule of Constitution got increasingly eroded over a period of time, beginning with

ü  the constitution of the Planning Commission in 1951 and later,

ü  the shifting of the subjects like forest and education from the state to the Concurrent List by the 42nd Amendment of the Constitution

●       
Some examples in today’s context are the Mahatma Gandhi National Rural Employment Guarantee Act of 2005 and the National Food Security Act 2013.

●        India needs a review of both the Seventh Schedule and Article 282 of the Constitution so as to give more flexibility to States in implementing centrally sponsored schemes, these issues needed urgent consideration to reinforce trust in fiscal federalism.

ü  The commission on Centre-State Relations, headed by Justice M M Punchhi, in 2010 recommended that the Union should only transfer those subjects into the Concurrent List, which are central to achieving demonstrable national interest.

●        Rationalisation of the centrally sponsored schemes (CSS): India needs a far more credible policy for rationalisation of Centrally Sponsored Schemes and Central outlays than have been possible so far.

ü  The total public outlays on the CSS are close to Rs 6-7 lakh crore per annum with the Centre’s share over Rs 3.5 lakh crore or 1.2% of current GDP.

ü  There are approximately 211 schemes/sub-schemes under the 29-umbrella core and core of the core schemes.

 

●        Fiscal consolidation: There is a need for continuity on aligning the fiscal consolidation road map of the Centre and the states in a more harmonious symmetry.

ü  A differentiated debt path of states which recognises the present constraints and issues of legacy debt must be handled with sagacity and sensitivity.

ü 
The Centre recently allowed additional borrowing space of 2% of GDP for states this year (over and above 3% mandated under FRBM) based on reforms in four areas — universalisation of one nation-one ration card, ease of doing business, power distribution and urban local body revenues.

ü  A fiscal range than a fiscal point based on expenditure outcomes may be the need of the hour.

 

India slips to rank 131 in global Human Development Index

India has slipped to 131 among 189 countries in the Human Development Index for 2019 compared to 130 the previous year, according to the United Nations Development Programme’s (UNDP) Human Development Report 2020.

 

●        However, the absolute value of the index has gone up for India to 0.645 in 2019 (the year under consideration) compared to 0.642 the year before, reflecting overall better performance.

●        Norway topped the index, followed by Ireland and Switzerland. Hong Kong and Iceland complete the top five.

 

 

 

Key takeaways:

●        In all four HDI indicators, India’s performance has either improved in 2019 compared to 2018 or remained the same.

●        Life expectancy at birth has improved to 69.7 years compared to 69.4 years the year before.

●        GNI per capita at $6,681 in 2019 was higher than $6,427 in 2018.

●        Expected years of schooling and mean year of schooling in 2019 remained the same as the previous year at 12.2 and 6.5 respectively.

●        Planetary Pressure Adjusted HDI: When the HDI is adjusted to include two more elements experimentally introduced by the UNDP to account for planetary pressure (Planetary Pressure Adjusted HDI), its ranking improves by eight positions.

ü  The two new elements are

ü  a country's material consumption and

ü 
its carbon footprint.

ü  India’s performance is much better in these compared to most countries higher up on the HDI,

●        India’s HDI value for 2019 is 0.645, which puts the country in the medium human development category, positioning it at 131 out of 189 countries and territories.

●        Trends in India's HDI rankings: Between 1990 and 2019, India’s HDI value increased from 0.429 to 0.645, an increase of 50.3%.

ü  Between 1990 and 2019

■        India’s life expectancy at birth increased by 11.8 years,

■        mean years of schooling increased by 3.5 years, and

■        expected years of schooling increased by 4.5 years.

■        India’s GNI per capita increased by about 273.9% between 1990 and 2019.

 

Currency  manipulation: Why

India under USA’s watchlist?

More on the news:

Recently, the United States has once again included India in its monitoring list of countries with potentially questionable foreign exchange policies and currency manipulation.

 

●        This comes a year after India was removed from the watchlist in the US Treasury Department’s foreign- exchange report to the US Congress.

●        India has (for several years) maintained a significant bilateral goods trade surplus (totalled $22 billion

in the first four quarters through June 2020) with the US.

●        India sustained net purchases of foreign exchange has pushed net purchases of foreign exchange to $64 billion or 2.4% of GDP over the four quarters through June 2020.

 

Meaning of ‘currency manipulator’:

●        A label given by the US government: To countries it feels are engaging in unfair currency practices by deliberately devaluing their currency against the dollar.

●        What it signifies: The country in question is artificially lowering the value of its currency to gain an unfair advantage over others.

 

●        Impact: This would reduce the cost of exports from that country and artificially show a reduction in trade deficits as a result.

●        Parameters used:

ü  A significant bilateral trade surplus (at least $20 billion over a 12-month period) with the US.

ü 
A material current account surplus equivalent to at least 2 percent of gross domestic product (GDP) over a 12-month period.

ü  Persistent, one-sided interventions are conducted repeatedly, in at least six out of 12 months.

An economy meeting two of the above three criteria in the Trade Facilitation and Trade Enforcement Act of 2015 is placed on the Monitoring List.

●        Dent confidence of investors: The designation of a country as a currency manipulator does not immediately attract any penalties, but tends to dent the confidence about a country in the global financial markets.

 

Monoculture: The issue raised amidst

ongoing farmer’s protests

More on the news:

With the ongoing protests by Punjab farmers, the issues of monoculture in the state has been raised.

 

●        The gross cropped area was estimated at 78.30 lakh hectares (2018-19) in Punjab.

●        Out of this, 35.20 lh was sown under wheat and another 31.03 lh under paddy, adding up to 84.6% of the total area planted to all crops.

●        That ratio was just over 32% in 1960-61 and 47.4% in 1970-71.

 

Monoculture Farming:

●        About: Monoculture farming is a form of agriculture that is based on growing only one type of a crop at one time on a specific field. In contrast, a polyculture system assumes that a field is sown with two or more crops at a time.

ü  If a different culture is planted on a given field plot each year, the concept of growing a single crop on one field at a time is still referred to as monoculture.

ü  The concept of monoculture does not only apply to crops, but to farm animals as well.

Advantages	Disadvantages	Reducing the effects of monoculture farming
●         Increased productivity and efficiency: Monoculture planting maximizes the efficient use of soil and local climate conditions. ●         Open a room for new technologies: When growing monoculture crops, agrarians tend to have some extra time and financial resources to refer to new technologies in agriculture. ●         Specialized          production: Industrial monoculture planting allows farmers to specialize in a particular crop, as they usually deal with the same issues and problems that may arise in the process of growing. ●         Yield maximization: Some types of crops, such as cereals for example, are deemed to have better yields when sown and grown as monocultures, i.e. without other crops adjacent to them on a field. ●         Easier to manage: Cultivating monoculture crops is easier as compared to polyculture ones. ●         Higher Revenues: By growing monoculture plants, farmers usually benefit from higher profits.	●         Pests management: Farmers who stick to monoculture farming face more difficulties in terms of struggling with pest infestations on their field. ●         Higher pesticides use: Monoculture crops are more likely to be affected by blight or pests, as these threats can move faster through the area due to its reduced biodiversity. ●         Soil degradation and fertility loss: Agricultural monoculture upsets the natural balance of soils. ●         Higher use of fertilizers: As growing only one kind of plant on the same piece of farmland depletes and exhausts the soil by depriving it of biodiversity. ●         Higher water use: If there is only one type of crop on a given land plot, the root systems of this species are not sufficient to maintain the soil structure around the plants. ●         Decrease in biodiversity: One of the main problems with monoculture farming is the elimination of biological diversity. ●         Impact on pollinators: Monoculture farming has also a negative effect on such important participants of the natural reproductive cycle as bees and other pollinators. ●         Economic risks: When concentrated on growing monoculture crops only, a farmer puts at stake all the potential harvest from the given land plots and the reason for this is quite simple. ●         Environmental impacts of monoculture: In most subsistence farming practices, crops are grown and harvested to feed a family or local community.	·         Implementation of Crop Rotation ●        Smart use of Fertilizers ●        Moderate herbicides and pesticides use ●        More efficient water use ●        An example of departure from monocultures in the European Union is the “greening” initiative or “green payment”, which consists in providing an annual subsidy to farmers who incorporate planet-friendly approaches and methods of growing crops.

 

Steps taken by the Punjab government:

●        Enacting the Punjab Preservation of Subsoil Water Act.

●        Breeding shorter-duration paddy varieties that scientists at the Punjab Agriculture University (PAU), Ludhiana have developed.

●       
Way forward:

ü  A sensible strategy could be to limit Punjab's non-basmati paddy area to ensure planting of only shorter-duration varieties.

ü  Water savings can be induced through metering of electricity and direct seeding of paddy.

 

Draft National Rail Plan

More on the news:

Indian Railways has come up with a Draft National Rail Plan, to address the inadequacies of capacity constraints and improve its modal share in the total freight ecosystem of the country.

 

●        The National Rail Plan will be a common platform for all future infrastructural, business and financial planning of the Railways.

●       
This plan is being circulated among various Ministries for their views and Railways aim to finalise the Final plan by January 2021.

 

Objectives of the Plan:

●        To create capacity ahead of demand by 2030.

●        Net Zero Carbon emission by 2030, as part of a national commitment to reduce Carbon emission and to sustain it.

●        Forecast growth of traffic in both freight and passenger year on year up to 2030 and on a decadal basis up to 2050.

●        Formulate strategies based on both operational capacities and commercial policy initiatives to increase modal share of the Railways in freight to 45% by 2030.

●        Reduce transit time of freight substantially by increasing average speed of freight trains from present 22Kmph to 50Kmph.

●        Reduce overall cost of Rail transportation by nearly 30% and pass on the benefits to the customers.

●        Identify infrastructural bottlenecks that would arise in future with growth in demand.

 

Vision 2024:

●       
The Vision 2024 has been launched (as part of the National Rail Plan), for accelerated implementation of certain critical projects by 2024 such as

ü  100% electrification,

ü  Multitracking of congested routes,

ü  Upgradation of speed to 160 kmph on Delhi-Howrah and Delhi-Mumbai routes,

ü  Upgradation of speed to 130kmph on all other Golden Quadrilateral-Golden Diagonal (GQ/GD) routes and

ü  Elimination of all Level Crossings on all GQ/GD routes.

 

Hence, the National Rail Plan envisages an initial surge in capital investment right up to 2030. Post 2030, the revenue surplus generated would be adequate to finance future capital investment and also take the burden of debt service ratio of the capital already invested, without exchequer funding of Rail projects.