19th January Current Affairs

1.BIC model for Banking Reforms

Background:

  • Recent reports suggest that the upcoming budget may include proposals for a Bank Investment Company (BIC), anchoring the government’s shareholding in its banks.
  • The BIC was proposed by the P J Nayak Committeeconstituted by the RBI in 2014 to examine governance at public and private sector banks.
  • The committee had offered two options — privatisation or a complete overhaul of bank governance.
  • The overhaul of bank governance is envisaged in the form of a gradual disassociation of the governmentfrom the operations, management and governance of PSBs.
  • The BIC is a welcome step in as much as it signals the government’s intent to pursue reformsto improve the governance and performance of PSBs.
Concerns:
  • The ownership and governance of the BICitself will be crucial. BIC will need to be allowed to garner the requisite talent and expertise and operate with freedom. In the absence of this, it would merely add another layer while preserving the status quo. The less than encouraging experience of the Banks Board Bureau (BBB) that was to precede the BIC is instructive.
  • The BBB was set up in 2016 to advise on theselection and appointment of senior board members and management. However, in practice, the BBB’s advice has not always been heeded to, and appointments have not always been made on time.
  • The BBB, as originally conceived, was to consist of three senior bankers. However, it was expanded to include representatives from the RBI and the government. The BBB was also originally envisaged by the committee as a temporary arrangement. However, no further steps have been forthcoming after its establishment.

Way forward for BIC

  • The government would need to ensure thenecessary freedom for the BIC to operate while circumscribing its own role. The ultimate success of these reforms will depend on how the government disassociates itself and empowers the BIC. The objectives of the BIC would have to be clearly defined too.
  • If capital raising is one of the goals, the structure of a holding company — with a portfolio of comparatively better performing and non-performing banks — to attract investments must be assessed.
  • In this regard, the RBI has reportedly, in the past, expressed reservations on the BIC structurebeing a potential challenge for investors to assess the relative risks, returns and performance of the banks.
  • This raises the question ofwhether privatisation would not be a better alternative, particularly as the transition of the government from an owner to a pure financial investor in its banks is likely to take time.
  • Given these concerns, privatisation may be a better alternative. The budget could signal this intent by announcing the first step — the repeal of the Bank Nationalisation Acts and the State Bank of India Act.

2.India’s Agri-food Policy

Background:

  • UN population projections (2019) indicate that India is likely to be the most populous country by 2027.
  • By 2030, the country is likely to have almost600 million people living in urban areas, who would need safe food.
  • Indian agriculture has an average holding size of 1.08 hectare(2015-16 data), while engaging 42 per cent of the country’s workforce.
  • Cultivable land and water for agriculture are limited and already under severe pressure.

Suggestions according to Ashok Galati, the Infosys Chair Professor for Agriculture at ICRIER:

  1. It should be able to produce enough food, feed and fibre for its large population. In this regard, the best step is to invest in R&D for agriculture, and its extension from laboratories to farms and irrigation facilities. It is believed that developing countries should invest at least one per cent of their agri-GDP in agri-R&D and extension. India invests about half.
  2. It should do so in a manner that not only protects the environment, soil, water, air, and biodiversity but achieves higher production with global competitiveness. This can be done by switching from the highly subsidised input price policy (power, water, fertilisers) and MSP/FRP policy for paddy, wheat and sugarcane, to more income support policies linked to saving water, soil and air quality.
  3. It should enable seamless movementof food from farm to fork, keeping marketing costs low, save on food losses in supply chains and provide safe and fresh food to consumers.
  4. Consumers should get safe and nutritious food at affordable prices. The public distribution of food, through PDS, that relies on rice and wheat, and that too at more than 90 per cent subsidy over costs of procurement, stocking and distribution, is not helping much.

Need to change from sub-optimal to optimal policies

  • Free electricity and highly subsidised fertilisers, especially urea, are damaging groundwater levels especially in the Green Revolution states. Sugar and wheat are being produced at prices higher than global prices, and these crops can’t be exported unless theyare heavily subsidised. Excessive stocks of wheat and rice with the Food Corporation of India (FCI) are putting pressure on the agency’s finances.
  • Rice remains globally competitive, but it should be remembered that in exporting rice we are also exporting massive amounts of precious water — almost 25-30 billion cubic meters, annually.
  • This is the water that is pumped for rice cultivation, enabled by subsidised power supply.
  • In the marketing segment also, for most of our agri-commodities, our costs remain high compared to several other developing countries due to poor logistics, low investments in supply lines and high margins of intermediaries. All these are signs of sub-optimal agri-food policies.

Policy changes required: On the production level

  • Green Revolution states of Punjab, Haryana and western Uttar Pradesh require crop diversification.
  • This can be done by switching from the highly subsidised input price policy (power, water, fertilisers)and MSP/FRP policy for paddy, wheat and sugarcane, to more income support policies linked to saving water, soil and air quality. Agri-marketing segment is also in the need of reforms especially with respect to bringing about efficiency in agri-marketing and lowering transaction costs.
  • It is believed thatdeveloping countries should invest at least one per cent of their agri-GDP in agri-R&D and extension. India invests about half. It needs doubling with commensurate accountability of R&D organisations, especially the ICAR and state agriculture universities to deliver.

Policy changes required: On the consumption level

  • The biggest challenge for next 10 years is that of malnutrition, especially amongst children.
  • The public distribution of food, through PDS, that relies on rice and wheat, and that too at more than 90 per cent subsidy over costs of procurement, stocking and distribution, is not helping much.
  • It is increasing the finances of FCI, whose borrowings have touched Rs 3 lakh crore. To address that, beneficiaries of subsidised rice and wheat need to be given a choice to opt for cash equivalent to MSP plus 25 per cent. The FCIadds about 40 per cent cost over the MSP while procuring, storing and distributing food. This cash option will save some money and also lead to supplies of more diversified and nutritious food to the beneficiaries.

3.United Nations Adaptation Gap Report, 2020

News: The United Nations Adaptation Gap Report, 2020 was recently released by the UNEP.

UN Adaptation Gap Report

  • UN Environment Programme (UNEP) has managed the production of UN Environment’s Adaptation Gap Report series since its first edition in 2014.
  • The aim of the reports is to inform national and international efforts to advance climate change adaptation.
  • The annual cost of adaptation to the effects of climate change for developing countries is estimated to at least quadruple by 2050, according to the United Nations Adaptation Gap Report, 2020. The current cost for developing countries is in the range of $70 billion (Rs 5.1 lakh crore) and may rise to $140-300 billion in 2030 and $280-500 billion in 2050.

Adaptation Cost

  • Adaptation Cost includes costs of planning, preparing for, facilitating and implementing the climate change adaptation measures. It thus derives benefits as the avoided damage costs or the accrued benefits following the adoption and implementation of adaptation measures.

Funding gaps

  • The ever-increasing adaptation cost has also outpaced the growth in adaptation finance that refers to the flow of funds to developing countries to help them tide over the damages caused by climate change.
  • This, in turn, has kept the adaptation finance gap from closing with the current efforts, although the fund flow has increased, the report said.
  • Adaptation costs, in actual terms, are higher in developed countries but the burden of adaptation is greater for developing countries in relation to their gross domestic product.
  • These countries, especially in Africa and Asia, which are least equipped to tackle climate change will also, be the most impacted by it, the report noted.

Some of the Indian Initiatives to Fight Climate Change:

  • India has shifted from Bharat Stage-IV (BS-IV) to Bharat Stage-VI (BS-VI) emissionnorms from 1st April 2020 which was earlier to be adopted by 2024.

National Clean Air Programme (NCAP):

  • It was launched in January 2019. It is a five-year action plan with a tentative target of 20-30% reduction in concentrations of PM10 and PM2.5 by 2024,with 2017 as the base year.
  • It has distributed more than360 million LED bulbs under the UJALA scheme, which has led to energy saving of about 47 billion units of electricity per year and reduction of 38 million tonnes of CO2 per year.

The Jawaharlal Nehru National Solar Mission:

  • It waslaunched in 2009 with the primary aim of achieving grid parity by 2022 and with coal-based thermal power by 2030. Aims to increase the share of solar energy in India’s energy mix.

National Action Plan on Climate Change (NAPCC):

  • It waslaunched in 2008. It aims at creating awareness among the representatives of the public, different agencies of the government, scientists, industry and the communities on the threat posed by climate change and the steps to counter it.

4.Open Skies Treaty

News: Russia has announced that it is leaving the Open Skies Treaty (OST). According to Russia, provisions of the pact that allows unarmed surveillance flights over member countries had been seriously compromised by the withdrawal of the United States. This move was made after the USA pulled out of the Open Skies Treaty in November 2020, arguing that Russian violations made it untenable for the United States to remain a party.

Withdrawal of U.S.A and Russia:

  • The USA had for over a decade accused Russia of non-compliance with OST protocols, blaming Moscow of obstructing surveillance flights on its territory, while misusing its own missions for gathering key tactical data.
  • The USA also accused Russia of designating an airfield in the annexed Crimean Peninsula as an Open Skies refueling base as an illegal attempt by Russia to cement its claim to the Ukrainian region.
  • Russia misused its flights over the USA and Europe to identify critical infrastructure for potential attack in a time of war.
  • Russia defends its non compliance with the OST to allow flights over Kaliningrad (Russian exclave in Eastern Europe that lies between NATO allies Lithuania and Poland) citing the example of the US imposing similar limits on flights over Alaska.
  • After USA withdrawal from OST, Russia did not get the sought assurance from North Atlantic Treaty Organization (NATO)allies who continued to remain on the treaty that they would not transfer data collected by their flights over Russia to Washington (USA).

What is the Open Skies Treaty?

  • It is an accord between over 30 countries that allows participants to fly unarmed reconnaissance flights over any part of their fellow member states.
  • First proposed in 1955by former US President Dwight Eisenhower as a means to deescalate tensions during the Cold War, the landmark treaty was eventually signed in 1992 between NATO members and former Warsaw Pact countries following the demise of the Soviet Union.
  • It went into effect in 2002and had signatories, including key players US and Russia, along with one non-ratifying member (Kyrgyzstan).
  • It aims to build confidence among members through mutual openness, thus reducing the chances of accidental war.

Features of the treaty:

  • Under the treaty, a member state can “spy” on any part of the host nation, with the latter’s consent.
  • A country can undertake aerial imaging over the host state after giving notice 72 hours before, and sharing its exact flight path 24 hours before. The information gathered, such as on troop movements, military exercises and missile deployments, has to be shared with all member states.
  • Only approved imaging equipment is permitted on the surveillance flights, and officials from the host state can also stay on board throughout the planned journey.

This is different from the Open Sky Agreements which are bilateral agreements that the two countries negotiate to provide rights for airlines to offer international passenger and cargo services. It expands international passenger and cargo flights. Recently, the United Arab Emirates (UAE) has expressed interest to have an Open Sky Agreement with India.