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The Hindu 23 August 2019

UPSC - Daily Current Affair

 

SL. NO.

TOPICS

THE HINDU

PAGE NO.

1

Taking a ‘Far East’ turn to deepen a friendship

10

2

New Norms – SEBI liberalised norms (Editorial)

10

3

Belt and Road blocks (Article) 

11

4

Tax resolution amnesty scheme announced

15

5

Russia launches rocket with humanoid robot into space

22

6

Increasing investment to stimulate growth 

10 




 

Title

1. Taking a ‘Far East’ turn to deepen a friendship (The Hindu Page 10)

Syllabus 

Prelims: International Relations 

Mains: GS, paper II - International Relations 

Theme

PM visit of Vladivostok as the guest of honour at Eastern Economic Forum (EEF) 

Highlights

Recent context:      

Prime Minister Narendra Modi is going to visit the city of Vladivostok as the guest of honour at Eastern Economic Forum (EEF) in September, 2019. It is expected that he would be announcing India’s plans to invest in Russia’s Far East, which lies in the Asian part of Russia. This region is less developed than the country’s European areas and therefore as part of his ‘Pivot to Asia’ strategy, President Vladimir Putin is inviting foreign countries mainly from Asia to invest in this region. 

Scope of cooperation:   

Russia's far east carries vast reserves of natural resources and has the potential to strengthen India-Russia economic partnership in areas like energy, tourism, agriculture, diamond mining and alternative energy.
 

Russia in 2018 had simplified electronic visas to encourage tourism in the Far East. 
India will also provide an annual grant of $10,000 to fund the study of Indology at the Centre of Regional and International Studies at Far Eastern Federal University. There is a lack of manpower in the Far East which India's has as resource. Indian professionals like engineers and teachers can help in the region’s development.
India is one of the largest importers of timber and can exploit ample resources in the region. Japan and South Korea have also been investing and India can explore areas of joint collaboration.

 

Indian States are being encouraged to develop relations with foreign countries. States like Uttar Pradesh, Gujarat, Maharashtra, Haryana and Goa would be collaborating with Russian Provinces to increase trade and investments. A point of hurdle is the language barrier and therefore joint initiative should be undertaken by both countries to overcome this.
 

A feasibility study is being undertaken of connecting Chennai-Vladivostok sea route that would allow India access to Russia’s Far East in 24 days, compared to the 40 days taken by the current route via Suez Canal and Europe. 

Cooperation in Indo-Pacific region:

 

India's cooperation with U.S. in Indo-Pacific is mainly to counter China’s maritime rise. However this has raised concerns by Russia that the U.S. would exert pressure on India’s foreign policy to reduce strategic relationship with Russia such as during the recent S-400 missile system. 
 

India has clarified that Indo-Pacific is not targeted against any country and intends for mutli-polarity in Indo-Pacific and thereby a balance of power in Indo-Pacific. This includes the presence of Russia in Indo-Pacific during their Sochi informal summit in 2018. Similarly during the summit, India has also been able to convince Russia that its engagement with the U.S. is not going to come against Russian interests. Russia also wants to make sure that China does not become a hegemony in the Eurasian region and is hence deepening cooperation with countries like India, Vietnam and Indonesia. This was seen in Russia support to India as member to SCO. 

The Chennai-Vladivostok sea route would ensure greater Russian engagement in South China Sea and could open new vistas for India, like the India-Russia trilateral cooperation with Vietnam, Indonesia and ASEAN. U.S. President Trump is following for de-globalisation and China is promoting globalisation 2.0 with Chinese characteristics and therefore India and Russia cooperation in Asia can balance these global disruptive forces.    

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Title

2. New Norms – SEBI liberalised norms (Editorial) (The Hindu –Page 10)

Syllabus 

Prelims: Economy

Mains: GS Paper III – Economic Issues    

Theme

compliance and operational requirements for the FPI 

Highlights

Context: The SEBI has recently come out with the new norms so as to simplify the compliance and operational requirements for the FPIs. The new norms have been laid down on the basis of recommendations of  H.R. Khan committee.

Details

The key focus of the proposed regulations is to simplify and rationalize the existing regulatory framework for FPIs in terms of easing the operational constraints and compliance requirements. 57 circulars and 183 FAQs pertaining to FPIs issued over the years have been merged into new regulations and a single circular.

Some of the key aspects of revised regulations include:

Doing away with Broad based Criteria: Earlier, the SEBI had laid down broad based criteria for the FPIs, which needed them to fulfil two criteria. The first criteria is there should be at least 20 investors and the second criteria is that no individual investor should own more than 49 percent.

This broad based criteria has now been removed.

Categorization of FPIs:  Presently, FPIs have been categorized into three major categories:

Category I (Low Risk) which would include Government and entities like Foreign Central banks, Sovereign wealth Funds, Multilateral Organizations, etc

Category II (Moderate Risk) which would include Regulated entities such as banks, Pension Funds, Insurance Companies, Mutual Funds etc

Category III (High Risk) which would include all other FPIs not eligible to be included in the above two categories.

The SEBI has now decided that the FPIs may be re-categorized into two categories -Category I and II, instead of the present requirement of three categories.

Enhancing coverage of FPIs: Considering that the central banks are relatively long term, low risk investors directly/ indirectly managed by the Government, the central banks that are not the members of BIS (Bank for International Settlement) shall also be eligible for FPI registration.

Simplified KYC Norms: Documentation requirements for KYC have been simplified.

P-Notes: Offshore Derivative Instruments (ODIs), also known as Participatory notes (p-notes) are instruments used by the foreign investors to invest in India’s securities markets without getting registered with the SEBI. Participatory notes are issued by FPIs registered with SEBI to overseas/ foreign investors. These FPIs make investments on behalf of the overseas investors. The SEBI has decided that the  requirements  for  issuance  and  subscription  of  Offshore  Derivative Instruments (ODIs) have been rationalized. 

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Title

3. Belt and Road blocks (Article) (The Hindu -Page 11)

Syllabus 

Prelims: International Relations 

Mains: GS, paper II - International Relations

Theme

Shortfall of BRF 

Highlights

Shortfall of BRF: 

  1. Projects are selected as per Chinese priorities & not of the recipient country thereby developmental priorities of recipient country is not taken into account. 

  2. Terms of project engagement are non-transparent whereby it was seen China was mis-using loopholes in the contracts of earlier projects such as in labour contracts whereby China used majority Chinese labour & dis-regarded local labour. 

  3. Contracts continue to go to Chinese companies with raw materials, services and products being sourced from China

  4. Most projects are over-valued by China in the initial & then continues in the implementation stage. This then becomes economically unviable for recipient country & eventually becomes a debt trap. This was seen in the Hambantota port in Sri Lanka whereby Sri Lanka had to hand over the port to a Chinese company since it was unable to pay the loan for the port that it took back to China. However, recently in Malaysia, a rail project was re-negotiated at a lower price with China as it became economically unsustainable for Malaysia. Now most countries are willing to re-negotiate with China on financing to avoid debt traps of projects under BRI.

  5. Chinese projects are willing to indulge in corrupt practices, overlooking international environmental & labor practices to ensure success of BRI projects, in invariably ends up damaging the recipient country.

  6. BRI exhibits China’s geo-strategic ambition for economic dominance and political hegemony which is the cause of reluctance by several major powers such as India & US.

  7. South Asia & South East Asia had weak participation in BRF, with many countries from the region such as Vietnam, Maldives, among others showcased their hesitation to BRI while India & Bhutan boycotted the event. 

  8. China has not resolved the reason of India boycotting BRF, which is the violation of Indian sovereignty by CPEC project trespassing through PoK region. Similarly, it has also not tried to resolve the Bhutanese concerns with regards to the Doklam border crisis.

Success of the recent BRF:

  1. The summit had representation from 150 countries & several international organisations such as UN & IMF. A major success of the BRF was the majority representation from countries of Central & East Europe, Central Asia & East Africa. 

  2. Japan which was earlier opposed to BRI had changed its stance & stated that BRI has great potential. 

  3. Italy became the first member of G7 to participate in the BRI. This broke the common opposition of Western countries towards BRI.

  4. China during the recent BRF has promised a total makeover of the BRI. They declared that it will be guided by extensive consultation with recipient country, transparency in financing, zero tolerance for corruption, selection of project based on priority of host country, implementation international standards to regulations. & debt sustainability.

  5. China had announced in 2017 that it would enhance digital connectivity through the “digital silk road”. Digital connectivity infrastructure is to be built in tandem with physical connectivity & due to recent successes of China in Big data, 5G technology, Artificial intelligence, BeiDou Satellite Navigation system, among other. It can therefore take lead over US & Europe in forming the Digital ecosystem in Eurasian & African region.

  6. Groups of countries that are participating in BRI have also launched cooperation mechanisms for ports administration, accounting standards, tax administration, banking, intellectual property, dispute settlement, among others. Some of these mechanisms were facilitated by UN agencies &  other international organisations.  This showcases the potential of BRF to evolve into G-150 that can reshape global governance under the leadership of China. 

 

Title

4. Tax resolution amnesty scheme announced (The Hindu –Page 15)

Syllabus 

Prelims: Economy

Mains: GS Paper III – Economic Issues 

Theme

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 

Highlights

Context: This news highlights about Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. The Scheme is especially tailored to free the large number of small taxpayers of their pending disputes with the tax administration.  

  • This scheme which was announced by the Union Finance Minister in the Union Budget 2019-20 has now been notified and will be operationalised from 1st September 2019. The Scheme would continue till 31st December 2019. 

  • Government expects the Scheme to be availed by large number of taxpayers for closing their pending disputes relating to legacy Service Tax and Central Excise cases that are now subsumed under GST so they can focus on GST. 

  • The two main components of the Scheme are 1. Dispute resolution and 2. Amnesty.    

Dispute Resolution

The dispute resolution component is aimed at liquidating the legacy cases of Central Excise and Service Tax that are subsumed in GST and are pending in litigation at various forums.  For all the cases pending in adjudication or appeal in any forum – 

  • this Scheme offers a relief of 70% from the duty demand if it is Rs.50 lakhs or less and 

  • 50% if it is more than Rs. 50 lakhs.     

Amnesty

  • The amnesty component of the Scheme offers an opportunity to the taxpayers to pay the outstanding tax and be free of any other consequence under the law.

  • The Scheme provides substantial relief in the tax dues for all categories of cases as well as full waiver of interest, fine, penalty. In all these cases, there would be no other liability of interest, fine or penalty.

  • There is also a complete amnesty from prosecution.

Other Reliefs 

  • The same relief is available for cases under investigation and audit where the duty involved is quantified and communicated to the party or admitted by him in a statement on or before 30th June, 2019. 

  • Further, in cases of confirmed duty demand, where there is no appeal pending, the relief offered is 60% of the confirmed duty amount if the same is Rs. 50 lakhs or less and it is 40%, if the confirmed duty amount is more than Rs. 50 lakhs. Finally, in cases of voluntary disclosure, the person availing the Scheme will have to pay only the full amount of disclosed duty.  

  • in cases of confirmed duty demand, where there is no appeal pending, the relief offered is 60% of the confirmed duty amount if the same is Rs. 50 lakhs or less and it is 40%, if the confirmed duty amount is more than Rs. 50 lakhs. 

  • In cases of voluntary disclosure, the person availing the Scheme will have to pay only the full amount of disclosed duty.  

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Title

5. Russia launches rocket with humanoid robot into space (The Hindu –Page 22)

Syllabus 

Prelims: Science & Technology

Mains: GS Paper III - Science & Technology 

Theme

Fedor (Skybot F850)  - Russian unmanned rockets 

Highlights

Context:

Russia has launched an unmanned rocket carrying a life-size humanoid robot that will spend 10 days learning to assist astronauts on the International Space Station.

Named Fedor (Skybot F850) short for Final Experimental Demonstration Object Research, the robot is the first ever sent up by Russia.

Fedor will learn new skills such as "connecting and disconnecting electric cables, using standard items from a screwdriver and a spanner to a fire extinguisher

Fedor copies human movements, a key skill that allows it to remotely help astronauts or even people on Earth to carry out tasks while the humans are strapped into an exoskeleton.

Such robots will eventually carry out dangerous operations such as space walks.

 

Background

Fedor is not the first robot to go into space.

In 2011, NASA sent up Robonaut 2, a humanoid robot developed with General Motors that had a similar aim of working in high-risk environments.

It was flown back to Earth in 2018 after experiencing technical problems.

In 2013, Japan sent up a small robot called Kirobo along with the ISS's first Japanese space commander. Developed with Toyota, it was able to hold conversations — albeit only in Japanese. 

 

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Title

6. Increasing investment to stimulate growth (The Hindu –Page 10)

Syllabus 

Prelims: Economy

Mains: GS Paper III – Economic Issues

Theme

India’s current economic slowdown 

Highlights

The article highlights that India’s current slowdown is due to a combination of two underlying trends:

  1. There is the short-run cyclical slowdown exhibited by a number of high-frequency indicators, reflecting a significant fall in demand, especially for sectors such as automobiles, consumer durables and housing.   

  2. There is the more serious long-term fall in investment and savings rates. Raising growth requires that attention be paid to both cyclical and structural dimensions of the problem. 

 

Following are slowdown indicators: 

  • Gross Fixed Capital Formation (GFCF) relative to GDP at current prices has fallen by 5.7% from 34.3% (2011-12) to 28.6% (2017-18). 

  • Incremental Capital Output Ratio (ICOR) of 4 means a fall of nearly 1.4% points in the potential growth rate. The fall consisted of sectoral decreases in the household, private corporate and public sectors.  

  • Fall in the household sector’s investment rate despite some recovery. 

  • Fall in private corporate sector investment rate by 0.7%

  • Fall in public sector by 0.3% points between 2015-16 and 2017-18.  

  • The Gross Domestic Savings Rate also fell between 2011-12 and 2017-18 by 4.1% points, from 34.6% of GDP to 30.5%. However, this fall was entirely due to the household sector, with the private corporate and public sectors showing increases in their savings rates by margins of 2.2% points and 0.2% points, respectively.   

 

Thus, the period from 2011-12 to 2017-18 can be seen as consisting of two parts: 

  1. 2011-12 to 2015-16, when the household sector investment rate fell sharply; and 

  2. 2015-16 to 2017-18 when the investment rates of the private corporate and public sectors fell marginally. 

 

Thus, differentiated sectoral pattern of investment and savings rates had significant implications for the financing of investment. Private corporate and public sectors were the deficit sectors and these sectors financed their deficits from the surplus savings of the household sector. In addition, net inflow of foreign capital added to the flow of investible resources.  

 

Throughout the period from 2011-12, the savings rate of the private corporate sector increased, reducing its dependence on the surplus savings of the household sector. However, their excess of saving which was 3.8% points of GDP in 2011-12, fell by 0.5% by 2017-18. 

 

Given this pattern, at present, all the surplus savings of the household sector is available for the public sector. With private corporate sector’s investment demand being largely met by its own savings, public sector’s borrowing requirements can be fully financed using the surplus from the household sector, supplemented by net inflow of foreign capital without any fear of crowding out. 

 

Suggestions by the Authors

  • Based on the above observation, the article highlights that in 2018-19, the real GDP growth rate was 6.8%. Two critical policy challenges need to be addressed. 

  1. First, a countercyclical policy should increase growth rate to its current potential of 7%-7.5% and 

  2. Structural reforms should raise the potential growth itself to above 8.5% if India is to attain a size of $5 trillion by 2024-25.

  • From the monetary side, reducing the repo rate by a cumulated margin of 110 basis points in 2019 has not as yet induced a noticeable growth response. Complementary fiscal stimulus, in the form of additional public sector investment, may prove to be more effective.

  • However, given the fiscal deficit constraint, there is limited flexibility for increasing centre’s capital expenditure directly. 

  • In the current situation, there can be an increase in government expenditure but it has to be directed towards an increase in investment expenditure. 

  • A similar effort may be made by State governments and non-government public sector enterprises to increase capital expenditures. All these measures may also crowd in private investment. Thus, this fiscal push, together with the already-initiated monetary stimulus, may help raise the growth rate.

  • On fiscal front, there is a need to re-look at the Fiscal Responsibility and Budget Management Act (FRBM) Act.

  • The government should actually move towards reducing the revenue deficit to zero. This can happen if the Centre focusses more on items on the Union list. 

  • Once this is achieved, the Central Government can be given full freedom over fiscal deficit, as the entire deficit will be directed towards meeting capital expenditures. This was described as the ‘golden rule’ in U.K.  

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