Current Affairs, 18 November 2017 GS Paper 2:Topic: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein. EK BHARAT-SHRESHTHA BHARAT Context: Under ‘Ek Bharat-Shreshtha Bharat’ Yojana, Madhya Pradesh has been made partner of Manipur and Nagaland. The Higher Education Department of Madhya Pradesh has been made nodal department to implement the scheme.  As part of this, Madhya Pradesh will participate in Sangai Mahotsav being organized in Manipur from November 21 to 30. Similarly, teams of Manipur and Nagaland will take part in Lok Rang and Bal Rang programmes to present their cultural programmes and to apprise people with their culture.  Besides, translation work of Nagaland’s books has also been started in Madhya Pradesh to introduce people of the state with their activities and cultural heritage. Other activities are also being conducted in this regard. About Ek Bharat Shreshtha Bharat: What is it? “Ek Bharat Shreshtha Bharat” was announced by Hon’ble Prime Minister on 31st October, 2015 on the occasion of the 140th birth anniversary of Sardar Vallabhbhai Patel. Subsequently, the Finance Minister announced the initiative in his Budget Speech for 2016-17. What is it for? Through this innovative measure, the knowledge of the culture, traditions and practices of different States & UTs will lead to an enhanced understanding and bonding between the States, thereby strengthening the unity and integrity of India. Implementation: All States and UTs will be covered under the programme. There will be pairing of States/UTs at national level and these pairings will be in effect for one year, or till the next round of pairings. The State/UT level pairings would be utilized for state level activities. District level pairings would be independent of the State level pairings. Significance: The activity will be very useful to link various States and Districts in annual programmes that will connect people through exchanges in areas of culture, tourism, language, education trade etc. and citizens will be able to experience the cultural diversity of a much larger number of States/UTs while realising that India is one. Sources: the hindu. Topic: Important International institutions, agencies and fora, their structure, mandate. South Asia Regional Training and Technical Assistance Center (SARTTAC) Context: An Interim Meeting of the Steering Committee of the International Monetary Fund (IMF)’s South Asia Regional Training and Technical Assistance Center (SARTTAC) was held recently in national capital to assess the Center’s activities since its inauguration in February 2017 and to review the Fiscal Year 2018 Work Plan. Officials from all Six (6) Member countries attended the meeting, together with the Development Partner representatives (the European Union, the United Kingdom, Australia, and USAID), and IMF staff. About SARTTAC: What is it? SARTTAC, the newest addition to the IMF’s global network of fourteen regional centers, is a new kind of capacity development institution, fully integrating customized hands-on training with targeted technical advice in a range of macroeconomic and financial areas, and generating synergies between the two. It was inaugurated at Delhi in February 2017. Finance: SARTTAC is financed mainly by its six member countries — Bangladesh, Bhutan, India, Maldives, Nepal, and Sri Lanka — with additional support from Australia, the Republic of Korea, the European Union and the United Kingdom. Goal: SARTTAC’s strategic goal is to help its member countries strengthen their institutional and human capacity to design and implement macroeconomic and financial policies that promote growth and reduce poverty. What it does? SARTTAC will allow the IMF to meet more of the high demand for technical assistance and training from the region. Through its team of international resident experts, SARTTAC is expected to become the focal point for the delivery of IMF capacity development services to South Asia. Sources: pib. Topic: Important International institutions, agencies and fora, their structure, mandate. Shanghai Cooperation Organization Context: The Shanghai Cooperation Organization Meeting of the Ministers of Member States responsible for Foreign Economic and Foreign Trade was recently held in Russia. This is the first Ministerial Conference on Trade organized by the Shanghai Cooperation Organization after India became a full member of the Organization in June 2017. About SCO: What is it? The Shanghai Cooperation Organisation, also known as the Shanghai Pact, is a Eurasian political, economic, and military organisation which was founded in 2001 in Shanghai by the leaders of China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. Apart from Uzbekistan, the other five countries have been a part of the Shanghai 5 since 1996. The cooperation was renamed to Shanghai Cooperation Organisation after Uzbekistan joined the organisation in 2001. New members: India and Pakistan joined SCO as full members in June 2017 in Astana, Kazakhstan. The SCO counts four observer states, namely the Islamic Republic of Afghanistan, the Republic of Belarus, the Islamic Republic of Iran and the Republic of Mongolia. The SCO’s main goals are as follows: strengthening mutual trust and neighbourliness among the member states; promoting their effective cooperation in politics, trade, the economy, research, technology and culture, as well as in education, energy, transport, tourism, environmental protection, and other areas; making joint efforts to maintain and ensure peace, security and stability in the region; and moving towards the establishment of a democratic, fair and rational new international political and economic order. Sources: the hindu. Topic: Important International institutions, agencies and fora, their structure, mandate. International Civil Aviation Organization’s (ICAO) Context: Under the International Civil Aviation Organization’s (ICAO) Universal Safety Oversight Audit Programme, a five member audit team recently carried out the audit of India in areas of Personal Licensing, Airworthiness, Operations, Legislation and Organization from 6th to 16th November. The audit involved verification of response provided by DGCA against protocol questions made available by ICAO.  As per preliminary feedback, the audit team was satisfied with the safety system put in place by the safety regulator. As per procedure laid down by ICAO, the audit team presents its report to the headquarter team and draft report is made available to the state in about 90 days.  The state is required to provide its comment and draw its action plan on various aspects of the report and make it available to ICAO within 45 days. Thereafter the report will be finalised and made available to member states. About ICAO: What is it? The International Civil Aviation Organization (ICAO) is a UN specialized agency, established by States in 1944 to manage the administration and governance of the Convention on International Civil Aviation (Chicago Convention). What it does?  ICAO works with the Convention’s 191 Member States and industry groups to reach consensus on international civil aviation Standards and Recommended Practices (SARPs) and policies in support of a safe, efficient, secure, economically sustainable and environmentally responsible civil aviation sector.  These SARPs and policies are used by ICAO Member States to ensure that their local civil aviation operations and regulations conform to global norms, which in turn permits more than 100, 000 daily flights in aviation’s global network to operate safely and reliably in every region of the world.  ICAO also coordinates assistance and capacity building for States in support of numerous aviation development objectives; produces global plans to coordinate multilateral strategic progress for safety and air navigation; monitors and reports on numerous air transport sector performance metrics; and audits States’ civil aviation oversight capabilities in the areas of safety and security. Sources: pib. GS Paper 3:Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment. Credit ratings and how are they given Context: US-based rating agency Moody’s has upgraded India’s sovereign credit rating by a notch to ‘Baa2’ from Baa3 and changed the outlook to stable from positive. Moody’s has also raised India’s long-term foreign-currency bond ceiling to Baa1 from Baa2, and the long-term foreign-currency bank deposit ceiling to Baa2 from Baa3. The rating upgrade comes after a gap of 13 years – Moody’s had last upgraded India’s rating to ‘Baa3’ in 2004. In 2015, the rating outlook was changed to ‘positive’ from ‘stable’. Reasons for upgrade: The decision to upgrade the ratings is underpinned by Moody’s expectation that continued progress on economic and institutional reforms will, over time, enhance India’s high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term, the rating agency said in a statement. Also, while India’s high debt burden remains a constraint on the country’s credit profile, Moody’s believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios. Reforms such as Goods and Services Tax (GST), demonetisation, measures to fight bad loans, Aadhaar and labor market reforms etc pushed Moody’s to upgrade India rating. What is a credit rating? A credit rating is an assessment of the creditworthiness of a borrower. Individuals, corporations and governments are assigned credit ratings — whoever wants to borrow money. Individuals are given ‘credit scores, ’ while corporations and governments receive ‘credit ratings.’ Why do countries get credit ratings? National governments, not countries, are assigned credit ratings by agencies like Standard & Poor, Moody’s and Fitch. Governments require ratings to borrow money. They are also given ratings on their worth as investment destinations. A country requests a credit rating agency to evaluate its economic and political environment and arrive at a rating. This is done to position itself as a destination for foreign direct investment. What factors decide these ratings? There are several reasons behind rating a government’s creditworthiness. One of these is political risk, like taxation, currency value and labour laws. Another is sovereign risk where a country’s central bank can change its foreign exchange regulations. These risks are taken into account and ratings assigned accordingly. Sources: the hindu. Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment. Bad bank to deal with stressed assets Context: Asian Bankers Association Chairman Daniel Wu recently said that India’s Insolvency and Bankruptcy Code is not the only way to deal with stressed borrowers and the government should look at other options, including the formation of a bad bank. How does a bad bank work? While the government has not charted out any guidelines on the structure of a bad bank, such an institution would be largely based on the principles of an asset restructuring company (ARC), which buys bad loans from the commercial banks at a discount and tries to recover the money from the defaulter by providing a systematic solution over a period of time. Since a bad bank specialises in loan recovery, it is expected to perform better than commercial banks, whose expertise lies in lending. Why a bad bank is likely to succeed in India?  A single government entity will be more competent to take decisions rather than 28 individual PSBs.  Capacity building for a complex workout can be better handled by the government which has regulatory control and has management skillsets in public sector enterprises.  Foreign investors with both risk capital and risk appetite would be more in a government- led initiative, knowing that regulatory risks would stand considerably mitigated in various stages of resolution, including take outs. Things to consider while creating a bad bank:  The first is that it should be based on a criterion as any such exercise creates a moral hazard which should be eschewed.  Second, there have to be strict performance criteria for the banks selling such assets. This can be through a multi-stage approach where these assets are bought piecemeal by the bad bank based on how future incremental assets perform.  Third, the criteria for buying assets should be transparent and a pecking order must be drawn up where probably the restructured assets get priority.  Last, a competitive approach should prevail among the banks so that they work hard to qualify for the sale of bad assets to the bad bank. This, in fact, will ensure better governance standards too. Sources: ET. Topic: pollution. Furnace oil and pet coke Context: The Supreme Court has requested all States and Union Territories to move forward towards a nationwide ban on the use of pet coke and furnace oil to power up industries, in a bid to fight pollution. Background: The Environment Bench of the Supreme Court had already ordered a ban on the industrial use of pet coke and furnace oil in the States of Uttar Pradesh, Haryana and Rajasthan on October 24. This ban specifically came after an Environment Pollution Control Authority Report recommended the ban on sale, distribution and use of furnace oil and pet coke in the National Capital Region (NCR). Need for ban: Automobile fuel — petrol and diesel — has 50 parts per million (PPM) of the highly dangerous sulphur. Comparatively, furnace oil has 15, 000- 23, 000 ppm sulphur and petcoke 69, 000-74, 000 ppm sulphur. They emit sulphur oxide and nitrogen oxide, which form particulate matter, tiny particles that can penetrate deep into the lungs.  Although the DPCC had declared them as “unacceptable fuel” way back in 1996, but they are not banned outside Delhi borders and are being increasingly used by industries in the NCR, aggravating the pollution problem.  Furnace oil being the last grade produced by refineries is extremely polluting and pet coke is even more polluting. Sources: the hindu. Facts for Prelims:  Aadi Mahotsav: What is it? It is a fortnight long tribal festival on the theme of ‘A Celebration of the Spirit of Tribal Culture, Cuisine and Commerce’. It is being held at Delhi. Features: More than 750 tribal artisans and artisans from over 25 states are taking part in the festival. The Mahotsav will feature exhibition-cum-sale of tribal handicrafts, art, paintings, fabric, jewellery and much more. A special feature of the festival is tribal India cuisine, recreated and presented in delectable forms to suit urban tastes by special tribal chefs. Editorial: Timely recognition: on the Moody’s upgrade Context: US-based International rating agency Moody’s Investors Service has upgraded India’s sovereign credit rating by a notch to ‘Baa2’ with a stable outlook citing improved growth prospects driven by economic and institutional reforms. Moody’s has revised the sovereign rating of India after a long gap of 14 years. The decision to upgrade the ratings is underpinned by Moody’s expectation that continued progress on economic and institutional reforms will enhance India’s high growth potential. It will also improve large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term. The global ratings agency, however, cautioned that high debt burden remains a constraint on the country’s credit profile. What is a credit rating? A credit rating is an assessment of the creditworthiness of a borrower. Individuals, corporations and governments are assigned credit ratings — whoever wants to borrow money. Individuals are given ‘credit scores’, while corporations and governments receive ‘credit ratings’. What factors decide these ratings and what could move the Rating Up? There are several criteria behind rating a government’s creditworthiness. Among them are political risk, taxation, and currency value and labour laws.  Another is sovereign risk where a country’s central bank can change its foreign exchange regulations. These risks are taken into account and ratings assigned accordingly. The rating could move up if there were to be a material strengthening in fiscal metrics, combined with a strong and durable recovery of the investment cycle, probably supported by significant economic and institutional reforms  Sustained reduction in the general government debt burden, through increased government revenues combined with a reduction in expenditures, would put positive pressure on the rating. Rationale for upgrading the Rating to Baa2 The government is mid-way through a wide-ranging program of economic and institutional reforms. Moody’s believes that the Government’s reforms will improve business climate, enhance productivity, stimulate foreign and domestic investment, and ultimately foster strong and sustainable growth.  While a number of important reforms remain at the design phase, Moody’s believes that those implemented to date will advance the government’s objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth.  The reform program will thus complement the existing shock-absorbance capacity provided by India’s strong growth potential and improving global competitiveness.  Key elements of the reform program include  The recently-introduced Goods and Services Tax (GST) which will promote productivity by removing barriers to interstate trade;  improvements to the monetary policy framework by efforts to improve transparency and accountability, including through adoption of a new Fiscal Responsibility and Budget Management (FRBM) Act;  measures to address the overhang of non-performing Assets (NPAs) in the banking system through an Insolvency and Bankruptcy Code;  demonetization;  The Aadhaar system of biometric accounts and targeted delivery of benefits through the Direct Benefit Transfer (DBT) system intended to reduce informality in the economy.  Other important measures which have yet to reach fruition include planned land and labour market reforms, which rely to a great extent on cooperation with and between the States. India’s Growth forecast by Moody’s Most of these measures by government will take time for their impact to be seen, and some, such as the GST and demonetization, have undermined growth over the near term.  Moody’s expects real GDP growth to moderate to 7% in the fiscal year ending in March 2018 (FY2017).  However, as disruption fades, assisted by recent government measures to support SMEs and exporters with GST compliance, real GDP growth will rise to 7.5% in FY2018, with similarly robust levels of growth from FY2019 onward.  Longer term, India’s growth potential is significantly higher than most other Baa-rated sovereigns. What is the significance of this Rating on Indian Economy? India’s sovereign credit rating is undoubtedly a welcome recognition of the country’s enormous economic potential. The ratings agency has said the reforms undertaken until now would advance the government’s objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth. The significance of the Rating:  Rating will enable Government to borrow money from various sources.  Rating shows India worth as investment destination.  This will enable India to position itself as a destination for foreign direct investment.  It is undoubtedly a welcome recognition of the country’s enormous economic potential. What are the constraints? The high public debt burden remains an important constraint on India’s credit profile relative to peers.  At 68% of its GDP in 2016, general government debt in India is significantly higher than the 44% median for other similarly ranked economies.  Rating agency sees the debt-to-GDP ratio widening by about 1 percentage point this fiscal year to 69%.  Farm loan waivers by States, the Centre’s implementation of the pay commission’s award and even weaker tax receipts amid teething issues with the GST will create more fiscal burden. Way Forward The large pool of private savings available to finance government debt, the steps taken to enlarge the formal economy by mainstreaming more and more businesses from the informal sector, and measures aimed at improving spending efficiency through better targeting of welfare measures, as all broadly supportive of a gradual strengthening of the fiscal metrics over time. For the economy to capitalise on this upgrade, the political leadership must stay the reform course.