- Why a corporate bond Market?
Relevance: mains: G.S paper III: Indian Economy
India’s economic reforms since 1991 have led to seismic changes in many areas and sectors. But one segment where growth has been stunted in spite of the efforts by policymakers over the last three decades has been the development of the corporate bond market. Successive budgets and at least half a dozen committees mandated by the government, the RBI and the Securities and Exchange Board of India (Sebi) to work out measures to develop this market have largely failed. In this year’s Budget, Finance Minister Nirmala Sitharaman has announced fresh measures to boost the development of India’s corporate bond market.
What are these measures?
In her Budget speech, the FM had said that an action plan to deepen the market for long term bonds including for deepening markets for corporate bond repos, credit default swaps etc, with a specific focus on the infrastructure sector, will be put in place. She said Foreign Portfolio Investors (or FPIs) will also be allowed to invest in debt securities issued by Infrastructure Debt Funds. The FM also stated that a Credit Guarantee Enhancement Corporation, for which regulations have been notified by the RBI, will be set up in 2019- 20.
How will some of these measures help?
Unlike the Indian equities market where the daily volumes of traded stocks are high, signifying liquidity or enough opportunity for both buyers and sellers, the debt market is dominated more by trading in government bonds or securities. Most of the demand for these securities is from investors such as banks that have to mandatorily hold these bonds as part of regulatory norms. Over time, more Indian companies —both listed and unlisted ones — have started issuing bonds that offer semi-annual interest payments to investors. But these bonds aren’t traded much, thanks to a limited investor base and low liquidity. This, in turn, leads to lower volumes of their trades compared to the other segment of the capital market. The aim of the government and regulators is to boost the liquidity and volumes and make the debt market more vibrant.
What is the importance of a corporate debt market?
In most international markets including the US, trading volumes in the debt market are much higher than those in stocks. Liquidity, too, is quite high with enough buyers and sellers willing to buy bonds with low credit ratings in the hope of receiving a big payoff. This enables companies to raise funds across different maturities including for infrastructure projects with long gestation periods.
In India, given the absence of a well functioning corporate bond market, the burden of financing infrastructure projects such as roads, ports, and airports is more on banks and the general government. This, in turn, puts lenders such as the banks under pressure as reflected in the ballooning of bad loans. For instance, in banks, such investments create an asset-liability mismatch. In other words, they are buying into long-term assets, such as a highway, with short term liabilities, that is deposits of three- to five-year maturities. Eventually, this not only results in inefficient resource allocation but also weakens the bank balance sheets.
How will a Credit Guarantee Enhancement Corporation help?
The proposed new corporation will help companies to boost their credit rating, which, in turn, will enable them to raise funds at cheaper rates. By allowing repurchase agreements or repos (that allow a company to raise funds by offering its securities and agreeing to repurchase it later) in AA rated bonds or securities, volumes could go up in the corporate bond market. More importantly, it can help improve liquidity especially if the RBI, like many other central banks of the world, uses it for its repo operations. The other measure —of allowing investments made by FPIs in debt securities issued by Infrastructure Debt Funds to be sold to a domestic investor within a specified lock-in period — should help offer an exit option for such investors and improve liquidity. Similarly, policymakers want to develop the segment for credit default swaps. This will mean protection against the possibility of a company or issuer defaulting on a repayment option and thus offering comfort to an investor willing to take a risky bet and, in the process, adding volumes.
Beyond the Budget, what else has been done to boost the bond market in the recent past?
Since 2016, the RBI has made the point that the bigger companies would have to raise part of their long-term borrowings from the corporate bonds market rather than from banks. New norms since then make it mandatory for companies with large exposures to raise 25 per cent of their incremental or fresh borrowings from the bond market. This policy has been put in place to force corporates to go to the bond market and to ease the pressure on banks. Regulatory rules also make it necessary for any company that plans to raise debt funds of over Rs 200 crore to execute it on an electronic platform. This is expected to improve transparency as well.
Why has the Indian corporate bond market failed to take off?
For years, the investor base in the corporate bond market has been narrow – marked by banks, insurance companies, pension retirement funds and now mutual funds. The FPIs are now prominent buyers of top-rated bonds given the attractive returns especially in the backdrop of a strong rupee. Most of these investors do not trade but hold these investments until maturity. With few buyers in the market or market makers who offer buy or sell quotes constantly, there is little liquidity. There is little or no incentive for market making. A majority of the bonds issued by companies are privately placed with a select set of investors in India rather than through a public issue; this is done to both save time as well as avoid greater disclosures. Foreign investors can now invest up to Rs 3,03,100 crore in these bonds and so far only a little over 67 per cent of this limit has been utilised. In 2019-20, investments by foreign funds in stocks have aggregated Rs 28,268 crore and Rs 10,949 crore in debt. Another peeve has been the varied stamp duty in states on debt transactions. But this will soon be sorted out with a uniform rate.
Have the recent corporate defaults been a dampener?
Indeed. An IL&FS subsidiary that had the highest rating defaulted on its obligations exposing credit rating agencies and, in turn, hurting institutional investors who bought into these and other similar bonds. The investors included the EPFO —India’s largest retirement fund — and many mutual funds too. This is likely to dissuade investors, who may prefer to invest in safer avenues only. The new insolvency law was supposed to provide an extra layer of comfort too with a speedier resolution of stressed assets and a return of funds to bondholders. But that has not been the case with the deadline of 270 days being breached in many cases.
(Source: Indian Express)
- Automated facial recognition: what NCRB proposes, what are the concerns?
The National Crime Records Bureau (NCRB) released a Request for Proposal for an Automated Facial Recognition System (AFRS) to be used by police officers across the country.
What is automated facial recognition?
AFRS works by maintaining a large database with photos and videos of peoples’ faces. Then, a new image of an unidentified person — often taken from CCTV footage — is compared to the existing database to find a match and identify the person. The artificial intelligence technology used for pattern-finding and matching is called “neural networks”.
A senior former Home Ministry official said current facial recognition in India is done manually. While fingerprints and iris scans provide far more accurate matching results, automatic facial recognition is an easier solution especially for identification amongst crowds, he said.
Are there any automated facial recognition systems in use in India?
It is a new idea the country has started to experiment with. On July 1, the Ministry of Civil Aviation’s “DigiYatra” using facial recognition for airport entry was trialled in the Hyderabad airport. State governments have also taken their own steps towards facial recognition. Telangana police launched their own system in August 2018.
What does the NCRB request call for?
The NCRB, which manages crime data for police, would like to use automated facial recognition to identify criminals, missing people, and unidentified dead bodies, as well as for “crime prevention”. Its Request for Proposal calls for gathering CCTV footage, as well as photos from newspapers, raids, and sketches. The project is aimed at being compatible with other biometrics such as iris and fingerprints. It will be a mobile and web application hosted in NCRB’s Data Centre in Delhi, but used by all police stations in the country. “Automated Facial Recognition System can play a very vital role in improving outcomes in the area of Criminal identification and verification by facilitating easy recording, analysis, retrieval and sharing of Information between different organisations.”
How will the new database fit in what already exists?
NCRB has proposed integrating this facial recognition system with multiple existing databases. The most prominent is the NCRB-managed Crime and Criminal Tracking Network & Systems (CCTNS). Facial recognition has been proposed in the CCTNS program since its origin.
The idea is that integration of fingerprint database, face recognition software and iris scans will massively boost the police department’s crime investigation capabilities. It will also help civilian verification when needed. No one will be able to get away with a fake ID,” a Home Ministry official had told The Indian Express a year ago.
In 2009, following the Mumbai terror attacks, CCTNS was envisaged as a countrywide integrated database on crime incidents and suspects, connecting FIR registrations, investigations, and chargesheets of all 15,500 police stations and 6,000 higher offices. It also plans to offer citizen services, such as passport verification, crime reporting, online tracking of case progress, grievance reporting against police officers, and more.
The new facial recognition system will also be integrated with Integrated Criminal Justice System (ICJS), as well as state-specific systems, the Immigration, Visa and Foreigners Registration & Tracking (IVFRT), and the Khoya Paya portal on missing children.
How far has CCTNS progressed?
The Rs 2,000-crore project is accessible to the CBI, Intelligence Bureau, National Investigation Agency, Enforcement Directorate and the Narcotics Control Bureau. The project did not meet its initial 2015 deadline and was extended to March 2017.
In August 2018, the first phase of connecting the police stations was nearly complete. In the second phase, the Home Ministry proposed integrating the database with the fingerprint database of the Central Finger Print Bureau (CFPB). NCRB is currently rolling out the National Automated Fingerprint Identification System (NAFIS) and its integration with CCTNS.
What are the concerns around using facial recognition?
Cyber experts across the world have cautioned against government abuse of facial recognition technology, as it can be used as tool of control and risks inaccurate results.
“Amid National Crime Records Bureau’s controversial step to install an automated facial recognition system, India should take note of the ongoing privacy debate in the US. Indian citizens are more vulnerable in the absence of a Data Protection Law,” former IT Minister Milind Deora said on Twitter with a photo of recent news that US’s immigration agency was using the technology with drivers’ licences.
In the US, the FBI and Department of State operate one of the largest facial recognition systems.
International organisations have also condemned the Chinese government on its use of surveillance cameras and facial recognition to constrict the rights of Uighurs, a mostly Muslim minority.
(source: Indian Express)
- One more quota:
Relevance: mains G.S paper II: Indian Polity
Ever since the Supreme Court gave its ruling in the Indra Sawhney case, the complications surrounding the issue of OBC reservations have defied solutions. As I have argued, identifying backwardness, periodic scrutiny of claims to being backward and ensuring fair treatment of those included in the list of backward communities, constituted three challenges emanating from the Mandal discourse (EPW, April 26, 2008). Subsequently, this list of key issues became more complicated by claims from many regionally important peasant communities that they are backward, resulting in crossing the 50 per cent threshold.
Some states have chosen the Ninth Schedule to circumvent the Mandal ruling while others like Haryana, Gujarat or Maharashtra have grappled with ways to overcome the limitations prescribed by it. The latest ruling of the Bombay High Court is bound to lead to a new route for states to accommodate demands of various communities.
At least four questions arise from the Bombay High Court’s ruling. The Court has approved the report of the M G Gaikwad Commission which undertook studies to examine the status of Marathas and made recommendations about the quantum of reservation. The fact that there were earlier commissions, which had a different conclusion, does not seem to have weighed on the Court.
Curiously, the Gaikwad Commission report was not discussed in the public realm and thus the Court did not have the benefit of arguments and counterarguments about approach, method and interpretation. The first question regarding such a policy instrument is this: Can such a far-reaching policy be undertaken without the public having access to the findings of the Commission and without the courts having the benefit of public discussions? Can secrecy and urgency be the basis for policies? For instance, the projected calculations of the population of backward communities, as is quoted in the HC ruling, appear to be tricky, if not altogether problematic. The veil of secrecy has resulted in a non-transparent way of deciding backwardness and arriving at the conclusion about whether a community is adequately represented in administration.
Secondly, the argument of exceptionality is brought into sharp focus by this ruling. It is not clear what constitutes an exceptional situation justifying reservation exceeding 50 per cent. The Gaikwad Commission has apparently taken an ingenious arithmetical approach. In any case, both the Gaikwad Commission and the HC ruling fail to evolve acceptable, substantive criteria of exceptionality. This is likely to open a Pandora’s Box in that all similar claims by other communities (Gujjars of Rajasthan, Dhangars of Maharashtra and so on) could be accepted as being exceptional. Does exceptionality involve extraordinary social or educational discrimination? Does it involve a serious mistake on the part of the Mandal Commission?
Three, the issue of the Maratha quota has brought forward an even more serious issue that the Court has not addressed. Suppose a community is found to be backward and it is not included in the present list of OBCs, what is the justification for creating a separate quota for it? Even if the state were to accept the exceptional situation, necessitating crossing the 50 per cent limit, why is it that one community gets a separate quota? Ostensibly, this would be done in order not to disturb the existing social balance. However, such a strategy effectively means that one community is assured of a guaranteed quota while all others have to compete within the quota. For the 19 per cent reservation for OBCs in the state, all the OBC communities need to compete whereas for the 12 or 13 per cent under the HC ruling, only the Marathas get to compete. This anomaly is bound to become jarring in view of the numeric and political preponderance of the dominant peasant proprietary castes not only in Maharashtra but elsewhere too.
Reservation, so far, has generally been for a class of citizens belonging to various castes or communities. Even the SC and ST quotas are for a group of communities. By upholding the “Maratha quota”, the Gaikwad Commission, state of Maharashtra and the High Court seem to be creating precedence for a community-specific quota. Such a caste- or community-specific quota has a different logic and trajectory from that of a grouping of communities into classes of citizens deserving affirmative action.
Fourth, in the present case, the logic of backwardness on grounds of traditional status appears to be overwhelmed by the logic of backwardness on grounds of contemporary economy. Communities that are mainly rural and numerous are bound to have internal stratification, regional variation and skewed access to resources. All this makes for distress in objective terms, but can hardly be confused with discrimination on grounds of caste. The HC ruling has incorporated a document — an affidavit by the Government of Maharashtra, through the General Administration Department. This affidavit listed five justifications about exceptionality as: Gradual deterioration of backwardness among Marathas, deterioration of incomes, backlog in service of the state, suicides due to indebtedness, and inability to raise standard of living.
Evidently, all these are results of contemporary policies and failures of successive state governments to address the wellbeing of a large section of society. But these are invoked to justify the exceptionality of the extra quota. This tendency of transposing contemporary routes of distress and discrimination onto history tends to undermine the logic behind the social justice policy as understood so far. Precisely this same logic of contemporary distress is being used for the reservation for economically weaker sections. In this sense, we are rapidly moving away from the constitutional logic behind enabling clauses such as Articles 15 and 16. Instead, reservation is seen as the solution to hide distortions of contemporary economic development.
It would be interesting to see how the Supreme Court addresses these and other complicated issues arising from the Maratha quota and the HC ruling. The HC ruling avoids a hard look at the Gaikwad Commission Report; it also avoids critical engagement with the issue of exceptional circumstances. Political establishments have usually adopted the easy option of accommodating the claims of numerous and preponderant communities in order to avoid political stalemates.
But beyond political compulsions, and beyond legality or constitutionality, this issue poses a larger challenge. That challenge is not merely about semantics, about the meanings of “exceptional” or “adequate representation”. It is to realise that such easy routes endanger societal balance (among groups identified as backward) even as they give a false sense that the issue is amicably resolved.
(source: Indian Express)
- Government should assess implications on TRAI’S recommendations on pricing on health of the telecom sector:
Relevance: mains: G.S paper III: Awareness in the fields of IT, Space, Computers, robotics, nano-technology, bio-technology.
The Telecom Regulatory Authority of India (Trai) reiterated its stance on the issue of spectrum pricing, including that of 5G, for the upcoming auctions. This was in response to the Digital Communications Commission, the apex decision-making body of the Department of Telecommunications, which had sought a review of the Trai’s August 2018 recommendations on the auction of spectrum. The commission’s call for reviewing the Trai’s recommendations came amid concerns over the financial health of telcos, and worries that demand for spectrum is likely to be muted as consolidation in the sector has effectively left only three private telecom service providers. But, in its response, Trai has stayed with its earlier position, stating that all relevant factors, such as the methodology, assumptions, as well as developments between the spectrum auction held in October 2016 and its recommendations, released in August 2018, have been considered.
Over the years, the telecom sector has been a major source of revenue for the government. And at a time when the Centre is struggling to meet its revenue targets, higher proceeds from spectrum auctions could provide the much-needed boost to government coffers. But the temptation of revenue maximisation should be resisted when there are legitimate concerns over the financial health of the sector. Aggressive bidding by telcos in the 3G auctions in 2010 marked a turning point in the industry’s fortunes. As a result of the pile-up in debt, highly indebted telcos exercised restraint in the 2016 spectrum sale, with the government realising only Rs 65,789 crore as revenue against Rs 5.63 trillion (base price) worth of spectrum that had been put up for sale. The price war, which began in September 2016, only exacerbated the already precarious financial position of incumbents. Their deteriorating finances have also taken a toll on the government’s revenue. In 2018-19, the Centre was able to collect only Rs 39,245 crore through licence fees and spectrum usage charges, as against the initial target of Rs 48,661 crore. In comparison, it had collected Rs 70,241 crore in 2016-17. While average revenues per user (ARPUs) have risen of late, a turnaround is still some time away. With precarious finances, a repeat of the 2016 auction is a possibility.
At such high prices, cash-strapped operators will find it difficult to bid, without sinking even more into debt. This could impact their capital expenditure, leaving them with fewer resources to invest in towers and fibre optics. Acknowledging the issues plaguing the sector, the telecom minister, Ravi Shankar Prasad, has recently set up a panel to rationalise levies, and to look into other issues. While it might be difficult to set aside Trai’s recommendations, the government would do well to think carefully through the implications of the recommendations, before rushing to auction high-priced spectrum.
(Source : Indian Express)
- The budgetary measures can speed up India’s plan to switch to electric vehicles:
Relevance: mains. G.S paper II: Government Budgeting.
he Union Budget has announced a bold move to make a transition to electric vehicles, and offered a tax incentive for the early adopters. Its stated vision to leapfrog into an era of electric mobility and domestic vehicle manufacturing, led by public transport and commercial vehicles, is forward-looking. It is also inevitable because poor air quality and noise pollution have sharply affected the quality of life, and pose a serious public health challenge. As the NITI Aayog has stated, the goal of shifting to electric vehicles cannot make progress without deadlines, and a market-driven approach sought by some sections of the automotive industry will leave India’s capabilities and infrastructure for e-mobility trailing others, notably China. With 2030 as the outer limit, the imperative is to fix a realistic time-frame by which scooters, motorcycles, three-wheel carriages and, later, all new vehicles will be battery powered. An additional income tax deduction of ₹1.5 lakh is now offered on interest paid on loans to purchase electric vehicles, and the GST Council has been moved to cut the tax on e-vehicles to 5% from 12%. Both demands were made by the industry earlier. There is a significant outlay under the second iteration of the Faster Adoption and Manufacturing (of Hybrid and) Electric Vehicles (FAME) plan of ₹10,000 crore, to give a fillip to commercial vehicles and to set up charging stations.
The budgetary measures will have an immediate impact on the pricing of electric vehicles and bring in more models, but it will take a sustained effort by the Centre, in partnership with State governments, to enable a fast rollout of charging infrastructure. The Ministry of Power issued guidelines and standards for this in December last year, setting technical parameters for public charging stations that can enable normal and fast charging. With price competition, a speedy spread of electric two-wheelers can be expected, given that over 80% of conventional vehicles sold in India come under that category. Affordable charging will make these vehicles and commercial three-wheelers attractive because operating costs are a fraction of petrol and diesel equivalents. Yet, longer range travel will require more than a charge-at-home facility, and this would have to be in the form of fast charging at parking lots, retrofitted fuel outlets, new public charging stations, hotels, offices and so on. Swapping the battery at convenient locations with one that is pre-charged, especially for commercial vehicles that run longer and need a quick turnaround, is worth considering. A longer-term policy priority has to be the setting up of lithium battery production and solar charging infrastructure of a scale that matches the ambition. The Centre has accepted some of the demands of the auto industry to popularise EVs.
(source: The Hindu)
- India needs to double yearly rate of fall in stunning cases to achieve its 2022 target:
Relevance: mains: G.S paper III: Health
A new report, ‘Food and Nutrition Security Analysis, India, 2019’, authored by the Government of India and the United Nations World Food Programme, paints a picture of hunger and malnutrition amongst children in large pockets of India. This punctures the image of a nation marching towards prosperity. It raises moral and ethical questions about the nature of a state and society that, after 70 years of independence, still condemns hundreds of millions of its poorest and vulnerable citizens to lives of hunger and desperation. And it once again forces us to ask why despite rapid economic growth, declining levels of poverty, enough food to export, and a multiplicity of government programmes, malnutrition amongst the poorest remains high.
A trap of poverty, malnutrition
The report shows the poorest sections of society caught in a trap of poverty and malnutrition, which is being passed on from generation to generation. Mothers who are hungry and malnourished produce children who are stunted, underweight and unlikely to develop to achieve their full human potential.
The effects of malnourishment in a small child are not merely physical. A developing brain that is deprived of nutrients does not reach its full mental potential. A study in the Lancet notes, “Undernutrition can affect cognitive development by causing direct structural damage to the brain and by impairing infant motor development.” This in turn affects the child’s ability to learn at school, leading to a lifetime of poverty and lack of opportunity.
Another study in the Lancet observes, “These disadvantaged children are likely to do poorly in school and subsequently have low incomes, high fertility, and provide poor care for their children, thus contributing to the intergenerational transmission of poverty.” In other words, today’s poor hungry children are likely to be tomorrow’s hungry, unemployed and undereducated adults.
The findings in the report are not new: many studies over the last five years have exposed the failure of the Indian state to ensure that its most vulnerable citizens are provided adequate nutrition in their early years. India has long been home to the largest number of malnourished children in the world. Some progress has been made in reducing the extent of malnutrition. The proportion of children with chronic malnutrition decreased from 48% percent in 2005-06 to 38.4% in 2015-16. The percentage of underweight children decreased from 42.5% to 35.7% over the same period. Anaemia in young children decreased from 69.5% to 58.5% during this period. But this progress is small.
An ambitious target
The government’s National Nutrition Mission (renamed as Poshan Abhiyaan) aims to reduce stunting (a measure of malnutrition that is defined as height that is significantly below the norm for age) by 2% a year, bringing down the proportion of stunted children in the population to 25% by 2022. But even this modest target will require doubling the current annual rate of reduction in stunting.
The minutes of recent meetings of the Executive Committee of Poshan Abhiyaan do not inspire much confidence about whether this can be achieved. A year after it was launched, State and Union Territory governments have only used 16% of the funds allocated to them. Fortified rice and milk were to be introduced in one district per State by March this year. But the minutes of a March 29 meeting showed that this had not been done, and officials in charge of public distribution had not yet got their act together. Or, as the minutes put it, “The matter is under active consideration of the Ministry of Consumer Affairs, Food and Public Distribution”. Anganwadis are key to the distribution of services to mothers and children. But many States, including Bihar and Odisha, which have large vulnerable populations, are struggling to set up functioning anganwadis, and recruit staff.
The key to ending the tragedy of child nutrition lies with a handful of State governments: the highest levels of stunted and underweight children are found in Jharkand, Bihar, Madhya Pradesh, Gujarat and Maharashtra. Malnutrition is a reflection of age-old patterns of social and economic exclusion. Over 40% of children from Scheduled Tribes and Scheduled Castes are stunted. Close to 40% of children from the Other Backward Classes are stunted. The lack of nutrition in their childhood years can reduce their mental as well as physical development and condemn them to a life in the margins of society.
Stunting and malnourishment starts not with the child, but with the mother. An adolescent girl who is malnourished and anaemic tends to be a mother who is malnourished and anaemic. This in turn increased the chances of her child being stunted.
The problem is access to food
As Amartya Sen noted, famines are caused not by shortages of food, but by inadequate access to food. And for the poor and marginalised, access to food is impeded by social, administrative and economic barriers. In the case of children and their mothers, this could be anything from non-functioning or neglectful governments at the State, district and local levels to entrenched social attitudes that see the poor and marginalised as less than equal citizens who are meant to be an underclass and are undeserving of government efforts to provide them food and lift them out of poverty.
A lot of attention has focussed on the government’s aim of turning India into a $5 trillion economy in the next five years. Whether this will achieved is a matter for debate. But these declarations only serve to obscure a larger reality. There is a large section of society, the poorest two-fifths of the country’s population, that is still largely untouched by the modern economy which the rest of the country inhabits. As one part of the country lives in a 21st century economy, ordering exotic cuisines over apps, another part struggles with the most ancient of realities: finding enough to eat to tide them over till the next day.
(Source: The Hindu)