THE CONTEXT: In November 2021, RBI issued a revised Prompt Corrective Action (PCA) Framework for Scheduled Commercial Banks (SCBs) excluding Small Finance Banks, Payment Banks, and Regional Rural Banks to enable intervention at the appropriate time and require the SCB to initiate and implement remedial measures in a timely manner. The provisions of the revised PCA framework will be effective from January 1, 2022. The detailed analysis of the development is as follows.

THE DEVELOPMENT

• The revised framework excludes return on assets as a parameter that may trigger action under the framework.
• Payments banks and small finance banks (SFBs) have also been removed from the list of lenders where prompt corrective action can be initiated. Capital, asset quality and leverage will be the key areas for monitoring in the revised framework.
• Indicators to be tracked for capital, asset quality and leverage would be CRAR/ common equity tier I ratio, net NPA ratio and tier I leverage ratio, respectively.
• In governance-related actions, the RBI can supersede the board under Section 36ACA of the BR Act, 1949.
• The framework will apply to all banks operating in India, including foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators.

WHAT HAS CHANGED?

2017 (Revised) Framework

Key Monitoring areas

Capital, asset quality and profitability, while leverage would be monitored additionally.

Indicators to be tracked

Capital, asset quality and profitability would be CRAR/ Common Equity Tier I ratio, Net NPA ratio and Return on Assets, respectively.

Profitability – ROA

Negative ROA for 2/3/4 consecutive years

Leverage

Tier 1 Leverage ratio:

• Threshold 1: <=4.0% but > = 3.5% (leverage is over 25 times Tier 1 capital)
• Threshold 2: < 3.5% (leverage is over 28.6 times Tier 1 capital)

Expense monitoring

The following points were mandatory:

• Threshold 2: Higher provisions as part of the coverage regime
• Threshold 3: Restriction on management compensation and directors’ fees, as applicable

Discretionary Corrective Actions – Special Supervisory Actions

RBI could amalgamate/ reconstruct a bank under extant regulations

Exit from PCA and Withdrawal of Restrictions under PCA

Exit of a bank from the PCA framework was based on RBI’s assessment on multiple parameters based on the financials of the bank.

New Framework

Key Monitoring areas

Capital, Asset Quality and Leverage

Indicators to be tracked

Capital, Asset Quality and Leverage would be CRAR/ Common Equity Tier I Ratio, Net NPA Ratio, and Tier I Leverage Ratio, respectively.

Profitability – ROA

Has been removed from the New Framework

Capital – Risk Threshold 3

RBI has specifically included this level of 400 bps below CRAR as a monitorable

Leverage

Monitoring of leverage has been made explicit and levels have been made explicit across thresholds

• Threshold 1: Up to 50 bps below the regulatory minimum
• Threshold 2: More than 50 bps but not exceeding 100 bps below the regulatory minimum
• Threshold 3: More than 100 bps below the regulatory minimum

Expense monitoring

These actions have been included in discretionary activities and have been made applicable across all thresholds. They have been combined and made more stringent by restriction/ reduction on variable operating costs, outsourcing activities, and restriction/reduction of outsourcing activities. Further restrictions on capital expenditure, other than for technological up-gradation within board-approved limits, have been made mandatory in risk threshold 3.

Discretionary Corrective Actions – Special Supervisory Actions

The RBI has specifically included resolution of the bank by Amalgamation or Reconstruction (Ref. Section 45 of Banking Regulation Act 1949) under the revised framework.

Exit from PCA and Withdrawal of Restrictions under PCA

The new framework has laid down an explicit framework for a bank to exit the PCA framework as follows:

Once a bank is placed under PCA, taking the bank out of PCA Framework and/or withdrawal of restrictions imposed under the PCA Framework will be considered: a) if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be Audited Annual Financial Statement (subject to assessment by RBI); and b) based on Supervisory comfort of the RBI, including an assessment on sustainability of profitability of the bank.

WHAT IS PCA FRAMEWORK?

• Prompt Corrective Action or PCA is a framework under which banks with weak financial metrics are put under watch by the RBI. The PCA framework deems banks as risky if they slip below certain norms on three parameters — capital ratios, asset quality and profitability.
• Based on where a bank stands on these ratios, it has three risk threshold levels (1 being the lowest and 3 the highest). Banks with capital to risk-weighted assets ratio (CRAR) of less than 10.25 per cent but more than 7.75 per cent fall under threshold 1.
• Those with CRAR of more than 6.25 per cent but less than 7.75 per cent fall in the second threshold. In case a bank’s common equity Tier 1 (the bare minimum capital under CRAR) falls below 3.625 per cent, it gets categorised under the third threshold level.
• Banks that have a net NPA of 6 per cent or more but less than 9 per cent fall under threshold 1, and those with 12 per cent or more fall under the third threshold level.
• On profitability, banks with negative return on assets for two, three, and four years fall under threshold 1, threshold 2 and threshold 3, respectively.

WHAT IS THE PURPOSE OF THE PCA FRAMEWORK?

• The objective of the PCA framework is to enable supervisory intervention at the appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner to restore its financial health.
• Act as a tool for effective market discipline.
• It does not preclude the Reserve Bank of India from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the framework”.
• In the last almost two decades — the PCA was first notified in December 2002 — several banks have been placed under the framework, with their operations restricted. In 2021, UCO Bank, IDBI Bank and Indian Overseas Bank exited the framework on improved performance. Only the Central Bank of India remains under it now.

HOW DO BANKS BENEFIT FROM PCA?

• One of the objectives of PCA is to amend a bank’s mistakes before they lead to a crisis.
• RBI controls the loan disbursal of banks belonging to the PCA watchlist. That said, note that the regulator does not entirely prohibit PCA banks from disbursing loans.
• RBI’s PCA framework has been designed to improve a bank’s financial performance by tracking vital metrics. In other words, it involves the RBI taking remedial measures.
• PCA banks cannot enter a new line of business, which improves their core financials.
• In some rare cases RBI might choose to close non-compliant banks or initiate amalgamation for them.

WHEN DOES RBI INVOKE PROMPT CORRECTIVE ACTION?

RBI considers four factors to determine whether it needs to put a bank under the PCA framework. These include profitability, asset quality, capital ratios and debt level. The central bank grades each of these factors based on actions depending upon the grade/threshold level, categorised from one to three, where 1 is the lowest of the lot and 3 being the highest based on how banks stand with respective frameworks.

Following is a look at these factors and their grades:

CAPITAL ADEQUACY RATIO (CRAR)

• The CRAR is the capital needed for a bank measured in assets (mostly loans) disbursed by the banks. The higher the assets, the higher should be the capital retained by the bank. This measures how much debt and equity capital banks possess to cover their asset book risk. If CRAR is less than 10.25%, but above 7.75%, the bank falls in the first grade. Banks having a CRAR of over 6.25%, but below 7.75%, fall under grade 2. However, if a bank’s capital adequacy ratio is less than 3.625%, it is categorised under grade 3.

ASSET QUALITY

• This parameter refers to the non-performing assets of a bank. If the net NPA of a bank is more than 6%, but less than 9%, it falls under the first threshold. If Net NPA crosses the 9% mark, it triggers the second grade. That said, if this metric is 12% or more, the bank will fall in the third grade of PCA.

PROFITABILITY

• The regulator considers the bank’s return on assets (ROA) as the key measure for profitability. Note that if a bank’s ROA is negative for two, three and four years in a row, it will be categorised as grade 1, grade 2 and grade 3, respectively.

DEBT LEVEL/LEVERAGE

• The last factor that RBI considers to measure the financial risk of any bank is its overall debt level/leverage. The regulator triggers grade 1 if the overall leverage is more than 25 times its Tier 1 capital. However, when total leverage is over 28.5 times its core capital (including disclosed reserves), RBI acts according to grade 2 of PCA.

WHAT HAPPENS WHEN RBI PUTS A BANK UNDER PCA?

When RBI puts a bank on its PCA watchlist, it imposes two types of limitations on it – mandatory and discretionary. These include restrictions related to the expansion of a branch, dividend, and director’s remuneration and so on.

Nevertheless, the Central Bank may choose to take these actions at their discretion, where the RBI can:

• Ask the bank’s board to reassess its business model and evaluate the profitability of the business line and operations.
• Advise banks to reassess their business plans and strategy to take remedial measures, including dismissing certain officials from employment.
• Ask a Bank’s board to implement a resolution plan after seeking approval from the supervisor.
• Advise banks to gauge their viability over the medium to long term besides evaluating balance sheet estimates.
• PCA banks might not be able to hire more employees or fill up vacant positions.
• Lastly, RBI may allow PCA banks to incur capital expenditure only to upgrade technology. However, the allocation of funds for the same has to be within pre-approved limits.

ANALYSIS OF NEW FRAMEWORK

• The revised rules propose changes on three fronts —

• the triggers to invoke PCA against a bank,
• the mandatory actions RBI may take after it
• conditions for a bank to exit it.

• Rules currently allow RBI to invoke PCA, if a bank’s capital-to-risk weighted assets ratio and Tier 1 capital ratio, Return on Assets (ROA), net Non-Performing Assets and leverage fall well short of statutory thresholds.
• Under the new regime, a negative ROA will no longer trigger a bank to invite corrective action. This appears sensible because the accounting profit for a bank is the residual sum left over after provisioning for bad and doubtful loans.
• A bank that proactively provisions for possible NPAs and maintains high provision coverage may report losses, but is better protecting the interests of its stakeholders than a bank that skimps provisioning to show a profit.
• Some of the corrective actions to be taken by RBI once a bank falls under PCA, have been left to its discretion instead of being mandated.
• PCA rules require RBI to enforce higher provisioning norms and cap management compensation. The new rules allow it to take a discretionary call, perhaps to avoid denting depositor confidence.
• The existing curbs placed by the RBI on PCA banks lending to lower-rated or unsecured borrowers have been diluted and replaced with more generic powers, which is a good step.

THE CONCLUSION: While the new framework rightly affords RBI greater flexibility in resolving stressed banks on a case-to-case basis, the roadmap it offers for a bank’s exit from PCA appears to run counter to this. While such exit was earlier left to RBI’s discretion, the new regime requires a bank to stay above-mandated capital, NPA and leverage thresholds for four consecutive quarters to apply for the exit. This may be a rather high bar. A troubled bank can mend its capital adequacy or leverage quickly with an infusion from its promoter. But resolving legacy NPAs often requires it to pursue business growth or margin-improving strategies that may not be possible while PCA ties its hands.

THE CONTEXT: In September 2021, Union Finance Minister announced that the Cabinet had approved Rs 30,600 crore in security receipts to be issued by the National Asset Reconstruction Company (NARC) or Bad Bank towards the resolution of bad loans.

WHAT IS THE PROPOSAL?

• The move is another step in the direction of making the NARC operational.
• Banks have identified bad loans worth Rs 2 lakh crore, which will be shifted to the NARC for resolution, and nearly Rs 90,000 crore of bad debt would be resolved in the first phase.
• The NARC is now awaiting a licence of operation from the Reserve Bank of India after applying with the central bank.
• The government indicated that the licence is under process and could be issued soon.

THE DEVELOPMENT SO FAR

• The National Asset Reconstruction Company Limited (NARCL) has already been incorporated under the Companies Act. It will acquire stressed assets worth about Rs 2 lakh crore from various commercial banks in different phases.
• Another entity — India Debt Resolution Company Ltd (IDRCL), which has also been set up — will then try to sell the stressed assets in the market. The NARCL-IDRCL structure is the new bad bank.
• To make it work, the government has okayed Rs 30,600 crore to be used as a guarantee.

How will the NARCL-IDRCL work?

• The NARCL will first purchase bad loans from banks, and it will pay 15% of the agreed price in cash, and the remaining 85% will be in the form of “Security Receipts”. When the assets are sold, with the help of IDRCL, the commercial banks will be paid back the rest.
• Suppose the bad bank is unable to sell the bad loan or has to sell it at a loss. In that case, the government guarantee will be invoked and the difference between what the commercial bank was supposed to get and what the bad bank was able to raise will be paid from the Rs 30,600 crore that the government has provided.

ALL YOU NEED TO KNOW ABOUT BAD BANK

What is the bad bank?

• A bad bank is a financial entity set up to buy banks’ non-performing assets (NPAs) or bad loans.
• Setting up a bad bank aims to help ease the burden on banks by taking bad loans off their balance sheets and getting them to lend again to customers without constraints.
• After purchasing a bad loan from a bank, the bad bank may later try to restructure and sell the NPA to investors who might be interested in buying it.
• Generating profits is usually not the primary purpose of a bad bank – the objective is to ease the burden on banks, hold a large pile of stressed assets, and get them to lend more actively.

Why Bad Bank?

• Indian banks’ pile of bad loans is a significant drag on the economy, and it’s a drain on banks’ profits.
• Due to the lockdown imposed last year, the proportion of banks’ gross non-performing assets is expected to rise sharply from 7.5% of gross advances in September 2020 to at least 13.5% of gross advances in September 2021.
• Because profits are eroded, public sector banks (PSBs), where the bulk of the bad loans reside, cannot raise enough capital to fund credit growth.
• Lack of credit growth, in turn, comes in the way of the economy’s return to an 8% growth trajectory. Therefore, the bad loan problem requires effective resolution.

Evolution of Concept of Bad Bank:

• The concept was pioneered at the Pittsburgh-headquartered Mellon Bank in 1988 in response to problems in the bank’s commercial real estate portfolio.
• According to McKinsey & Co, the concept of a “bad bank” was applied in previous banking crises in Sweden, France, and Germany.

PROS AND CONS OF SETTING UP A BAD BANK

PROS 

• In one quick move, a bank will get rid of all its toxic assets, which were eating up its profits.
• When the recovery money is paid back, it will further improve the bank’s position. Meanwhile, it can start lending again.
• It can help consolidate all bad loans of banks under a single exclusive entity. A single government entity will be more competent to take decisions rather than 28 individual PSBs.
• International experience: The troubled asset relief program, also known as TARP, implemented by the U.S. Treasury in the aftermath of the 2008 financial crisis, was modelled around the idea of a bad bank. Under the program, the U.S. Treasury bought troubled assets, such as mortgage-backed securities, from U.S. banks at the peak of the crisis and later resold them when market conditions improved. According to reports, it is estimated that the Treasury, through its operations, earned nominal profits.

CONS

• Former RBI governor Raghuram Rajan has been one of the critics, arguing that a bad bank backed by the government will merely shift bad assets from the hands of public sector banks, which the government owns, to the hands of a bad bank, which the government again owns.
• Analysts believe that unlike a bad bank set up by the private sector, a bad bank backed by the government is likely to pay too much for stressed assets.
• While this may be good news for public sector banks, which have been reluctant to incur losses by selling off their bad loans at low prices, it is bad news for taxpayers, who will once again have to foot the bill for bailing out troubled banks.

AN ANALYSIS OF THE MOVE?

IS IT A RIGHT MOVE?

• Professional Management: The new bad bank can be equipped with professional management which will be capable enough to run the assets and sell them while making a profit.
• Competition: The new bad bank can provide the required competition to the private bad banks and thus provide better pricing to the banks for their NPAs.
• Failure of the current system of Private Bad Banks: Banks are scared of selling the bad loans to private sector bad banks at a heavy discount due to the fear of being accused of causing loss to the bank and exchequer. Thus, the current system has failed.
• Ownership of new Bad Bank: The new bad bank should be owned by the Public sector banks and by private banks that want to join in and their respective shares of ownership can be their share in the total bad loan portfolio. Thus, the profit by resolution will accrue to the banks themselves and thus, the scare of causing loss to the bank and exchequer is eliminated.

CASE OF JHABUA POWER: IBC vs. Bad Bank

1. Jhabua power for resolution under Insolvency and Bankruptcy code on account of shortage of working capital.
2. Bids: Two bids were received for Jhabua power.
a. NTPC Bid – 1900 Crore at the rate of Rs. 3.2 per MW.
b. Adani Power – 750 crores at Rs 1.25 per MW.
Lesson: If NTPC had not entered the bid, the plant, in all probability, could have been purchased by Adani power at the cost to the exchequer. This would have given less money to the government and also brought the wrath of CVC/CBI and further litigation. A Bad bank can do this with expertise and manage the asset until it finds a suitable buyer.

WILL A ‘BAD BANK’ REALLY HELP EASE THE BAD LOAN CRISIS?

• Some critics point out that a key reason behind the bad loan crisis in public sector banks is the nature of their ownership. Unlike private banks, which are owned by individuals with strong financial incentives to manage them well, public sector banks are managed by bureaucrats who may often not have the same commitment to ensuring these lenders’ profitability. To that extent, bailing out banks through a bad bank does not address the root problem of the bad loan crisis.
• Further, there is a huge risk of moral hazard. Commercial banks that a bad bank bails out are likely to have little reason to mend their ways. After all, the safety net provided by a bad bank gives these banks more reason to lend recklessly, and thus, further exacerbate the bad loan crisis.

2. HOW WILL BANKS BENEFIT FROM NARC?

For banks, mainly state-owned banks, the NARC is heaven-sent. It will allow banks to transfer the bad loans from their balance sheets to NARC. The reduction of bad loans on balance sheets will enable banks to free up capital that was locked up to cover the bad loans. Eventually, a successful resolution of the bad loan will also allow banks to reverse a substantial chunk of their provisions depending on the amount recovered, which will boost their earnings.

3. HOW WILL NARC BENEFIT THE ECONOMY?

• The majority of the bad loan pile in India is stuck with the state-owned lenders. The pandemic has worsened the crisis, although relatively less than expected, RBI is projecting Indian banking sector GNPAs to rise in 2021-22.
• Public sector banks account for the majority of loans generated in the Indian economy. Because their capital has been stuck in providing for a large amount of bad loans, their ability to lend has been constrained.
• For post-COVID recovery, banks must be free of their bad loans for providing fresh loans, which will play a major role in recovery.

BUT THERE ARE SOME CONCERNS ALSO

1. Current Situation: India already has 28 asset reconstruction companies in operation and banks have been unable to sell their bad loans to these entities.
2. Just Shifting Blame: Raghuram Rajan, in his book “I Do What I Do” suggests that by creating bad bank, we are just shifting blame from the bank to Bad Bank. If the bad bank is owned by Public Sector, the reluctance to act will be shifted to bad bank.
3. Insolvency and Bankruptcy Code: The enactment of IBC has reduced the need for having a bad bank as a transparent and open process is available to all lenders for resolving insolvency.
4. Government Resources: COVID-19 has already strained the government resources and setting up a bad bank will further put tremendous strain on the resources.
5. Pricing: The price at which toxic assets are transferred are not market-determined and price discovery might not happen.

THINGS TO CONSIDER WHILE CREATING A BAD BANK

• The first is that it should be based on a criterion that any such exercise should not create a moral hazard.
• 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 to work hard to qualify for the sale of bad assets to the bad bank. This, in fact, will ensure better governance standards too.

“BAD BANK A BAD IDEA FOR INDIA”- RAGHURAM RAJAN

Former RBI governor Raghuram Rajan was ‘fundamentally’ opposed to the idea of a bad bank. Reserve Bank of India (RBI) former governor Raghuram Rajan view the concept of a good bank and bad bank may not be relevant for India since much of the assets backing the banks’ loans are viable or can be made viable. He emphasized the need to deepen the corporate bond market.

Why he opposed the idea?

• Rajan was of the view that banks should themselves recover their dues.
• He also believed that in specific cases where the loans are not appropriately prices, the transfer of NPA to the “bad bank” would create further issues.
• Additionally, he thought that the idea of a good and bad bank might not make sense for India.
• He felt that most of the assets backing the banks’ loans are viable or could be made viable.

How other Countries solve NPA Problem?

• There have been several successful instances of resolution of the NPA problem in different countries in the past. For example, asset management companies formed in Sweden after the banking crisis of the early 1990s have done well. One of the underlying features of the resolution of the banking crisis in Sweden was political unity. Political unity eased the passage through parliament of measures to support the financial system.
• The Korea Asset Management Corp. has also been successful in resolving the bad debt problem in Korea after the Asian financial crisis.
• The bank investment programmes under the Troubled Asset Relief Program, implemented after the 2008 financial crisis in the US, has earned positive returns for the government.

WAY FORWARD

1. Capitalisation of Banks: It is being said that bad banks will not be beneficial unless we simultaneously also recapitalise the banks. It can help improve their capacity to lend.
2. Two Tiered Bad Bank Structure: A two tiered bad bank structure can be created as follows
a. First Tier (NARCL): It will include an Asset Reconstruction company fully backed by the government, which will buy bad loans from banks and issue security receipts to them.
b. Second Tier (IDRCL): It will include an Asset Management Company, which would be run by private and public bodies, including banks, turnaround professionals etc.
3. Legal Backing: Parliament can pass a law to set up a bad bank and empower it to recover from borrowers, with minimum legal hassles and respect to the acquisition or disposal of bad assets.
4. Learn from International Experience: Bad banks have successfully resolved NPAs in countries such as UK, the US, Spain, Malaysia, France, Finland, Belgium, Germany, Austria and Sweden. India can learn from their experience.

CONCLUSION: A bad bank, in reality, could help improve bank lending not by shoring up bank reserves but by improving banks’ capital buffers. To the extent that a new bad bank set up by the government can improve banks’ capital buffers by freeing up capital, it could help banks feel more confident to start lending again. However, the only sustainable solution is to improve the lending operation in PSBs.

THE CONTEXT: The Insolvency and Bankruptcy Code 2016 has been a path breaking reform in the corporate governance in India. According to the 32nd report of the Parliamentary standing committee on Finance, August 2021 its potential to address the problems of Non performing assets and release of capital to productive areas has not been realised. In this backdrop, this article examines the various aspects of the IBC ecosystem so that students develop the right perspective about IBC and related issues.

NEED FOR INSOLVENCY AND BANKRUPTCY CODE

• Pre IBC insolvency and bankruptcy legal framework in India was fragmented and ineffective
• For corporates, bankruptcy proceedings in India were governed by multiple laws — the Companies Act, SARFAESI Act, Sick Industrial Companies Act, and so on.
• For individuals, The Presidential Towns Insolvency Act 1909 and Provincial Insolvency Act 1920 existed which were rarely used.
• The entire process of winding up was also very long-winded, with courts, debt recovery tribunals and the Board for Industrial and Financial Reconstruction all having a say in the process
• In actual practice, this system worked for the advantages of the Debtors, willful defaulters and resulted in mounting NPA.
• In view of the above. a new legislation was required for the development of credit markets, encourage entrepreneurship and promote ease of doing business.
• The code consolidates around 11 laws relating to insolvency and bankruptcy and creates dedicated institutions for various actions under the code.
• The Code also stipulates the role, responsibilities and the timeline that must be adhered to by all stakeholders.
• Thus IBC replaces the erstwhile “debtors’ regime” with “creditors’ regime” so as to bring financial integrity in corporate management.

KEY PILLARS OF THE IBC ECOSYSTEM.

CLARIFYING CONCEPTS

• INSOLVENCY A situation where the debtor is unable to pay back the creditor. It depicts a condition of financial distress of an individual or an entity.
• BANKRUPTCY A situation when a competent court declares that an individual or entity is insolvent. It is a legal declaration of insolvency.
• LIQUIDATION When the assets of an individual/entity are sold to pay off the debt, it is known as liquidation.
• RESOLUTION It is a plan of rehabilitation or liquidation of a corporate debtor. The approved plan may lead to restructuring the debt or acquisition by another entity or eventual liquidation of assets.

ADJUDICATING AUTHORITY

• National Company Law Tribunal (NCLT) and Debt Recovery Tribunal are statutory bodies responsible for adjudicating resolution of matters related to insolvency and bankruptcy.
• NCLT is for companies and limited liability partnerships and DRT is for unlimited liability partnerships and sole proprietors

COMMITTEE OF CREDITORS(COC)

• COC consists only of financial creditors. The role of the COC is to approve and disapprove the resolution plan proposed by the resolution professional
• The minimum vote required to approve the resolution plan is 75% in a meeting of COC.

INSOLVENCY PROFESSIONALS

• The entire insolvency resolution process is managed by an Insolvency Professional who is appointed by the Insolvency and Bankruptcy Board of India

INSOLVENCY AND BANKRUPTCY BOARD OF INDIA

• Most important institutional arrangement for the new insolvency and bankruptcy regime is IBBI.
• It was created as the Umpiring institution with multiple tasks including creation of regulations and control of agencies and professionals involved in the insolvency and bankruptcy business.

FINANCIAL CREDITOR

• Financial Creditors (FC) are the creditors who give money to the promoters. Banks, home buyers, etc. are considered as financial creditors.
• In the Committee of Creditors of Essar Steel Ltd. v. Satish Kumar Gupta, 2019, the supreme court has upheld the primacy of financial creditors over operational creditors in the resolution process.

OPERATIONAL CREDITOR

• Operational Creditors (OC) are those creditors who do not give money or cash to the promoters but they provide goods and services to the promoters. Both FC and OC can initiate the insolvency resolution although there are substantial and procedural variations.

CORPORATE DEBTOR

• Corporate debtors are the promoters who take loans or money from financial creditors or take goods or services from operational creditors as a debt.

LIQUIDATION

• If the Resolution Process fails to find a resolution for the corporate debtor within the stipulated timeline or if the COC does not approve the resolution plan by a vote of not less than 66% of the voting share, the corporate debtor is liquidated.

FIGURE 1: INSOLVENCY AND BANKRUPTCY CODE PROCESS

UNIQUE FEATURES AND BENEFITS OF THE CODE

1. Comprehensiveness: A comprehensive regime dealing with all aspects of insolvency and bankruptcy of all kinds.
2. Division of Responsibilities: Separating commercial aspects of insolvency and bankruptcy proceedings from judicial aspects and empowered stakeholders and adjudicating authorities to decide the matters expeditiously.
3. Changes in Orientation: Moving away from the ‘debtor-in-possession’ regime toa ‘creditors-in-control regime where creditors decide matters with the assistance of insolvency professionals.
4. Collective Action: Providing collective mechanism to resolve insolvency rather than recovery of loan by a creditor.
5. Timeliness: Achieving insolvency resolution in a time bound manner and empowers the stakeholders to complete transactions in time.
6. Reducing Business Failure: The code reduces incidence of failure as the inevitable consequence of default in terms of insolvency proceedings prompts behavioral changes on the part of debtor to try hard to prevent business failures.
7. Focus on Viability: It reduces failure by setting in motion a process that rehabilitates failing businesses that are viable.
8. Safe to Fail approach: By allowing closure of non-viable firms, the code enables an entrepreneur to get in and get out of business with ease, undeterred by failure (honest failure for business reasons).

ACHIEVEMENT OF INSOLVENCY AND BANKRUPTCY CODE

EASE OF DOING BUSINESS RANKING

• The legislation enabled India to leapfrog in World Bank’s Doing Business rankings from a lowly 142 in 2014 to 63 in 2020 due to the faster insolvency resolution process and others.

QUANTUM OF RECOVERY

• IBC resulted in mean recoveries of 44% for financial creditors in comparison to 24% from Debt Recovery Tribunals (DRT), SARFAESI Act and Lok Adalats combined, for financial years 2018-2020.

GROSS NON-PERFORMING ASSETS (GNPA)

• The banking sector’s GNPA ratio is estimated to have declined to 10 per cent in the end-March 2019 from 11.5 per cent the year before on the same date, as recoveries through IBC helped banks recovery bad loans, as per rating agency Crisil.

REDUCTION IN AVERAGE TIME

• The Standing Committee noted that the average time to resolve insolvency reduced from 4.3 years to 1.6 years between 2017 and 2020, since the implementation of the IBC

REVIVAL OF COMPANIES

• Several good debt-laden companies like Essar Steel, Bhushan Steel, Electro Steel, Amtek Steel, Bhushan Power and Steel, Alok Industries, and Reliance Communications have been revived with minimal loss of employment, loss of assets or loss in production.

PRACTICING NUDGE THEORY

• More than half of the CIRPs initiated by the OCs have been closed on appeal, review or withdrawal.
• This indicates that for fear of losing control and ownership of the company, debtors have preferred to pay the OCs and resolve amicably.

SUCCESS STORY OF THE IBC: THE ESSAR STEEL RESOLUTION CASE STUDY

• The Essar Steel Ltd (ESL for short) had financial debts of Rs 49,000 crore. The money was owed to a group of banks led by SBI, which included PSU and private sector banks.
• The NCLT admitted the insolvency proceedings in August 2017 and it was followed by the submission of bids by five metal giants, including ArcelorMittal.
• The NCLT handed over the interim management of ESL to another company which resulted into its turnaround.
• Meanwhile, government introduced Section 29A in the Code, which barred the promoters of companies that defaulted on loans for 12 months from submitting bids.
• These factors encouraged Arcelor Mittal to not only pay back 7500 crores of its due payment but also to increase its bid for ESL to Rs 42,000 crore from its initial bid of Rs. 29,000 crores, amounting to 92% of the credit liability.
• Various benefits accrued from these developments are outlined below.

BENEFITS TO THE BANKING SECTOR(FCs)

• Rs 42,000 crores (92%) were realised and introduced in the economy as against a debt of Rs. 49,000 crores within three years.
• In the earlier system, the resolution would have involved a protracted legal battle for a decade or so, while the debtor company would have closed down operations, and assets, plants and machinery would have been put to disuse and decay.
• Finally, only a pittance would have been recovered from whatever asset could be salvaged.

BENEFIT TO OPERATIONAL CREDITORS

• Since the company continued to be run by the turnaround specialists, the OCs were willing to extend credits.
• The company achieved operational turnaround and so the operational creditors got to continue their business with the company and also realise their dues. This was a win-win for both the OCs and the company.

BENEFIT TO EMPLOYEES

• The resolution proceedings ensured that not only did the company continue its operations but also achieved an operational turnaround. This was great news for employees who feared retrenchment.
• After the resolution, ArcelorMittal took over the company and continued its operations. Hence, most of the employees except the top management echelons would get to keep their jobs. This could never happen in resolution proceedings prior to the Code.

IBC PITFALLS AND SOLUTIONS: STANDING COMMITTEE OBSERVATIONS

ITEMS

CRITICISM

WAY FORWARD

EXCESSIVE AMENDMENTS

• The IBC has deviated from its original intent due to as many as six amendments in the last 5 years. The IBC now have a different orientation from its basic design
• There is a need for an evaluation of the extent of fulfilment of the original aims during the implementation of the Code over the years and a thorough overhauling based on the findings.

VERY LOW RECOVERY

• 95% haircut and delay in the resolution process with more than 71% cases pending for more than 180 days meant deviation from the objective of the Code.
• Provide greater clarity to strengthen creditor rights and have a benchmark for haircuts comparable to global standards.

DELAY AND VACANCIES IN NCLT

• 13,170 IBC cases involving nine lakh core rupees are pending before the NCLT
• More than 50% of the sanctioned strength of the NCLT is vacant including that of the President (32 out of 64)
• To address this delay, it recommended creating dedicated benches of the NCLT for matters related to IBC.
• Analyzing required capacity based on projected number of cases and planning recruitment in advance among others can reduce vacancies.

CRISIS IN MSMEs

• MSMEs were negatively impacted by the COVID-19 pandemic and under the current mechanism, they are considered as operational creditors, whose claims are addressed only after secured creditors
• Instituting additional protections for MSMEs, considering the current economic situation by suitable changes in the code is necessary

POST HOC BIDS

• Bidders wait for the highest bidder(H1) to become public and then try to exceed this bid through an unsolicited offer that is submitted after the specified deadline.
• This creates tremendous procedural uncertainty; delay and genuine bidders are discouraged from bidding at the right time.
• IBC needs to be amended so that no post hoc bids are allowed during the resolution process.
• There should be sanctity in deadlines so that value is protected and the prices move smoothly.

INSOLVENCY RESOLUTION PROFESSIONALS (IRPS)

• Fresh graduates are being appointed as IRPs whose competence is highly doubtful in handling the complex cases.
• Also there are issues of professional misconduct and disciplinary action has been taken against 123 IRPs.
• Professional self-regulator for insolvency resolution professionals (IRPs) that functions like the Institute of Chartered Accountants of India (ICAI) should be put in place.
• An Institute of Resolution Professionals may be established to oversee and regulate the functioning of IRPs so that there are appropriate standards and fair self-regulation

CONCLUSION: The IBC system provides a reformed resolution regime that balances the interests of all stakeholders. However, its potential to be the game changer in Indian financial landscape has not been fully successful. Now that, the one-year pause in IBC process due to Covid 19 has been lifted, fast tracking reforms cannot wait. Thus a comprehensive rejig of the Code by incorporating the recommendations of the Standing Committee and findings of a post legislative impact study is imperative. The success of IBC also depends on reforms in banking governance, working of tribunals and judicial interventions or its lack thereof, which must also be addressed immediately.

THE CONTEXT: The progression to electric vehicles(EVs) is important for India because such vehicles are sustainable and profitable in the long term. Reducing dependence on crude oil will save the government money, reduce carbon emissions, and build domestic energy independence. Besides being an economically and environmentally viable option, India’s transition to electric vehicles will allow us to fine-tune our infrastructure.

THE TRANSITION TOWARDS ELECTRIC MOBILITY

The transition towards electric mobility offers India not only an opportunity to improve efficiency and transform the transport sector but also addresses several issues that the country is currently grappling with. The concerns regarding energy security and rising current account deficit (CAD) on account of rising fossil fuel imports can be addressed with the uptake of electric mobility.

India is a power surplus country and is currently witnessing lower plant load factors due to lower capacity utilization. As per the conservative estimates, demand from electric vehicles (EV) could greatly improve the utilization factor of underutilized power plants, as charging pattern of EV users is considered to coincide with power demand during the non-peak hours in the country.

India has a clear intention of multiplying its generation from renewable energy (RE) sources which are inherently intermittent. Several reports suggest that EVs can complement the intermittent nature of power generated from RE by absorbing power at off-peak hours. The batteries in EVs can act as ancillary services for the proliferation of distributed generation resources (DER).

Apart from supporting RE generation, EVs with feasible vehicle to grid technology can act as a dynamic storage media and can enhance the grid resilience through ancillary market. This can reduce the burden of exchequer to create static energy storage systems, especially in distribution networks, to support proliferation of grid-connected roof top solar and DERs.

ELECTRIC MOBILITY INITIATIVES IN INDIA

Electric mobility initiatives in India, initially, were led by the Ministry of Heavy Industries and Public Enterprises (MoHIPE) who launched the National Electric Mobility Mission Plan (NEMMP) in 2013 and Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) in 2015. Over the years, identifying cross-sectoral complex linkages of electric mobility and achieving a multi-stakeholder development NITI-Aayog was mandated to anchor and coordinate the Electric mobility efforts in India.

Coordinated efforts resulted in six key facilitative initiatives, namely, FAME II, Urban facilitation, power sector facilitation, evolving tax regime, public private alliances and demand aggregation, which are attributed for the development of electric mobility in India.

The FAME India Scheme

• The FAME India Scheme is aimed at incentivizing all vehicle segments.

Two phases of the scheme:

1. Phase I: started in 2015 and was completed on 31st March, 2019
2. Phase II: started from April, 2019, will be completed by 31st March, 2022

• The scheme covers Hybrid & Electric technologies like Mild Hybrid, Strong Hybrid, Plug in Hybrid & Battery Electric Vehicles.
• Monitoring Authority: Department of Heavy Industries, the Ministry of Heavy Industries and Public Enterprises.

Fame India Scheme has four focus Areas:

1. Technology development
2.  Demand Creation
3.  Pilot Projects
4.  Charging Infrastructure

Objectives of FAME Scheme:

• Encourage faster adoption of electric and hybrid vehicles by way of offering upfront Incentive on purchase of Electric vehicles.
• Establish a necessary charging Infrastructure for electric vehicles.
• To address the issue of environmental pollution and fuel security.

SHIFTING ENERGY RESOURCES FROM MIDDLE EAST TO LATIN AMERICA

The government has allocated $1.3 billion in incentives for electric buses, three-wheelers and four-wheelers to be used for commercial purposes till 2022, and earmarked another $135 million for charging stations. Besides these incentives, a proposal for a $4.6 billion subsidy for battery makers has also been proposed by the NITI Aayog.

These policies are embedded with the vision to have 30% electric vehicles plying the roads by 2030. In September 2019, Japanese automobile major Suzuki Motor formed a consortium with Japanese automotive component manufacturer Denso and multinational conglomerate Toshiba to set up a manufacturing unit in Gujarat to venture into the production of lithium-ion batteries and electrodes.

Developing domestic battery manufacturing capacity may fundamentally change India’s relationship with resource-rich Latin America as the government plans to buy overseas lithium reserves.

India’s energy security dependence will shift from West Asia to Latin America. India imported 228.6 MT of crude oil worth $120 billion in 2018–19, which made it the third-largest oil importer in the world in terms of value.

Lithium triangle

Latin America’s famous lithium triangle that encompasses lithium deposits under the salt flats of northwest Argentina, northern Chile, and southwest Bolivia holds about 80% of the explored lithium of the world. In Latin America, most of the production comes from Argentina, Chile, and Bolivia.

At present, India’s lithium-ion battery demand is fulfilled by imports from China, Vietnam, and Hong Kong. In the last two years, India has had a growing appetite for lithium-ion batteries, and so, lithium imports have tripled from $384 mn to $1.2 bn.Notably, the government has intercepted this growing demand from its incipience. With its policy intervention to support battery manufacturers by supplying lithium and cobalt, this industry is more likely to grow domestically to support India’s goal to switch to electric mobility.

CHALLENGES FOR INDIA’S ELECTRIC MOBILITY INITIATIVES

Presently, India is one of the fastest growing economies in the world, but its increasing dependency on oil imports, rising environmental concerns and growing need for sustainable mobility solutions are posing serious economic and social challenges for the country. Some of these changes are following:

Rising crude oil imports –an energy security challenge

Since the early 2000, India’s crude oil imports have risen exponentially reaching a record high of 4.3mb/d in 2016. The demand for oil grew by 5.1% in 2016, higher than the world’s largest net importers, the US (0.7%) and China (2.9%), making India the world’s third largest crude oil consumer.

India’s crude oil deficits stood at US$52 billion in 2017 and accounted for almost 50% of the total trade deficit of US$109 billion. This crude oil deficit is further expected to almost double to US$100 billion against the total trade deficit of US$202 billion in 2019.

Rising pollution levels –An environmental challenge

India ranks as the third largest carbon emitting country in the world accounting for 6% of the global carbon dioxide emissions from fuel combustion. According to the WHO Global Air Pollution Database (2018), 14 out of the 20 most polluted cities of the world are in India.

Rising population –A sustainable mobility challenge

India’s current population of 1.2 billion is expected to reach 1.5 billion by 2030. Out of the 1.5 billion people, 40% of the population is expected to live in urban areas compared to 34% of 2018 population projection. The additional 6% population growth is likely to further add strain on the struggling urban infrastructure in the country, including a rise in demand for sustainable mobility solutions.

Evolving global automotive market –A manufacturing transition challenge

India is the world’s fourth largest producer of internal combustion engine (ICE) based automobiles. The growth in automotive market in India has been the highest in the world, growing at a rate of 9.5% in2017. The recent shift in global automotive technology and an increasing uptake in electric vehicles is likely to pose a challenge to the existing automotive market if the country does not plan its transition towards newer mobility solutions and develop the required manufacturing competencies.

ELECTRIC MOBILITY: A POTENTIAL SOLUTIONS FOR INDIA

In India, majority of the oil demand comes from the transport sector. The sector accounts for over 40% of the total oil consumption with around 90% of the demand arising from the road transport.

By 2020, 330 mt(million tons) of carbon emissions are expected to arise from the transportation sector, 90% of which may be from road transport alone.

The premier think tank of GoI, NITI Aayog (National Institution for Transforming India), reports that India can save 64% of anticipated passenger road-based and mobility-related energy demand and 37% of carbon emissions by 2030 if it pursues electric mobility in future.

This would probably result in an annual reduction of 156 MToE in diesel and petrol consumption for 2030, saving India INR3.9 lakh crores (or ~US$60 billion (at US$52/bbl of crude)).

The cumulative savings for the tenure 2017-2030 is expected to reach 876 MToE of savings for petrol and diesel, which totals to INR 22 lakh crores (or ~US$330 billion), and 1 gigaton for carbon-dioxide emissions.

WAY FORWARD:

The Indian market needs encouragement for indigenous technologies that are suited for India from both strategic and economic standpoint.

Since investment in local research and development is necessary to bring prices down, it makes sense to leverage local universities and existing industrial hubs.

Breaking away the old norms and establishing a new consumer behaviour is always a challenge. Thus, a lot of sensitization and education is needed, in order to bust several myths and promote EVs within the Indian market.

Subsidizing manufacturing for an electric supply chain will certainly improve the EV development in India. Along with charging infrastructure, the establishment of a robust supply chain will also be needed. Further, recycling stations for batteries will need to recover the metals from batteries used in electrification to create the closed-loop required for the shift to electric cars to be an environmentally-sound decision.

CONCLUSION:

Operationalizing mass transition to electric mobility for a country of 1.3 billion people is a great challenge. Thus, a strong common vision, an objective framework for comparing state policies and a platform for public-private collaboration are needed. In the present scenario, India must need to change its energy policy- from the Middle East to Latin America.

THE CONTEXT: A November 2020 decision by the Reserve Bank of India (RBI) to permit banks to “co-lend with all registered NBFCs (including HFCs) based on a prior agreement” has led to unusual tie-ups like the one announced in December 2021 between the State Bank of India (SBI) and Adani Capital. This article analyses the issue in detail.

THE ‘CO-LENDING MODEL’

• In September 2018, the RBI had announced “co-origination of loans” by banks and Non-Banking Financial Companies (NBFCs) for lending to the priority sector. The arrangement entailed joint contribution of credit at the facility level by both the lenders as also sharing of risks and rewards”, the RBI said.
• Subsequently, based on feedback from stakeholders and “to better leverage the respective comparative advantages of the banks and NBFCs in a collaborative effort”, the central bank allowed the lenders greater operational flexibility while requiring them to conform to regulatory guidelines.
• The primary focus of the revised scheme, rechristened as ‘Co-Lending Model’ (CLM), was to “improve the flow of credit to the unserved and underserved sector of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and the greater reach of the NBFCs.

HOW DOES A CO-LENDING MODEL WORK?

• The Reserve Bank of India (RBI) came out with the co-origination framework in 2018, allowing banks and NBFCs to co-originate loans. These guidelines were later amended in 2020 and rechristened as co-lending models (CML) by including Housing Finance Companies and some changes in the framework.
• The primary aim of CLM is to improve the flow of credit to the unserved and underserved segments of the economy at an affordable cost. This happens as banks have lower costs of funds and NBFCs have greater reach beyond tier-2 centres.
• A minimum of 20 percent of the credit risk by way of direct exposure shall be on NBFC’s books till maturity and the balance are on the bank’s books. Upon maturity, the repayment or recovery of interest is shared by the bank and NBFC in proportion to their share of credit and interest.
• This joint origination allows banks to claim priority sector status in respect of their share of the credit. NBFCs act as the single point of interface for the customers and a tripartite agreement is done between the customers, banks and NBFCs.

BANK-NBFC TIE-UPS

• Several banks have entered into co-lending ‘master agreements’ with NBFCs, and more are in the pipeline.
• In December 2021, SBI, the country’s largest lender, signed a deal with Adani Capital, a small NBFC of a big corporate house, for co-lending to farmers to help them buy tractors and farm implements.
• SBI’s giant network includes 22,230 branches, 64,122 automated teller machines (ATMs) and cash deposit machines (CDMs), and 70,786 business correspondent (BC) outlets across the country. Adani Capital has a network of just 60 branches and has disbursed around Rs 1,000 crore, according to its website.
• On November 24, Union Bank of India entered into a co-lending agreement with Capri Global Capital Ltd (GCC), with the aim “to enhance last-mile finance and drive financial inclusion to MSMEs by offering secured loans between Rs 10 lakh to Rs 100 lakh” initially through “100+ touch points pan-India”.

CORPORATES IN BANKING

• While the RBI hasn’t officially allowed the entry of big corporate houses into the banking space, NBFCs, mostly floated by corporate houses, were already accepting public deposits. They now have more opportunities on the lending side through direct co-lending arrangements.
• This had come at a time when four big finance firms — IL&FS, DHFL, SREI and Reliance Capital — which collected public funds through fixed deposits and non-convertible debentures, have collapsed in the last three years despite tight monitoring by the RBI. Collectively, these firms owe around Rs 1 lakh crore to investors.
• While the RBI has referred to “the greater reach of the NBFCs”, many bankers point out that the reach of banks is far wider than small NBFCs with 100-branch networks in serving underserved and unserved segments.

WHAT TOOK SO LONG FOR CO-LENDING TO TAKE OFF?

• On several occasions, the Ministry of Finance has pushed for PSU banks to adopt co-lending models. Some of the PSU banks in the initial days had tied up with large non-banks. For instance, SBI had tied up with ECL Finance, a subsidiary of Edelweiss Financial Services, in September 2019.
• But some of these tie-ups didn’t take off as expected. According to bankers, banks and NBFCs both are open for these kinds of tie-ups, but the challenge was in execution at ground level.
• Some of the main hurdles were IT integration of systems as both banks and NBFCs would operate on different systems, different underwriting processes and parameters. All of these took a lot of time to solve for the marriage to happen.
• In the co-lending model, beyond technology challenges, the longevity of the relationship of Banks and NBFCs is a concern.
• The co-lending model is still in the nascent stages, and one may enter into an agreement, but over a period of time, the relationship should sustain.
• Most of these arrangements are with NBFCs that have sizable distribution but are low on capital. Most of the mid-sized well-rated NBFCs still opt for term loans over entering into co-lending models, given the complexities around integration and processes.

WHAT ARE THE OPPORTUNITIES?

• The co-lending model, if it takes off and is executed rightly, will ensure delivery of credit to the unserved and underserved.
• The real gap of credit exists with the segments such as small and medium businesses, credit to lower and middle-income groups, rural areas, etc.
• The opportunity can be taken up by digital lending start-ups and mid-size NBFCs, and they can actually marry their strength of distribution with bank’s funds.
• As banks are flushed with funds, they can cater to vast customers as NBFCs have reached in tier-3 and tier-4 cities. On the execution side, it really needs to be tested at ground level.

RISK IN CO-LENDING

• The move by big banks to tie up with small NBFCs for co-lending has come in for criticism from several quarters.
• Under the CLM, NBFCs are required to retain at least a 20 per cent share of individual loans on their books. This means 80 per cent of the risk will be with the banks — who will take the big hit in case of a default.
• The terms of the master agreement may provide for the banks to either mandatorily take their share of the individual loans originated by the NBFCs on their books or to retain the discretion to reject certain loans after due diligence prior to taking them on their books.
• Interestingly, the RBI guidelines provide for the NBFCs to be the single point of interface for customers and to enter into loan agreements with borrowers, which should lay down the features of the arrangement and the roles and responsibilities of the NBFCs and banks. In effect, while the banks fund the major chunk of the loan, the NBFC decides the borrower.

CAN CHANGES IN THE CO-LENDING MODEL EASE CREDIT AVAILABILITY FOR THE PRIORITY SECTOR?

Though, direct assignment in a co-lending model typically with a bank calls for various critical challenges, as below.

COMPLIANCE WITH DIRECT ASSIGNMENT GUIDELINES

• The co-lending model requires that the taking over bank shall ensure compliance with all the requirements of direct assignment guidelines except the Minimum Holding Period (MHP) requirement.
• In a traditional direct assignment transaction, the direct assignment happens for a pool of assets through execution of an assignment deed, payment of stamp duty on the deed, seeking legal opinion on true sale, among others.
• Replicating the same in co-lending would mean the execution of assignment deeds for each customer, payment of stamp duty on a case-to-case basis and so on.
• This will not only increase the documentation/ procedures but also add to the cost of lending to the end borrower.

SECURITY CREATION AND RECOVERY

• The co-lending model very conveniently mentions that the co-lenders shall arrange for the creation of security and charge as per mutually agreeable terms and same for monitoring and recovery too.
• The bank which is to typically own a larger share in the exposure, would want the security to be created in its name.
• The loan is getting disbursed by the NBFC, and the security is created before even knowing the bank’s decision on its participation. It is not practically possible to create security in the name of a bank.

TAKEOVER OF LOAN AND CREDIT ENHANCEMENT

• The transaction in the co-lending arrangement involving post disbursal takeover of the bank’s share in the loan is akin to direct assignment, and the cases will be sourced as per the pre-agreed parameters.]
• Banks still want to do a 360-degree diligence within their internal policies while cherry-picking the loans and tend to follow an ideal co-origination approach.
• PSUs have always been unconvinced about the processes and practices of NBFCs.

Bottom line: Despite its multiple operational challenges, the direct assignment mode of co-lending has done justification in drawing a lot of confidence amongst the banks. The attributing factor is the familiarity of its structure and practical aspects. Riding on the same, combined with the greater objective of leveraging the collaborative efforts effectively towards financial inclusion, would certainly garner positive results in the time to come.

THE WAY FORWARD:

• To address the huge credit gap, the co-lending model is one of the right ways to go forward, but challenges around tech integrations and ground-level executions should be addressed.
• The country’s largest lender, SBI, it is actively looking at co-lending opportunities with multiple NBFCs / NBFC-MFIs for financing farm mechanisation, warehouse receipt finance, farmer producer organisations (FPOs), etc., for enhancing credit flow to double the farmers’/individuals’ income.
• The bank entered into a co-lending agreement with Vedika Credit Capital Ltd (VCCL), Save Microfinance Pvt Ltd (SMPL) and Paisalo Digital Ltd (PDL); it is a good move.
• Finance Minister Nirmala Sitharaman in visited to Mumbai in August to meet MDs of PSU banks. The focus should be towards credit growth to support MSMEs and underserved segments.
• The necessity of making the co-lending model work to enhance affordable credit to MSME and retail sectors.
• As the economy recovers coupled with pent-up demand, these kinds of models will evolve and grow to fulfil the credit requirements of the priority sector segments.

THE CONCLUSION: The co-lending model is a necessary step to help the priority sector. Though it has many challenges, it brings confidence in India’s banking sector that is much needed to address the challenges in a pandemic time. The collaboration is an effective effort for financial inclusion would certainly garner positive results in the time upcoming time.

THE CONTEXT: An ongoing debate in India is whether or not Indian non-banking fi nancial companies (NBFCs) are “shadow banks”. This question appears important because we have learned from the ongoing global financial crisis that shadow banking might create systemic risks which have been defined “broadly as the expected losses from the risk that the failure of a significant part of the financial sector leads to a reduction in credit availability with the potential for adversely affecting the real estate and economy at large.

WHAT IS SHADOW BANKING?

• Shadow banking is a blanket term to describe financial activities that take place among non-bank financial institutions outside the scope of federal regulators. These include investment banks, mortgage lenders, money market funds, insurance companies, hedge funds, private equity funds and payday lenders, all of which are a significant and growing source of credit in the economy.
• Although these entities do not accept traditional demand deposits offered by banks, they do provide services similar to what commercial banks offer.
• The shadow banking system had overtaken the regular banking system in offering loans in US before the financial crisis erupted in 2008.

WHAT ARE THE RISKS ASSOCIATED WITH SHADOW BANKING?

• The 2008 financial crisis has shown that shadow banking can be a source of systemic risk to the banking system. The risks can be transmitted directly and through the interconnectedness of partially-regulated entities with the banking system.

WHY IS RBI TIGHTENING SHADOW BANKING RULES?

• The Reserve Bank is simply following the trend of global central banks increasing surveillance on shadow banking. Basel III norms require central banks to tighten supervision on shadow banks across the globe through steps such as defining minimum capital.

WHAT STEPS ARE RBI TAKING?

• The Usha Thorat committee has come out with draft regulations on NBFCs, such as increasing tier I capital and risk weight on certain assets. After the recommendations, smaller NBFCs with asset size of less then 25 crore are likely to go out of business.

WHAT IS THE GLOBAL SITUATION?

• The size of shadow banking has reached a record $67 trillion in 2011, according to a report by the Finance Stability Board, a regulatory task force for the world’s group of 20 economies. America has the biggest shadow banking system, followed by the Eurozone and the United Kingdom.

Key Takeaways:

• The shadow banking system consists of lenders, brokers, and other credit intermediaries who fall outside the realm of traditional regulated banking.
• It is generally unregulated and not subject to the same kinds of risk, liquidity, and capital restrictions as traditional banks are.
• The shadow banking system played a major role in the expansion of housing credit in the run up to the 2008 financial crisis, but has grown in size and largely escaped government oversight even since then.

WHY SHADOW BANKING SHOULD WORRY POLICYMAKERS?

• RBI has warned that economic disruptions may intensify systemic risks to India’s financial sector primarily because NBFCs remain vulnerable with their deteriorating asset quality and reluctance of the market to lend them money.
• The banking regulator RBI issued a clear warning in its Fiscal Stability Report, that the economic disruptions may intensify risks to its shadow banking firms, the Non-Banking Financial Companies (NBFCs), “and consequently” the systemic risks to the entire financial sector.

THREAT TO INDIA’S FINANCIAL SYSTEM

• The threats to the NBFCs come from two sources: (i) their deteriorating asset quality and (ii) continued reluctance of market to lend money in the aftermath of implosion in two leading NBFC players, Infrastructure Leasing & Financial Services Limited (IL&FS) and Dewan Housing Finance Corporation Ltd (DHFL) in 2018 and 2019. Both were taken over by the RBI for loan defaults and now face bankruptcy proceedings.
• About 50% of the NBFCs’ aggregate assets were under the moratorium on loan repayment as per the latest analysis. Banks, which have been fighting shy of lending directly to the industry because of growing threat of bad loans (non-performing assets or NPAs), increased their lending to the NBFCs in recent years, as a result of which bank lending accounted for 28.9% of the total NBFC borrowings in December 2019 – up from 23.1% in March 2017.
• The RBI noted that notwithstanding this support from banks, the real risks to the NBFCs’ liquidity come from declining market borrowings. It said that under the stress tests, 11.2% to 19.5% of NBFCs would not be able to comply with the minimum regulatory capital requirements (CRAR) of 15%.

The following graph maps the NBFCs’ assets quality (GNPA and NNPA ratios) and capital-to-risk-assets ratio (CRAR) since FY14.

In the meanwhile, the NBFCs have grown in influence, as is evident from the RBI data mapped below, against the GDP (at constant prices).

• Shadow banking not only poses a threat to India but is equally a risk to the global financial order. For better appreciation, the 2007-08 financial crisis needs to be revisited.

ENDURING OVERALL GROWTH IN SHADOW BANKING

• When the world woke up and started monitoring shadow banking, Kodres recorded the growth in their assets. In 2015, she wrote, their assets in the US was 28% of the total financial sector (down from 32% in 2011); in the euro area, it was 33% (up from 32% in 2011) and globally they accounted for $92 trillion (up from $62 trillion in 2007 and $59 trillion during the crisis).
• One big initiative to monitor shadow banking was the multinational Financial Stability Board (FSB), set up in 2011. India is a part of this initiative.
• But Kodres was not happy. She commented: “The authorities (monitoring shadow banking) are making progress, but they work in the shadows themselves – trying to piece together disparate and incomplete data to see what, if any, systemic risks are associated with the various activities, entities, and instruments that comprise the shadow banking system.”
• Initially, the FSB defined shadow banks broadly to include all entities “outside the regulated banking system that perform core banking function”, which meant credit intermediation (taking money from savers and lending it to borrowers) and they were called Non-Banking Financial Intermediation (NBFI).
• In its latest report of January 2020, the FSB divided those into three categories: (a) MUNFI (Monitoring Universe of Non-bank Financial Intermediation): “broad measure” of all NBFIs that are not central banks, banks or public financial institutions (b) OFIs (Other Financial Intermediaries): a subset of MUNFI that excludes insurance corporations, pension funds or financial auxiliaries and (c) NBFIs: “narrow measure” of NBFI comprising of non-banks that authorities have identified as the ones that may pose bank-like financial stability risks and/or regulatory arbitrage.
• The NBFIs (narrow measure) are the ones identified as posing systemic risks.

HEIGHTENED SYSTEMIC RISKS FROM SHADOW BANKING

• The 2020 FSB report shows that global estimates for the MUNFI assets stood at $183.6 trillion in 2018 or 49% of the total financial assets ($379 trillion). Of this, OFIs accounted for $114.3 trillion (30% of the total); NBFI for $50.9 trillion (13.4% of the total), and the rest for $18 trillion.
• The FSB 2020 report says the “systemic risk” comes from activities that are “typically performed by banks, such as maturity/liquidity transformation and the creation of leverage”.
• The alarming aspect of the NBFI is that it is growing.
• The FSB 2020 report says it “has grown faster than GDP since 2012, increasing to 77% of all participating jurisdictions’ GDP in 2018 from 64% in 2012. This trend is observed in most jurisdictions”.
• The FSB measures 29 jurisdictions (including India and China), representing over 80% of global GDP.

GROWTH IN INDIA’S SHADOW BANKING (NBFCS)

• What does the FSB of 2020 say about India? (India’s NBFCs correspond to the NBFIs.)  It shows India is an outlier – in a negative way.

Here are two examples –

• India recorded 22.4% growth in OFI assets in 2018, while the global growth was 0.4%.
• As for NBFIs (NBFCs in India), a major drawback is their over-dependence on short-term funding for long-term lending (technically called EF2 function).
• Globally, such funding accounted for 7% of the total in 2018 and it grew 6.9%. In sharp contrast, India recorded a 17.4% growth in 2018. As for its share in the total NBFC funding, the RBI’s banking trend report released in December 2017 revealed that it stood at an unbelievably high of 99.7%.
• In the NBFC context, short-term means a period of up to three years and long-term for up to 15 years, as in the case of housing and infrastructure loans. Why such anomaly continues in the NBFCs’ functioning is an abiding mystery.
• Little wonder, when the NBFC crisis hit India in 2018 and 2019, the two big players to implode (IL&FS and DHIL) were associated with infrastructure and housing sectors, though this is only one part of the saga.

IS SHADOW BANKING A SERIOUS THREAT IN EMERGING MARKETS?

• The IL&FS crisis has exposed the vulnerabilities of non-bank lending. But in India,the problem is one of a huge bad debt pile-up despite low credit disbursal.
• Everyone seems to have woken up to the fact that global debt levels are too high and portent difficulties ahead. As Figure 1 indicates, the levels of credit to GDP, which were so high as to be unsustainable and resulted in the big crisis of 2008, have increased even more since then.
• There was a phase of deleveraging in the advanced economies until around 2014, and in developing countries and emerging markets until 2011, but since then, credit/debt has been expanding again.
• So much so that the credit GDP levels in 2017 were 15 per cent higher than in 2008 in the advanced economies, and more than 80 per cent higher for emerging markets (Figure 1).
• More recently, the attention has shifted from bank lending to shadow banking activities, which are by those institutions that do not collect deposits but still provide loans. These include a variety of institutions, ranging from trusts, investment funds and similar corporations to kerb lenders.
• Because they do not come under the regulatory framework for banks, yet tend to be interlinked with them in various ways, there are concerns that over lending and default in such institutions can destabilise the financial system.

LINGERING FRAGILITIES

• Ever since the IL&FS crisis broke in India, there has been much discussion of the fragilities posed by non-bank lending and the potential for financial and economic crises in emerging markets that could be led by the collapse of shadow banks. This is in no small measure due to the significant role played by such shadow lending in the core capitalist countries (especially the US) in the build-up to the Great Financial Crisis in 2008.
• However, since then, shadow lending appears to have reduced, or at least been contained relative to GDP, as indicated by Figure 2. For the G20 countries taken as a group, credit from non-banks as a per cent of GDP was about 6 percentage points lower in 2017 than in 2007, while bank credit had actually increased by 15 percentage points. This suggests that excessive debt creation is much more a problem of the banking sector as a whole than the non-bank or shadow bank sector.
• Table 1 provides data for some important advanced and emerging economies to assess the extent to which this argument is valid. Significantly, the reliance on shadow banking appears to have reduced significantly in the advanced economies by 2015-17 from what it was during 2008-10, other than in Germany where it seems to have remained at roughly the same level of around 30 per cent. Even the increase in bank credit was confined to Japan and South Korea, rather than the US, UK or Germany, where it has fallen relative to the levels of 2008-10.

WAY FORWARD:

• It is also increasingly suggested that the problem of shadow banking has become more significant in emerging markets rather than in advanced economies, and that the dramatic increase in such loans in these economies is what will be associated with the next big systemic risk to global finance.
• In particular, it is suggested that the rapid increase of shadow banking in Asia, especially China, points to the likely area of greatest future concern.

CONCLUSION:

NBFC sector has been stung by a crisis set off by the shock collapse of non-bank lender IL&FS group in 2018. India’s shadow banks, which lend to everyone from teashop merchants to property tycoons, get a mixed bill of health in Bloomberg’s latest check. Revitalization of the industry, whose woes mounted when major mortgage lender Dewan Housing Finance Corp. missed repayments, is key to helping staunch a further slowdown in the nation’s economy. In a sign that creditors remain jittery, borrowing costs rose. The extra yield investors demand to hold five-year AAA rated bonds from shadow banks over government notes increased, one of the gauges shows. Shadow lender woes have made it harder for policy makers to prop up the economy, which grew at its weakest pace since 2009. The slowdown hurts borrowers’ ability to repay debt, and has prompted the central bank to predict that an improvement in banks’ bad-loan ratios will reverse. So, it is established that Indian NBFCs are shadow banks and they do pose systemic risks to certain extent. Hence, the RBI should make a long term policy for Indian NBFC sector to mitigate any risk that may crop up in the already fragile financial sector in India.

THE CONTEXT: The Indian government was planning to introduce a Bill, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 during the recently concluded Winter Session of the Parliament to classify cryptocurrencies as financial assets while protecting the interests of small investors. The Bill also proposes to lay the groundwork for the creation of the official digital currency to be issued by the Reserve Bank of India (RBI) and regulated under the RBI Act.

Note: The Bill has not been introduced in the Winter Session.

WHAT IS CRYPTOCURRENCY?

A cryptocurrency is a medium of exchange such as the Indian Rupee, US dollar etc. Bitcoin, the first cryptocurrency, appeared in January 2009 and was the creation of a computer programmer using the pseudonym Satoshi Nakamoto.

The term cryptocurrency is used because the technology is based on public-key cryptography, meaning that the communication is secure from third parties. This is a well-known technology used in both online transactions and communication systems.

Public key cryptography involves a pair of keys known as a public key and a private key (a public key pair), which are associated with an entity that needs to authenticate its identity electronically or to sign or encrypt data. Each public key is published, and the corresponding private key is kept secret. Data that is encrypted with the public key can be decrypted only with the corresponding private key.

CRYPTOCURRENCY V/S NORMAL CURRENCY

Cryptocurrency

• Like the US dollar, cryptocurrency has no intrinsic value. Therefore, it is not redeemable for another commodity such as gold.
• Cryptocurrency is not backed by any central bank
• Cryptocurrency doesn’t have any physical form
• Its supply is not determined by a central bank and the network is completely decentralized, with all transactions performed by the users of the system.

US Dollar ($) or Indian currency (₹)

• It also has no intrinsic value.
• It is a legal tender, which implies it is backed by a central bank or the government. Thus, banks cannot refuse to accept it.
• The currency does have a physical form
• Its supply is determined by the central bank on the basis of inflation or contractionary or expansionist fiscal policies.

WHY DO CRYPTOCURRENCIES NEED TO BE REGULATED?

PREVENT MARKET MANIPULATION AND PROTECT INVESTORS:

• Market manipulation and price volatility are common in cryptocurrencies. Take, for example, Bitcoin, the world’s oldest and most popular cryptocurrency, which rose to all-time highs since the beginning of 2021, before plummeting and losing a huge amount of its value.
• So, the lack of authorised information on these digital assets and the technological complexities associated with them makes it imperative to put regulations in place for safeguarding investors.

PROVIDING MARKET INFORMATION

• Thousands of cryptocurrencies exist around the world. Most investors, however, are only familiar with a few of those, such as Bitcoin, Ether, Ripple, and Dogecoin among others. They hardly have any knowledge about the thousands of other virtual assets.
• So, to protect customers, a regulatory authority clearing cryptocurrency is required, which can disclose all information about the performance of the digital assets, their risks, and potential.

UNDERSTANDING RISKS ASSOCIATED WITH TECHNOLOGY

• Technology is advancing at a breakneck pace. This carries a significant danger, as such changes have the potential to render technology, including blockchain, outdated in the future.
• Given the rapid rate of technological change, information infrastructure and professional financial advisors skilled in cryptocurrency are required. That way, investors can understand the technological risks of cryptocurrencies and make informed decisions.

ENSURING ACCOUNTABILITY

• Investing in cryptocurrencies comes with another risk — online fraud. Hacking is a major threat worldwide, and cyber-attacks have become common. One cyber-attack could result in losses for investors who have put their savings in cryptocurrencies.
• Through regulations, the authorities can implement measures to help cryptocurrency investors protect their assets. Also, investors can address concerns or reclaim their investments in case they lose them.

MONEY LAUNDERING

• Any unregulated system has the ability to fund criminal acts. As a result, a client due diligence process akin to that of a bank is required.
• For long, it was theoretical that cryptos could be used for money laundering and for terror financing. Recently, it turned out that the Enforcement Directorate of India had identified that using cryptos, Rs 4,000 crores has been laundered out of India in the last one year.
• This can help in keeping track of investors’ real identities and verifying their locations when they are buying or selling cryptocurrencies. Any infringement of such norms should be met with severe sanctions.

TAX ON THE TRANSACTIONS

• Nearly 10 crore Indians already have investments exceeding a total of $10 million in them.
• This not only creates an avenue for the generation of tax revenue for the nation but also puts forth a Herculean challenge for the tax authorities who must track and tax transactions involving cryptocurrencies.

WHAT HAS BEEN THE STEPS TAKEN BY THE GOVERNMENT TO REGULATE THE CRYPTOCURRENCY?

Currently, there is no regulation or any ban on the use of cryptocurrencies in the country. The Reserve Bank of India’s (RBI) order banning banks from supporting crypto transactions, was reversed by the Supreme Court order of March 2020.

HERE WE EXAMINE THE REGULATORY JOURNEY OF CRYPTOCURRENCY IN INDIA SO FAR.

• In 2013, the Reserve Bank of India (RBI) issued a circular warning to the public against the use of virtual currencies. The bank warned users, holders, and traders of virtual currencies about the potential financial, operational, legal, customer protection, and security-related risks they are exposing themselves to.
• The central bank pointed out that it has been keeping a close eye on developments in the virtual currency world, including Bitcoins, Litecoins, and other altcoins.
• But as banks continued to allow transactions on cryptocurrency exchanges — on February 1, 2017, RBI released another circular, reiterating its concerns with virtual coins. And by the end of 2017, a warning was issued by RBI and the finance ministry clarifying that virtual currencies are not legal tender.
• At the same time, two Public Interest Litigations (PILs) were filed in the Supreme Court, one asking for a ban on buying and selling of cryptocurrencies in India, the other asking for them to be regulated. In November, the government formed a committee to study issues around virtual currencies and propose actions.
• At this time, there was no ban on cryptocurrencies and most banks allowed transactions from cryptocurrency exchanges.

2018-2020

• In March 2018, the Central Board of Direct Tax (CBDT) submitted a draft scheme to the finance ministry for banning virtual currencies.
• A month later, the RBI issued a circular that restrained banks and financial institutions from providing financial services to virtual currency exchanges.
• In April 2018, the finance ministry appointed committee proposed a draft Bill for the regulation of virtual currencies but did not recommend a ban. However, in February 2019, the committee proposed a fresh draft Bill that recommended a blanket ban.
• In March 2020 a significant development took place, the Supreme Court of India lifted the curb on cryptocurrency imposed by RBI, which restricted banks and financial institutions from providing access to banking services to those engaged in transactions in crypto assets.

2021

• In November 2021, the Standing Committee on Finance met representatives of crypto exchanges, Blockchain and Crypto Assets Council (BACC), among others, and came to the conclusion that cryptocurrencies should not be banned, but regulated.
• In the same month, Prime Minister Narendra Modi called a meeting on cryptocurrencies with senior officials. The indications are that strong regulatory steps will probably be taken to deal with the issue.
• Meanwhile, the Reserve Bank of India has repeatedly underlined its strong view against cryptocurrencies, saying these pose a serious threat to the macroeconomic and financial stability of the country. It has also raised doubts about the number of investors trading on cryptocurrencies and their claimed market value.
• During the winter session, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was listed for introduction in Parliament’s. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.

Although, Government wants to regulate cryptocurrencies, RBI in a complete ban on such currencies. In December 2021 RBI Said that “Cryptocurrencies are a serious concern to RBI from a macroeconomic and financial stability standpoint”.

SO, IF BITCOIN IS LEGALISED IN INDIA, THE FOLLOWING WOULD HAPPEN:

• It would fall under the purview of RBI’s 1934 Act.
• Its investors would be taxed.
• RBI would issue guidelines regarding investment and purchase of Bitcoin.
• If any foreign payment is made through Bitcoins, it would fall under the purview of the FEMA Act.
• Returns from investment in Bitcoin would be taxed.

HOW THE CRYPTOCURRENCIES ARE BEING REGULATED AROUND THE WORLD?

• United States:The US has regulations under the central and state governments (similar to India), which means that rules differ from state to state. The overall sentiment, however, is positive.
• China:China has been the harshest towards cryptocurrencies, moving from initially welcoming crypto mining to completely banning it as of June 2021.
• United Kingdom:The UK does not have specific legislation on cryptocurrencies and the sector is currently governed by the Financial Conduct Authority (FCA), which grants licenses for crypto businesses and exchanges.
• El Salvador: The South American country became the first to officially declare Bitcoin legal tender.

THE BLOCKCHAIN TECHNOLOGY AND ITS USE IN CRYPTOCURRENCY

1. The blockchain is the technology underlying Bitcoin and other cryptocurrencies. In the blockchain, the data is stored in the cloud network. In the case of Bitcoin, the decentralized public ledger takes the place of cloud storage that keeps a record of all transactions that take place across the peer-to-peer network.
2. This technology allows participants to transfer assets across the Internet without the need for a broker or an intermediary (central third party).
3. Blockchain technology uses public-key cryptography to secure transactions. Public-key cryptography employs two keys: a public key and a private key. An individual party to the crypto transaction will have a public key and a private key. The public key is widely distributed across the network, while the private key is a secret key for the individual.
4. Using a private key, a digital signature can be created so that anyone with the corresponding public key can verify that the message was created by the owner of the private key and was not modified since (See the diagram: Digital Signature).
5.  Using this a transaction record is created. One transaction record is called one block. When other transactions happen in the future, those transactions are recorded once again in a block and connected to the earlier block in a chain network. This chain of transactions from the source of origin to the end is called the blockchain. Thus, you can backtrace the source money by travelling back in the chain.
6. Given the latest block, it is possible to access all previous blocks linked together in the chain, so a blockchain database retains the complete history of all assets and instructions executed since the very first one – making its data verifiable and independently auditable.

FEATURES OF BLOCKCHAIN

• Data is stored in a decentralized cloud network. In the case of Bitcoin, this cloud is the public transaction ledger.
• Blockchain code is resistant to counterfeiting since data once added, can’t be reversed.
• Data security is enabled by public-private key cryptography.

WHAT ARE THE DIFFERENCES BETWEEN PUBLIC AND PRIVATE BLOCKCHAINS?

There are different types of blockchain: some are open and public and some are private and only accessible to people who are given permission to use them.

PUBLIC BLOCKCHAIN

• A public blockchain is an open network. Anyone can download the protocol and read, write or participate in the network.
• A public blockchain is distributed and decentralised. Transactions are recorded as blocks and linked together to form a chain. Each new block must be time stamped and validated by all the computers connected to the network, known as nodes before it is written into the blockchain.
• All transactions are public, and all nodes are equal. This means a public blockchain is immutable: once verified, data cannot be altered.
• The best-known public blockchains used for cryptocurrency are Bitcoin and Ethereum: open-source, smart contract blockchains.

PRIVATE BLOCKCHAIN

• A private blockchain is an invitation-only network governed by a single entity.
• Entrants to the network require permission to read, write or audit the blockchain. There can be different levels of access and information can be encrypted to protect commercial confidentiality.
• Private blockchains allow organisations to employ distributed ledger technology without making data public.
• But this means they lack a defining feature of blockchains: decentralisation. Some critics claim private blockchains are not blockchains at all, but centralised databases that use distributed ledger technology.
• Private blockchains are faster, more efficient and more cost-effective than public blockchains, which require a lot of time and energy to validate transactions.

ADVANTAGES OF BLOCKCHAIN IN THE INDIAN CONTEXT

1. Online voting: With a unique digital identity to identify the voter and a private key, online voting can be facilitated. Since blockchain doesn’t allow reversing the data once entered, every voter using this option can exercise this privilege only once.
2. To trace black money: Provided people become completely cashless and shift to digital transactions. That is the biggest challenge since this operates on a digital network. Most blockchains are entirely open-source software. This means that anyone and everyone can view its code. This gives auditors the ability to review cryptocurrencies like Bitcoin for security.
3. Improve the efficiency of the approval process in the social benefits scheme: If personal health record is stored on a cloud network and secured with blockchain, every single addition of data by a medical practitioner will be recorded and connected to earlier blocks of data. Tracing the sequence of earlier treatments and medical tests will reduce the duplication of the same tests and treatment. This will make the process of approval of health insurance policies faster and more efficient. This is what Estonia has done and can be used in the Indian context to improve the efficiency of medical insurance schemes faster. Additionally, since the data is stored in the cloud, some person can sell it for clinical trials or experiments or research to a pharma company within a few seconds, since the digital data can be transferred in a few mouse clicks.
4. Reduces chances of fraud: Since all the data is stored in the cloud and encrypted and can be transferred across platforms, it will help to reduce frauds since this can be checked immediately. For e.g., if all the banks and insurance companies collaborate the data of blacklisted people on a common blockchain platform that they can check, chances are rare that the person under suspicion will be able to commit the same once again.  Since every single payment will be recorded on the blockchain network and transparent to authorized people on the blockchain network, it will reduce the chances of scams.
5. To reduce the burden of pending cases on courts: If all the land records are digitized and stored on the blockchain, each and every transaction can be back-traced with complete details including the identity of the person, time and place when the land title was transferred etc. This will help to immediately trace out frauds.
6. Protection of Aadhaar data by creating a Dynamic registry (a distributed database that updates as assets are exchanged on the digital platform: Since the blockchain stores all the records including, when the transaction has happened, who stored the data, who added value to it, it can be used to trace when and from where my Aadhar data was accessed by whom. This will help to trace the source of leakage if any fraud has happened by using Aadhar data.

WHAT ARE THE CURRENT BOTTLENECKS IN REGULATING CRYPTO?

TYPE OF REGULATION

• The Industry bodies demand self-regulation by crypto exchanges while the RBI wants complete ban. The government has set up committees and which said regulation by government. Thus, there seems to be divergence on this aspect.

WHETHER CRYPTO CAN BE REGULATED AT ALL?

• Some analysts point out that it is nearly impossible to regulate crypto currencies as they simply move to P2P exchanges outside India, may use hawala type informal system to get around regulation.
• Crypto exchanges that are operating outside India and accessible from India just like any other internet-based service will not follow the laws of the Indian government.
• How can one enforce any regulation brought in by the government in such a case?

CURRENCY OR COMMODITY?

• Cryptocurrency itself is a misnomer as its legal existence in most countries is that of a commodity and not a currency. What it implies is that most countries globally do not accept cryptos as legal tender.
• In the Indian context, this aspect need to be made clear and the regulation need to tailored accordingly

CAPACITY TO REGULATE

• Crypto is a cutting edge technological innovation that is being improved upon day by day. Thus to regulate them, the regulator should have the expertise, technical capacity etc.
• Whether the country especially the government sector has the talent pool is a debatable issue.

ISSUE OF PRIVATE AND PUBLIC  CRYPTO CURRENCY

• The Bill seeks to ban all private crypto currencies in India with some exceptions. But since the Bill is not in the open, what is public crypto and private crypto is open to interpretation.
• Whether the Central Bank Digital Currency will be the public crypto that will be allowed is also not clear?
• If RBI regulates crypto and is itself a player, that would create conflict of interest is another issue.

THE WAY FORWARD:

• Banning cryptocurrency is not a viable solution, so it must be regulated. Banning will lead to underground activities and people will continue illegal trading of these currencies.
• The decision for banning/regulation should be based on consensus and it should not be taken in a hurry.
• India can learn from other countries how to regulate such currencies and how to tax them (for example, Israel).
• Digital currencies have the potential to solve many issues, India needs to use it utility.
• Accepting cryptocurrency allows scope for effective regulation. RBI has already expressed interest in blockchain technology and is even planning to introduce its own Digital Rupee, much like the Digital Yuan. This entry into the e-money market could well be a balancing act by the RBI, perhaps making it a more acceptable fiat than crypto, while being well within the ambit of regulation.
• Cryptocurrency opens great opportunities for the economy. It poses an intriguing ‘regulator’s dilemma’ – striking a balance between technological progress ushering financial innovation while remaining as sovereign authority. The central bank can investigate what constitutes crypto and technologies like blockchain to assess its role in the value chain instead of banning it altogether.
• A comprehensive crypto currency Bill is the need of the hour.

THE CONCLUSION: India is considered an inspiration when it’s comes to frugal innovation. Combing the advantage of a highly skilled workforce in IT Sector, Artificial intelligence and encrypted data stored on the blockchain, India can be a scale up the efficiency of the delivery of its various schemes and the pace of delivery of justice. The need of the hour is to develop an architecture or an institution that can implement this at the grassroots level.

THE CONTEXT: December 12 marked the five-year anniversary of the Paris Agreement. The international community, including the European Union (EU) and India, gathered at the Climate Ambition Summit 2020 to celebrate and recognize our resolve in working towards a safer, more resilient world with net-zero emissions.

ABOUT PARIS AGREEMENT

• The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 Parties at COP 21 in Paris, on 12 December 2015 and entered into force on 4 November 2016.
• Its goal is to limit global warming to well below 2, preferably to 5 degrees Celsius, compared to pre-industrial levels.
• To achieve this long-term temperature goal, countries aim to reach global peaking of greenhouse gas emissions as soon as possible to achieve a climate neutral world by mid-century.
• The Paris Agreement is a landmark in the multilateral climate change process because, for the first time, a binding agreement brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects.

IMPLEMENTATION OF PARIS AGREEMENT

Implementation of the Paris Agreement requires economic and social transformation, based on the best available science. The Paris Agreement works on a 5- year cycle of increasingly ambitious climate action carried out by countries. By 2020, countries submit their plans for climate action known as nationally determined contributions (NDCs).

Nationally Determined Contributions (NDCs)

In their NDCs, countries communicate actions they will take to reduce their Greenhouse Gas emissions in order to reach the goals of the Paris Agreement. Countries also communicate in the NDCs actions they will take to build resilience to adapt to the impacts of rising temperatures.

Long-Term Strategies

To better frame the efforts towards the long-term goal, the Paris Agreement invites countries to formulate and submit by 2020 long-term low greenhouse gas emission development strategies (LT-LEDS).

LT-LEDS provide the long-term horizon to the NDCs. Unlike NDCs, they are not mandatory. Nevertheless, they place the NDCs into the context of countries’ long-term planning and development priorities, providing a vision and direction for future development.

Is the Paris agreement binding?

The legal nature of the deal–whether it will be binding–had been a hotly debated topic in the lead up to the negotiations. The agreement walks a fine line, binding in some elements like reporting requirements, while leaving other aspects of the deal—such as the setting of emissions targets for any individual country—as non-binding.

Difference between Paris Climate and Kyoto Protocol

• The Kyoto Protocol had a differentiation between developed and developing countries listed as Annex 1 countries and non-Annex 1 countries But, in the Paris agreement, there is no difference between developing and developed countries.
• The Kyoto Protocol aimed at 6 major greenhouse gases but the Paris Agreement is focused on reducing all anthropogenic greenhouse gases causing climate change.

Talanoa dialogue

• The UNFCCC Climate Change Conference (COP23) was held in Bonn, Germany and was presided over by Government of Fiji. It concluded with countries putting in place a roadmap for ‘Talanoa Dialogue’, a year-long process to assess countries’ progress on climate actions.

What is Talanoa?

• Talanoa is a traditional approach used in Fiji and the Pacific to engage in an inclusive, participatory and transparent dialogue;
• The purpose of Talanoa is to share stories, build empathy and trust;
• During the process, participants advance their knowledge through common understanding;
• It creates a platform of dialogue, which results in better decision-making for the collective good;
• By focusing on the benefits of collective action, this process will inform decision-making and move the global climate agenda forward.

The significance of Talanoa dialogue

• The goal of the Paris Agreement on climate change, as agreed at the Conference of the Parties in 2015, is to keep global temperature rise this century to well below 2 degrees Celsius above pre-industrial levels. It also calls for efforts to limit the temperature increase even further to 1.5 degrees Celsius.

The Under2 Coalition

• The Under2 Coalition is a coalition of subnational governments that aims to achieve greenhouse gases emissions mitigation. It started as a memorandum of understanding, which was signed by twelve founding jurisdictions on May 19, 2015 in Sacramento, California. Although it was originally called the Under2 MOU, it became known as the Under2 Coalition in 2017.
• As of September 2018, the list of signatories has grown to over 220 jurisdictions which combined encompasses over 1.3 billion people and 43% of the world economy.
• The intent of the memorandum signatories is for each to achieve Greenhouse gas emission reductions consistent with a trajectory of 80 to 95 percent below 1990 levels by 2050and/or achieving a per capita annual emission goal of less than 2 metric tons by 2050.
• Currently, Telangana and Chhattisgarh are signatories to this pact from India, as compared to representations from the other top emitters: 26 subnational governments in China and 24 in the U.S. Greater representation of Indian States is crucial.

FRAMEWORK OF PARIS AGREEMENT

The Paris Agreement provides a framework for financial, technical and capacity building support to those countries who need it.

Finance

The Paris Agreement reaffirms that developed countries should take the lead in providing financial assistance to countries that are less endowed and more vulnerable, while for the first time also encouraging voluntary contributions by other Parties. Climate finance is needed for mitigation, because large-scale investments are required to significantly reduce emissions. Climate finance is equally important for adaptation, as significant financial resources are needed to adapt to the adverse effects and reduce the impacts of a changing climate.

Technology

The Paris Agreement speaks of the vision of fully realizing technology development and transfer for both improving resilience to climate change and reducing GHG emissions. It establishes a technology framework to provide overarching guidance to the well-functioning Technology Mechanism. The mechanism is accelerating technology development and transfer through it’s policy and implementation arms.

Capacity-Building

Not all developing countries have sufficient capacities to deal with many of the challenges brought by climate change. As a result, the Paris Agreement places great emphasis on climate-related capacity-building for developing countries and requests all developed countries to enhance support for capacity-building actions in developing countries.

ENHANCED TRANSPARENCY FRAMEWORK (ETF)

With the Paris Agreement, countries established an enhanced transparency framework (ETF). Under ETF, starting in 2024, countries will report transparently on actions taken and progress in climate change mitigation, adaptation measures and support provided or received. It also provides for international procedures for the review of the submitted reports.

The information gathered through the ETF will feed into the Global stocktake which will assess the collective progress towards the long-term climate goals.

This will lead to recommendations for countries to set more ambitious plans in the next round.

INDIA AND PARIS AGREEMENT

India has not only achieved its targets but has exceeded them beyond expectations as per the Prime Minister. He delivered a virtual speech at the Climate Ambition Summit that India has reduced its global emissions by 21 percent compared to 2005 and is on its way to do more.

• India mentioned that it has not caused the climate change crisis and it is meeting its obligations under the Paris Climate Accord.
• It stated that the developed nations have been the highest carbon emitters and thus, were responsible for global warming.
• It mentioned that besides India, only Bhutan, the Philippines, Costa Rica, Ethiopia, Morocco and Gambia were complying with the accord.

India’s Intended Nationally Determined Contribution (INDC)

• To reduce the emissions intensity of its GDP by 33 to 35 percent by 2030 from 2005 level.
• To create an additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional forest and tree cover by 2030.
• A total of 40% of the installed capacity for electricity will be from non-fossil fuel sources.

India’s effort to address Climate Change

The Government of India has launched eight Missions under the National Action Plan on Climate Change (NAPCC) for assessment of the impact and actions required to address climate change. These eight missions are:

1. National Solar Mission
2. National Mission for Enhanced Energy Efficiency
3. National Mission on Sustainable Habitat
4. National Water Mission
5. National Mission for Sustaining the Himalayan Ecosystem
6. National Mission for A Green India
7. National Mission for Sustainable Agriculture
8. National Mission on Strategic Knowledge for Climate Change

Recent developments

• India has achieved a reduction of 21% in emission intensity of its GDP between 2005 and 2014, which fulfills its pre-2020 voluntary target.
• The Renewable energy installed capacity has increased by 226% in the last 5 years and stands more than 87 GW.
• The Government has provided 80 million LPG connections in rural areas, providing them with clean cooking fuel and a healthy environment.
• More than 360 million LED bulbs have been distributed 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.
• It leapfrogged from Bharat Stage-IV (BS-IV) to Bharat Stage-VI (BS-VI) emission norms by April 1, 2020 which was earlier to be adopted by 2024.

FIVE YEARS AFTER PARIS AGREEMENT

All states have submitted their national contributions to mitigate and adapt to climate change. Distant hypothetical targets are being set. Seems like we are still speeding in the wrong direction or we are lagging far behind.

(1) Unclear targets and response

The world is still unclear since five years as to how the net-zero pledges will translate into shorter term targets. Few of the countries that have announced ambitious long-term goals have implemented national policies to reach them in time.

(2) Degradation isn’t stopped

Meanwhile, we continue to destroy the world’s carbon sinks, by cutting down forests – the world is still losing an area of forest the size of the UK each year, despite commitments to stop deforestation – as well as drying out peatlands and wetlands, and reducing the ocean’s capacity to absorb carbon from the air.

(3) Countries aren’t scaling up their targets

Although 151 states have indicated that they will submit stronger targets before December 31, only 13 of them, covering 2.4 per cent of global emissions, have submitted such targets. While states have been slow to update their national contributions for 2025-2030, several have announced exaggeratedly high “net zero” targets in the recent past.

WAY FORWARD:

• The Paris agreement still provides the best hope of avoiding the worst ravages of climate breakdown: the question is whether countries are prepared to back it up with action, rather than more hot air.
• Renewing the shorter term commitments is the best way ahead.
• Making promises for the 2050s-60s is one thing, but major policy changes are needed now to shift national economies on to a low-carbon footing.
• None of these (net zero) targets will be meaningful without very aggressive action in this decade. Diplomacy is inevitably a tool in global climate action.

CONCLUSION:

For many, there is a mismatch between short-term actions and long-term commitments. A credible short-term commitment with a clear pathway is the key. Not all states will be in a position to pledge net-zero targets, nor should they be expected to. All states, including India, can, however, pledge actions that are credible, accountable and fair. Our real test on climate change is on building a new domestic consensus that can address the economic and political costs associated with an internal adjustment to the prospect of a great global reset.

THE CONTEXT: On February 11, 2022,the Securities and Exchange Board of India (SEBI) passed an order involving the country’s largest stock exchange-The National Stock Exchange. Apart from highlighting the issue of corporate misgovernance, the whole episode has raised questions on the role of the capital market regulator. In this article, we examine the issue in detail.

ALL YOU NEED TO KNOW ABOUT THE NSE IMBROGLIO

THE SEBI FINDINGS

• The National Stock Exchange (NSE)’s former Managing Director (MD) and Chief Executive Officer (CEO) is penalized for misusing her office for:
• making appointments,
• concealing confidential information pertaining to operations of the exchange,
• and making incorrect and misleading submissions to the Securities and Exchange Board of India (SEBI).
• The regulator states that her unknown spiritual guru influenced her decision making.
• The former NSE Chief is also being examined for a case registered in May 2018 pertaining to alleged abuse of a trading software of the exchange and the SEBI order comes in this backdrop (Read Ahead).

IMPROPER PERSONNEL MANAGEMENT

• The former NSE head appointed a person as the Chief Strategic Officer (CSO) of the exchange despite the latter not having any exposure to capital markets.
• SEBI notes that the exchange had not advertised any vacancy pertaining to the appointment of CSO
• SEBI notes that his previous work experience was not relevant to his new consultancy position at NSE. With recurrent appraisals and performance ratings, his compensation rose to ₹4.21 crore within two years(1.8 crore when he joined)

DIVULGING CONFIDENTIAL INFORMATION

• The regulator found the former NSE Chief guilty of divulging confidential information pertaining to the NSE’s organizational appointments, financial results and projections, dividend pay-out ratio and board meeting consultations to her unknown spiritual guru.

FAILURE OF THE NSE BOARD

• The NSE Board was found guilty of not informing the market’s regulator and opting to keep it under wraps.

PENALTIES IMPOSED

• The former NSE Chief has been forbidden from dealing in stocks, etc. for a period of three years, alongside a penalty of ₹3 crore.
• The erstwhile CSO has been restrained from associating with any market infrastructure institution or an intermediary for three years. He would also have to pay a penalty of ₹2 crore.
• NSE has been ordered not to launch any new product for the next six months.

AN ANALYSIS OF THE NSE SCAM?

BLOW TO CAPITAL MARKETS

• The NSE is a Market Infrastructure Institution that provides facilities for trading stocks and other products in the capital market.
• The scam has sent alarm bells to the investors and trading community and even has the potential to undermine the economic security of the nation apart from hugely denting investors’ confidence.
• The government has already indicated that it will initiate measures to sustain investors’ confidence in the Indian capital market.

POOR CORPORATE GOVERNANCE

• The approach by the Board of NSE amounted to a cover-up of the entire episode so that no outsider, including the regulator, would ever come to know.
• The public interest and shareholder directors collectively decided to not document the board discussion with respect to the irregularities of the management, thereby abdicating their primary responsibilities.
• Instead of sacking her, the Board allowed her to resign with respectable compensation and buried the matter, reflecting the complete collapse of corporate governance in NSE.

REWARDING MALFEASANCE

• The entire Board’s complicity is further indicated by the fact that, despite being aware that the MD-cum-CEO was divulging confidential information of the NSE to an anonymous individual and had recruited and excessively rewarded another individual, the Board allowed her to resign on December 2, 2016.
• For good measure, the Board placed on record her “sterling contribution and approved a 44-crore severance package!

CONDUCT OF DIRECTORS OF GOVT COMPANIES/BANKS

• Senior executives of the LIC, the SBI group and the Stock Holding Corporations etc, are part of the BoD who are delegated to protect the interests of their companies. But they have not raised any alarm but went along with the questionable approach of the management.
• Their role highlights a troubling issue that when they are on the Board of prominent private sector companies, they apparently abandon their own companies.
• And it also seems they are ready to align themselves and take instructions from the executive management of the private sector companies. It raises questions for the public about how the parent companies themselves are managed.

REGULATOR’S CONDUCT

• The SEBI’s order on the NSE saga and the delay of six years in concluding the probe raises troubling questions on the regulator’s role (Read Ahead)

A SERIES OF SCAMS IN NSE

• The current scam comes in the backdrop of a progressing CBI led investigation into the co-location scam and other glaring irregularities in NSEs.
• This point out that the NSE’s financial success and near-monopoly has clouded the judgement of the NSE leadership or they believe to be above the rule of law.

WHAT IS THE CO-LOCATION SCAM?

WHAT ARE CO-LOCATION FACILITIES?

• There are dedicated spaces in the exchange building, right next to the exchange servers, where high-frequency and algo traders can place their systems or programs.

BENEFITS OF THESE FACILITIES

• With the co-location facilities being extremely close to stock exchange servers, traders here have an advantage over other traders due to the improvement in latency (time taken for order execution).
• But the co-location is mainly used only by institutional investors and brokers for their proprietary trader. Retail investors have a negligible presence here.

UNFAIR ACCESS TO SERVERS

• The scam in NSE’s co-location facility took place almost a decade ago. It was alleged that one of the trading members, OPG Securities, was provided unfair access between 2012 and 2014 that enabled him to log in first to the server and get the data before others in the co-location facility.
• It was alleged that the owner and promoter of said private company abused the server architecture of NSE in conspiracy with unknown officials of NSE, SEBI etc.
• This preferential access allowed the algo trades of this member to be ahead of others in the order execution.

ROLE OF WHISTLEBLOWER AND MEDIA

• The scam came to light due to a whistle-blower’s complaint to SEBI in 2015, in which the entire modus operandi of the people gaming the system was laid out.
• When Money life(a media outlet) exposed the scam, the NSE management adopted a high-handed attitude, slapping a ₹100 crore defamation suit against Money life.
• The matter moved to Bombay High Court, which came down hard on NSE and dismissed its suit. Further, NSE was told to pay ₹50 lakh as the penalty for its arrogant attitude in responding to the media.

EXTENT OF LOSS

• The point to note is that there is no way of proving any loss to any investors or traders due to this scam. The SEBI order of 2019 directed OPG Securities and its directors to disgorge unfair gains of ₹15.7 core with the interest of 12 per cent from April 7, 2014, as a notional loss.

PENALTY ON NSE

• In 2016, SEBI asked NSE to carry out a forensic audit of its systems and deposit the entire revenue from its co-location facilities into an escrow account. Deloitte was tasked with the job of conducting a forensic audit of NSE’s systems.
• In 2019, SEBI passed its order on the issue, asking NSE to pay ₹625 crore with an interest of 12 per cent and also barred NSE from raising money from stock market for six months.

CORRECTIVE MEASURES

• NSE has changed its order execution protocol in the co-location facility to Multicast TBT from April 2014, thus plugging the loophole that allowed some to game the system.

THE SECURITIES AND EXCHANGE BOARD OF INDIA: AN OVERVIEW

CONSTITUTION OF SEBI

• The Securities and Exchange Board of India was constituted as a non-statutory body on April 12, 1988, through a resolution of the Government of India.
• The Securities and Exchange Board of India was established as a statutory body in the year 1992 and the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) came into force on January 30, 1992.

PROTECTIVE FUNCTION OF SEBI

• Checking price rigging
• Prevent insider trading
• Promote fair practices
• Create awareness among investors
• Prohibit fraudulent and unfair trade practices

REGULATORY FUNCTION OF SEBI

• Designing guidelines and code of conduct for the proper functioning of financial intermediaries and corporate.
• Regulation of takeover of companies
• Conducting inquiries and audits of exchanges
• Registration of brokers, sub-brokers, merchant bankers etc.
• Levying of fees
• Performing and exercising powers
• Register and regulate credit rating agency

DEVELOPMENT FUNCTION OF SEBI

• Imparting training to intermediaries
• Promotion of fair trading and reduction of malpractices
• Carry out research work
• Encouraging self-regulating organizations
• Buy-sell mutual funds directly from AMC through a broker

OBJECTIVES OF SEBI

• Protection to the investors: The primary objective of SEBI is to protect the interest of people in the stock market and provide a healthy environment for them.
• Prevention of malpractices: This was the reason why SEBI was formed. Among the main objectives, preventing malpractices is one of them.
• Fair and proper functioning: SEBI is responsible for the orderly functioning of the capital markets and keeps a close check over the activities of the financial intermediaries such as brokers, sub-brokers, etc.

POWERS OF SEBI

SEBI is a quasi-legislative, quasi-judicial and quasi-executive body.

• SEBI has the power to regulate and approve any laws related to functions in the stock exchanges.
• It has the powers to access the books of records and accounts for all the stock exchanges and it can arrange for periodical checks and returns into the workings of the stock exchanges.
• It can also conduct hearings and pass judgments if there are any malpractices detected on the stock exchanges.
• When it comes to the treatment of companies, it has the power to get companies listed and de-listed from any stock exchange in the country.
• It has the power to completely regulate all aspects of insider trading and announce penalties and expulsions if a company is caught doing something unethical.

GOVERNANCE OF SEBI

The SEBI Board consist of nine members-

• One Chairman appointed by the Government of India
• Two members who are officers from Union Finance Ministry
• One member from the Reserve Bank of India
• Five members appointed by the Union Government of India

ENFORCEMENT OF LAWS

• SEBI enforces provisions of the SEBI Act, the Depositories Act 1996, the Securities Contracts (Regulation) Act, 1956, among others.
• A Securities Appellate Tribunal established under section 15-K of the Securities and Exchange Board of India Act hears appeal from the orders of SEBI which can be challenged in the SC only.

A QUESTION MARK ON SEBI’S REGULATORY ROLE

INEXPLICABLE DELAY

• Though SEBI began investigations in 2016, it has taken six years to arrive at this order. However, SEBI’s order raises more questions than it answers as it has not taken the issue into a logical conclusion.

DILUTION OF OFFENCE

• The order passed by SEBI’s whole-time member contains no provision for conducting any investigation into the possible criminal aspects of the then NSE Chief’s conduct.
   It appears that SEBI sees her criminal offence of sharing NSE’s internal confidential information with an unknown person as indiscretion.
   But converting a grave criminal offence into a regulatory indiscretion may set a dangerous precedent for the entire capital market ecosystem.

POOR CAPACITY OF SEBI

• Multiple complaints were lodged in SEBI against the then NSE MD & CEO, which led SEBI to investigate her case.
   If SEBI lacked the capability or capacity to take the investigation further, it should have sought the assistance of other investigating agencies.
• The NSE Board chairman, upon discovering that Chitra was sharing information regarding NSE with her Himalayan Yogi, apprised the NSE Board members in a closed-door meeting. And that information was too sensitive to be even recorded in minutes of the board meeting.

NO FEAR FOR REGULATOR

• NSE had knowledge that she shared sensitive information with the alleged yogi and NSE Board had concealed this information from SEBI Long after she had resigned, and only when SEBI probed, NSE directed Ernst & Young to figure out the identity the alleged Yogi.
   The whole episode reflects poorly on the status and respect the SEBI commands or put in other words; the regulated seems to have scant regard for the regulator and seems to believe that the system can be gamed and they will never get caught.

LOST OPPORTUNITY FOR REFORMS

• SEBI missed an opportunity to make an example of the CMD’s case as a warning to rogue managers. However, the meagre penalty meted out by SEBI indicates the regulator is as keen as NSE to close the case rather than address the ethical and legal cracks within the system. Penalty imposed on her is ₹3 crore – less than 7% of her severance package of ₹44 crore.

SEBI’S FAILURE TO UPHOLD NATIONAL INTEREST

• By relegating this case to a mere issue of breach of compliance, SEBI has effectively turned a possible criminal offence into a civil case. This case will embolden more who may now find it easier to abuse their official positions to compromise their own company’s integrity or hurt national interest.

ABDICATION OF AUTHORITY

• Despite being armed with exceptional powers among financial regulators to summon market participants and to search and seize evidence, SEBI failed to show the intent to get to the bottom of the scam while the trail was still hot.

REVITALIZING THE REGULATOR AND REFORMING THE NSE: THE WAY FORWARD

SCALE UP THE RESOURCE BASE

• SEBI as a regulator has to scrutinize millions of transactions done almost every minute in the stock market and that by itself makes its task herculean. The problem is compounded by the need to act swiftly, and naturally, there are limitations.
   Hence, the resource base of SEBI, especially human infrastructure, needs to be scaled up so also its technological capability through AI, etc.

FAST TRACK REFORMS IN NSE

• A leading stock exchange like NSE is a systemically important institution as it serves an economic function and is the symbol of the free market. Any disruption in the NSE has a repercussion on the economy and the country.
   The NSE leadership needs to put their house in order by upholding the laws of the land and also by holding accountability of the management to the Board, which also need to be accountable to the public.
   Processes and practices currently in place at NSE need to be revisited so that such an event doesn’t re-occur at such an important market infrastructure institution.

ACTIONS BY SEBI

• SEBI has also instituted various changes in the governance of market infrastructure institutions (MIIs), including board committee structures and oversights, the tenor of management, accountability for lapses at MIIs etc., which can strengthen the control environment.

FULFILLING SEBI’S MANDATE

• SEBI has been tasked with preserving the integrity of the capital market and institutionalizing good governance in the stock market ecosystem.
   For the sake of millions who trust SEBI to preserve the integrity of the Indian capital market, the regulator must fix the systemic deficiencies in Indian exchange.
   It must not be seen as favouring or taking a soft approach to matters of regulatory violation, especially by powerful players.

EXPECTATION FROM THE NEW SEBI CHIEF

• Regulating the stock exchanges in an independent and efficient manner, especially when doubts have risen regarding the functioning of the NSE, should be high on the list of tasks for the newly appointed chairperson of SEBI.

ROLE OF PMO AND OTHERS

• The SEBI order itself seems incomplete and there seems to be something more than what meets the eye. This could require further investigation by other agencies, and the Finance Ministry and the Prime Minister’s Office needs to act expeditiously.
   The CBI investigation into this scam also need to be fast-tracked and should be done in a professional manner to unearth the truth and to prosecute and punish the guilty.

REGULATING THE REGULATOR

• The SEBI order has done more damage to its own credibility and many questions have remained unanswered. Thus, a thorough inquiry into the investigation conducted by SEBI by independent agencies needs to be undertaken to find out if any extraneous considerations were involved in the manner of investigation or its findings.
   This does not in anyway will deem to be an encroachment into the regulator’s autonomy but will be a step towards improving regulatory quality.
   Additionally, a Regulatory Impact Assessment need to be conducted to assess the functioning of SEBI and the Parliament’s control over it need to be strengthened through standing committee oversight, periodic reports, etc.

RESTRUCTURING THE BOARD OF NSE

• Persons occupying key management positions at important institutions, even if professionals, should be rotated at reasonable intervals.
• Allowing an individual to turn into a permanent fixture as CEO or MD is a bad idea. It is improper for an outgoing CEO/MD to continue on the Board.
• And it is worse if this happens when the ex-CEO’s deputy assumes charge as the new CEO. Not only can this create situations of nexus, but it can also tie down the successor from initiating a clean-up of legacy structures.

WHISTLEBLOWER PROTECTION

• As it was a whistle-blower letter that alerted SEBI to the irregularities at NSE, MIIs must be asked to put in place well-defined employee whistleblower mechanisms, where complaints can be lodged directly with the concerned.

1. The identity of the whistle-blower must be strictly protected to prevent vindictive action.

PROFESSIONAL CONDUCT OF THE GOVT COMPANY/BANK REPRESENTATIVES

• The LIC is coming to the market for its initial public offering, and prospective shareholders and policyholders have a right to demand an explanation from LIC on the unprofessional conduct of its representatives on NSE in this period.
• Similarly, shareholders of SBI also should demand an explanation from SBI on the conduct of its officers when deputed as directors in other companies.
• The govt should take note of the negligence/irresponsibility of these members and stringent actions need to be taken against them if found to be complicit.

THE CONCLUSION: Despite the capture of power by a few individuals and the governance infractions they indulged in, few can dispute that the National Stock Exchange (NSE) has served Indian financial markets extremely well in the three decades of its existence. Its state-of-the-art electronic platform and reliable trading and settlement systems have ensured that there were no systemic failures through the worst of upheavals. It is therefore critical for the government and the regulator to get to work on fixing the loopholes in the governance structures at the NSE so that such infractions don’t recur. Clearly, the regulator needs to introspect on its actions both in the co-location and ‘yogi’ scams and learn from the mistakes.

THE CONTEXT: A WTO panel, in its ruling on December 14, 2021, recommended India to withdraw its subsidies on sugar under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes as they are violative of the WTO norms and rules. Ruling in favour of Brazil, Australia and Guatemala in their trade dispute against India over its sugar subsidies, the WTO panel has stated that the support measures are inconsistent with WTO trade rules. This article analyse this issue in detail.

ANALYSIS OF THE ISSUE

COMPLAINT AGAINST INDIA

• Australia, Brazil, and Guatemala said India’s domestic support and export subsidy measures appeared to be inconsistent with various articles of the WTO’s Agreement on Agriculture and the Agreement on Subsidies and Countervailing Measures (SCM).

SUBSIDIES BEYOND DE MINIMIS LEVEL

• All three countries complained that India provides domestic support to sugarcane producers that exceed the de minimis level of 10% of the total value of sugarcane production. They said it was inconsistent with the Agreement on Agriculture. (READ AHEAD).

OTHER POINTS OF CHALLENGES.

• They also raised the issue of India’s alleged export subsidies, subsidies under the production assistance and buffer stock schemes, and the marketing and transportation scheme.
• Australia accused India of “failing” to notify its annual domestic support for sugarcane and sugar subsequent to 1995-96, and its export subsidies since 2009-10, which it said were inconsistent with the provisions of the SCM Agreement.

PROCESS AT WTO

• The consultation followed between these countries and India did not resolve the issue.
• These countries then approached the Dispute Settlement Body (DSB) with the complaint that set up three panels to inquire into the allegations. These panels ruled against India.

THE PANELS’ FINDINGS.

• From 2014-15 to 2018-19, India’s domestic support to sugarcane producers exceeded the permitted level of 10% of the total value of sugarcane production.
• Therefore, India is acting inconsistently with its obligations under the Agreement on Agriculture.
• On the export subsidy, the panel also found that the support provided by India violated its obligations and India’s failure to notify its support measures to relevant WTO Committees also violated WTO norms.

THE PANELS’ RECOMMENDATIONS

• The panel asked India to bring its support measures in conformity with WTO rules and withdraw the prohibited subsidies.

WHAT HAS BEEN INDIA’S RESPONSE?

RESPONSE OF THE COMMERCE MINISTRY

• The findings of the panel were “completely unacceptable” to India.
• Australia, Brazil, and Guatemala had wrongly claimed that domestic support provided by India to sugarcane producers is in excess of the limit allowed by the WTO and that India provides prohibited export subsidies to sugar mills.
• The panel’s findings were “erroneous”, “unreasoned”, and “not supported by the WTO rules.
• The Panel has also evaded key issues which it was obliged to determine. Similarly, the Panel’s findings on alleged export subsidies undermine logic and rationale.
• As of now, there is no export subsidy on sugar, and hence the ruling will have no impact on the sugar export.

ON DOMESTIC SUPPORT/SUBSIDY.

• India held that its subsidy does not come under the meaning of market price support under the AoA. It pointed out that the FRP is paid to the sugar mills and not to the sugarcane producers.
• It argued that as per the meaning of market price support, it would be violated only when the govt pays for or procures the agricultural product.
• The panel rejected this argument — saying “market price support does not require governments to purchase or procure the relevant agricultural product”.

APPEAL TO APPELLATE BODY(AB)

• India has appealed against the ruling of the World Trade Organization’s (WTO) trade dispute settlement panel.
• India filed the appeal in the WTO’s Appellate Body, the final authority on such trade disputes.
• Pending the disposal, India is not bound to implement the orders of the DSB Panel. The AB has not been operational due to vacancies that the USA has consistently refused to fill.

CLARIFYING CONCEPTS: THE WTO TERMINOLOGIES

WHAT IS AoA?

To reform the agriculture trade and to improve the predictability and security of importing and exporting countries, the World Trade Organization came up with the agriculture agreement. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO on January 1, 1995. The three provisions/pillars that the agriculture agreement focuses on are –

• Market access — the use of trade restrictions, such as tariffs on imports
• Domestic support — the use of subsidies and other support programmes that directly stimulate production and distort trade
• Export competition — export subsidies and other government support programmes that subsidize exports.

DOMESTIC SUPPORT

• There are two categories of domestic support — support with no, or minimal, distortive effect on trade on the one hand (often referred to as “Green Box” measures) and trade-distorting support on the other hand (often referred to as “Amber Box” measures).
• For example, government-provided agricultural research or training is considered the former type, while government buying-in at a guaranteed price (“market price support”) falls into the latter category.
• Under the Agreement on Agriculture, all domestic support favouring agricultural producers is subject to rules. The Green Box also provides for the use of direct payments to producers, which are not linked to production decisions, i.e. although the farmer receives a payment from the government, this payment does not influence the type or volume of agricultural production (“decoupling”).
• The “Blue Box” exemption category covers any support measure that would normally be in the “Amber Box”, but which is placed in the “Blue Box” if the support also requires farmers to limit their production.
• All domestic support measures which do not correspond to the exceptional arrangements known as the “Green” and “Blue” boxes, are considered to distort production and trade and therefore fall into the “Amber Box” category.

DE MINIMIS LEVEL

• Minimal amounts of domestic support that are allowed even though they distort trade — up to 5% of production value for developed countries, 10% for developing.
• All domestic support measures favouring agricultural producers that do not fit into any of the above exempt categories are subject to reduction commitments. This domestic support category captures policies, such as market price support measures, direct production subsidies or input subsidies.
• However, under the de minimis provisions of the Agreement there is no requirement to reduce such trade-distorting domestic support in any year in which the aggregate value of the product-specific support does not exceed 5 percent of the total value of production of the agricultural product in question.
• In addition, non-product specific support of less than 5 percent of the value of total agricultural production is also exempt from reduction. The 5 per cent threshold applies to developed countries, whereas in the case of developing countries, the de minimis ceiling is 10 percent.

AGGREGATE MEASUREMENT OF SUPPORT

• The AMS represents trade-distorting domestic support and is referred as the “amber box”. As per the WTO norms, the AMS can be given up to 10 % of a country’s agricultural GDP in the case of developing countries.
• On the other hand, the limit is 5% for a developed economy. This limit is called de minimis level of support. It means that the AMS and the De Minimis Level are similar. Both relates to the Amber box.

SCM

• The Agreement on Subsidies and Countervailing Measures (Subsidies Agreement) of the World Trade Organization (WTO) provides rules for government subsidies and applying remedies to address subsidized trade that has harmful commercial effects.
• These remedies can be pursued through the WTO’s dispute settlement procedures, or through a countervailing duty (CVD) investigation which can be undertaken unilaterally by any WTO member government.
• Countervailing measures may be used against subsidies when imports of subsidized goods harm a competing domestic industry. They are used to offset the effect of the subsidy by, for example, imposing a countervailing duty (limited to the amount of the subsidy) on the import of subsidized goods or securing quid pro quo commitments from the subsidizing country (that it will abolish or restrict the subsidy, or that exporters will raise prices).
• Export subsidies which are in full conformity with the Agriculture Agreement are not prohibited by the SCM Agreement, although they remain countervailable. Domestic supports which are in full conformity with the Agriculture Agreement are not actionable multilaterally, although they also may be subject to countervailing duties.

DISPUTE SETTLEMENT BODY (DSB)

• Settling disputes is the responsibility of the Dispute Settlement Body (the General Council in another guise), which consists of all WTO members. The Dispute Settlement Body has the sole authority to establish “panels” of experts to consider the case and accept or reject the panels’ findings or the results of an appeal. It monitors the implementation of the rulings and recommendations and can authorize retaliation when a country does not comply with a ruling.
• Under the Subsidies Agreement, if a WTO member government believes that non permissible subsidy is being granted or maintained by another member government, it can request consultations with that government under the WTO’s dispute settlement procedures.
• If no mutually agreeable solution is reached in initial consultations, the matter can be referred to the WTO’s Dispute Settlement Body (DSB), which consists of representatives of all WTO members.
• The DSB establishes a panel, which reports its findings to the parties to the dispute with in a time frame. If the panel finds that the measure in question is a prohibited subsidy, the subsidizing government must withdraw it without delay.
• But when the appeal is filed in the AB and not yet decided, the practice is that the member country does not withdraw the subsidy immediately. The DSB can only reject the recommendations of the Panel on consensus among the members.

APPELLATE BODY

• The Appellate Body was established in 1995 under Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). It is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO Members. The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel. Appellate Body Reports are adopted by the Dispute Settlement Body (DSB) unless all members decide not to do so. The Appellate Body has its seat in Geneva, Switzerland.
• Currently, the Appellate Body is unable to review appeals given its ongoing vacancies. The term of the last sitting Appellate Body member expired on 30 November 2020.

NAIROBI PACKAGE

• The Nairobi Ministerial conference was held in 2015. WTO members decided to eliminate the export subsidies on agriculture and make new rules on export measures that have a covalent effect. To implement this decision, the developed countries will remove all the subsidies on export immediately. Developing countries will have a little longer period to eliminate the subsidies except for a few agricultural products.
• The decision was taken to give effect to the sustainable development goal on zero hunger and also help the farmers of the developing countries who face intense competition against the rich countries and the artificially boosted exports by the help of subsidies.
• Members also collectively agreed to find a permanent solution for developing countries to use the public stockholding programs for food security purposes. Negotiation on a special safeguard mechanism, which allows the developing countries to raise tariffs temporarily on agricultural products in cases of import surges or price falls, was also agreed upon by the ministers.

BALI PACKAGE 2013

• Members agreed to refrain from challenging the breach of domestic support commitments that resulted from developing countries’ public stockholding programs for food security if they met certain conditions. They also decided to negotiate towards the permanent solution for public stockholding for security purposes.
• A more transparent tariff rate quota administration was called for whereby the governments were not allowed to create trade barriers by distributing quotas among importers.
• The list of general services includes more spending on land use, Land Reforms water management, and other poverty reduction programs that come under the green box( Green box is domestic support which is allowed without any limit as it does not distort the trade) were to be expanded.
• A declaration on the reduction of all forms of export subsidies and enhancement of transparency and monitoring was made.
• The Bali package also provides for a peace clause that protects the food procurement programs of developing countries from the action of other WTO members if the developing country branches the subsidy ceiling as given.
• In 2018-19 India became the first WTO member country to invoke this clause in the financial year. India stated that its rice production was $43.67 billion and it provided subsidies of $ 5 billion to the farmers, which is more than the de minimis level of 10%. To safeguard its domestic support policy the Indian government invoked the peace clause.

PUBLIC STOCKHOLDING FOR FOOD SECURITY PURPOSES: ANOTHER PRESSING ISSUE

Some governments use public stockholding programmes to purchase, stockpile and distribute food to people in need. While food security is a legitimate policy objective, some stockholding programmes are considered to distort trade when they involve purchases from farmers at prices fixed by the governments, known as “supported” or “administered” prices.

In India’s case the subsidies provided to run the food security programme (NFSA) as per the developed member countries are trade distorting and they fall under the   Amber box. As per AMS, the total support in monetary terns should not exceed 10 percent of the total value of agri production as on 1986-88. The government buys the produce at MSP which subsidises the prices of food grains. In the instant case (sugar subsidy), the public stock holding programme per se was not challenged but one specific component “buffer stock” of sugar, presumably related to the subsidised sugar provision to the Antyodaya Anna Yojna category under the NFSA. But India argues that the public stockholding programme is vital for its food security, nutritional needs, supporting the marginalised farmers, and meeting the goals of SDGs.

At the 2013 Bali Ministerial Conference, ministers agreed that, on an interim basis, public stockholding programmes in developing countries would not be challenged legally even if a country’s agreed limits for trade-distorting domestic support were breached. They also agreed to negotiate a permanent solution to this issue.

A decision on public stockholding taken at the 2015 Nairobi Ministerial Conference reaffirmed this commitment and encouraged WTO members to make all concerted efforts to agree on a permanent solution.

In the MC III, the G 33 is seeking a permanent solution to the stockholding issue.

VARIOUS SUBSIDIES PROVIDED BY INDIA FOR SUGAR SECTOR

SCHEME FOR EXTENDING FINANCIAL ASSISTANCE TO SUGAR UNDERTAKINGS (SEFASU-2014)

• The Government on 3.1.2014 notified a Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU-2014) envisaging interest free loans by bank as additional working capital to sugar mills, for clearance of cane price arrears of previous sugar seasons and timely settlement of cane price of current sugar season to sugarcane farmers. Rs. 6484.77 crore has been disbursed under the scheme. For five years, the interest burden on this loan is borne by the Government through Sugar Development Fund.

SOFT LOAN TO SUGAR MILLS TO FACILITATE CLEARANCE OF CANE PRICE ARREARS

• A scheme was notified on in 2015 to provide soft loan to sugar mills to facilitate clearance of cane price arrears of current sugar season 2014-15. Rs. 4213 cores have been disbursed under the scheme. The Government bore interest subvention during moratorium period of one year. About 32 lakh farmers have been benefited.

OTHERS

• The procurement at the Fair and Remunerative Prices and the PDS operations for sugar for AAY card holders etc.

EXPORT SUBSIDY

• There is no export subsidy for sugar as of now.

WHAT IS THE WAY FORWARD?

OVERHAULING THE AoA

• The genesis of the problem lies in the skewed nature of many agreements that are set in stone at WTO.
• The agreements that were negotiated during the Uruguay Round of the General Agreement on Trade and Tariffs, which governed global trade before the establishment of WTO on January 1, 1995.
• The most egregious of these is AOA which astute negotiators pushed through from the rich world to suit their interests.

RE WORKING OF SUBSIDIES AND RE DEFINITION OF “ BOXES”.

• Those considered non-distorting are listed in the green box, the minimally distorting ones come under the blue box while subsidies seen as causing serious market distortions are categorised as amber box subsidies.
• Nearly all the rich countries’ subsidies fall into the green box while those of developing nations are mostly in the amber box.
• There is no expenditure limit on the subsidies that fall into the first two boxes while the amber box subsidies have to be limited to 10 per cent of the value of agricultural production for developing countries and 5 per cent for developed countries.

PRO ACTIVE LOBBYING BY G-33

• The G 33 needs to work in a coordinated manner and position itself as a pressure group to safeguard and promote the developing countries’ interests transparently. The forthcoming MC 12, scheduled to be held in Geneva at the end of 2021 has been postponed which will provide more time for the G 33 to develop consensus and common strategy on issue like Public Stock holding, food security, fisheries subsidy, domestic support etc.
• The momentum generated  from the G-33 Virtual Informal Ministerial Meeting organized by Indonesia in December 2021 needs to be harnessed and follow up actions needs to be continued at official level.

APPEALING THE DECISION

• India has appealed the ruling on sugar subsidy and as the AB is not functional as of now it provides enough space to India for recalibrating the content and compositions of its subsidies if need be.

LEARNING FROM SETBACKS.

• Of late India has been at the receiving end of the WTO dispute resolutions and many decisions  have gone against it like the Domestic Content  Requirement  on solar panels, the export subsidy schemes in 2019, and the recent challenges. It means that there is a requirement  for India to bring its subsidy/support regime in consistent  with the WTO norms and at the same time devise such innovative measures that comply with WTO regimes.

THE CONCLUSION: The WTO system is the sheet anchor for a rule based multilateral trading system. Thus, the dispute setline and adherence to the rulings is necessary for realizing the objective. But that does not mean the sovereign rights of a country to devise policies for the welfare and development of a country should be forfeited. What is necessary is to create a healthy balance between the two and that’s why there has to be synergy between foreign trade policy and domestic agricultural policies which are dynamically linked with the WTO norm and rules.

THE CONTEXT: To understand why, how and what of the COVID-19 being declared as a ‘notified disaster’, one should know first about disaster, how disaster is categorized and funding is determined by the Centre. In brief, one should have understanding of some legal and procedural aspects of the NDMA 2005.

DO YOU KNOW?

As you are aware that the NDMA 2005 was one of the very significant legislation of 2005 and first important landmark legislation for a holistic disaster management in India which is blueprint for making India a disaster resilient country. The law has become basis for taking a series of steps by the government to establish policy, procedural and institutional mechanisms for disaster management in India.

THE KEY FEATURES OF THE NDMA 2005

The law lays down following key mechanisms to make India a disaster resilient country and match to the global standards in disaster management. The key features are:

1. It envisages for an institutional mechanism from top to bottom for decision making, planning, relief and rescue
2. It envisages for laying down a disaster management policy and plan at national and state level
3. It deals with disaster management holistically consisting of pre-disaster, during disaster and post disaster cycle
4. It envisages for two separate funds knows as DMMF/DMRF for centre and SDMMF/SDMRF for states
5.  It lays down for a dedicates disaster management force known as NDRF capable of tackling all types of disaster through land, air and sea
6. It also has also provisions for promoting research and studies through IIDM, New Delhi.

At the apex, it is the national disaster management authority headed by the Prime Minister which is responsible for taking important decisions related to disaster management in India followed by several committees, ministries and departments.

HOW DOES THE TERM ‘DISASTER’ IS DEFINED BY THE NDMA?

As per the Disaster Management Act, 2005, “disaster” means a catastrophe, mishap, calamity or grave occurrence in any area, arising from natural or man-made causes, or by accident or negligence which results in substantial loss of life or human suffering or damage to, and destruction of, property, or damage to, or degradation of, environment, and is of such a nature or magnitude as to be beyond the coping capacity of the community of the affected area. A natural disaster includes earthquake, flood, landslide, cyclone, tsunami, urban flood, heatwave; a man-made disaster can be nuclear, biological and chemical.

HOW THE TERM DISASTER IS CLASSIFIED?

We often hear demands by the states to declare a calamity as national disaster from the Centre. You also know that at times there is difference in view on whether a disaster should be declared as national disaster.

But you will wonder to notice the fact that there is no any defined standards or legal provision for the categorization of disasters. The NDMA is silent on this provision that it doesn’t have a clearly defined mechanism for the classification of the disasters. Rather, the classification is done on the case by case basis. For instance, learning from the past experiences, the disasters have been classified as

CLASSIFICATIONS

DISASTERS

A. A calamity of unprecedented severity

1. The 1999 super cyclone in Odisha
2. The 2001 Gujarat earthquake

B. Calamities of severe nature

1. The flash floods in Uttarakhand
2. Cyclone Hudhud
3. The Kerala floods

C. Notified disaster

1. COVID-19

DOES IT MEAN THE TERM NATIONAL DISASTER WHICH IS OFTEN USED HAS NO LEGAL BASIS?

Yes, the term has no legal basis and it is used in general parlance by the governments and media. For instance, the state of Kerala demanded that the flood should be declared as National Disaster but the central government replied that there is no such term like national disaster.

The central government examine the proposal of the Kerala and the MoS (Home) replied to a question in Parliament “The existing guidelines of State Disaster Response Fund (SDRF)/ National Disaster Response Fund (NDRF), do not contemplate declaring a disaster as a ‘National Calamity’.” There is no provision, executive or legal, to declare a natural calamity as a national calamity. It is used more in general parlance.

Therefore, there is no provision in the law or rules for the government to designate a disaster a “national calamity” and the guidelines of the NDRF and SDRFs don’t contemplate declaring a disaster a national calamity. The Centre also informed the Kerala High Court that there was no legal provision to declare a disaster as a national calamity, amid demands for declaring the floods as a national disaster.

DOES IT MEAN THERE HAS BEEN NO EFFORTS TO DEFINE THE STANDARDS OF DISASTERS?

In 2001, the National Committee on Disaster Management under the chairmanship of the then Prime Minister was mandated to look into the parameters that should define a national calamity. However, the committee did not suggest any fixed criterion.

The 10th Finance Commission (1995-2000) examined a proposal that a disaster be termed “a national calamity of rarest severity” if it affects one-third of the population of a state. The panel did not define a “calamity of rare severity” but stated that a calamity of rare severity would necessarily have to be adjudged on a case-to-case basis taking into account, inter-alia,

1. The intensity and magnitude of the calamity,
2. Level of assistance needed,
3. The capacity of the state to tackle the problem,
4. The alternatives and flexibility available within the plans to provide succour and relief

WHY IS IT IMPORTANT TO CLASSIFY A CALAMITY OR DISASTER?

Simply because it is the categorization which ultimately determines the quantum of relief sanctioned by the CENTRE to the states under the SDRFs. If a disaster is categorized as ‘rare severe nature’ then accordingly the state will receive the relief from the Centre.

WHICH AUTHORITY IS RESPONSIBLE FOR CATEGORISING THE DISASTERS?

The classification is the responsibility of the NDMA which is headed by the Prime Minister. But in actual practice, it is done by the national executive committee headed by the Home Secretary and is notified by the Ministry of Home Affairs. In general, it can be said that disasters are categorized and notified by the Ministry of Home Affairs.

WHAT HAPPENS IF A CALAMITY IS SO CATEGORISED?

1. When a calamity is declared to be of “rare severity”/”severe nature”, support to the state government is provided at the national level. The Centre also considers additional assistance from the NDRF.
2. A Calamity Relief Fund (CRF) is set Up, with the corpus shared 3:1 between Centre and state.
3. When resources in the CRF are inadequate, additional assistance is considered from the National Calamity Contingency Fund (NCCF), funded 100% by the Centre.
4. Relief in repayment of loans or for grant of fresh loans to the persons affected on concessional terms, too, are considered once a calamity is declared “severe”.

HOW IS THE FUNDING DECIDED?

1. For calamity with national ramifications: As per the National Policy on Disaster Management, 2009, the National Crisis Management Committee headed by the Cabinet Secretary deals with major crises that have serious or national ramifications.
2. For other calamities:For calamities of severe nature, inter-ministerial central teams are deputed to the affected states for assessment of damage and relief assistance required. An inter-ministerial group, headed by the Union Home Secretary, studies the assessment and recommends the quantum of assistance from the NDRF/National Calamity Contingency Fund (NCCF). Based on this, a high-level committee comprising the Finance Minister as chairman and the Home Minister, Agriculture Minister, and Planning Commission Deputy Chairman as members approves the central assistance.

HOW MUCH FUNDS HAS THE CENTRE BEEN DISBURSING UNDER THE NDRF?

According to a reply in Parliament by MoS (Home) in January 2020, the Centre released Rs 3,460.88 crore in 2014-15, Rs 12,451.9 crore in 2015-16, and Rs 11,441.30 crore in 2016-17 under the NDRF to various states. In 2017-18 until December 27, it had disbursed Rs 2,082.45 crore. State-wise figures showed that the highest amounts for 2016-17 were released to

1. Karnataka (Rs 2,292.50 crore),
2. Maharashtra (Rs 2,224.78 crore) and
3. Rajasthan (Rs 1,378.13 crore).

HOW ARE THE NDRF AND THE SDRFS FUNDED?

The funding of the NDRF: The NDRF is funded through a National Calamity Contingent Duty levied on pan masala, chewing tobacco and cigarettes, and with budgetary provisions as and when needed. A provision exists to encourage any person or institution to make a contribution to the NDRF.

The 14th Finance Commission recommended changes to this structure once the cess was discontinued or subsumed within the Goods and Services Tax. However, the government, instead, decided to continue with the National Calamity Contingent Duty even in the GST regime.

The funding of the SDRF:

1. The SDRF corpus is contributed by the Union government and the respective State governments in a 75:25 ratio for general category States and 90:10 for Special Category States.
2. The allocation of the SDRF for each State is done by the Finance Commission, and the Centre contributes its specified share each financial year.
3. The Central share of SDRF is released in two equal instalments, in June and then in December.

What has been the trend in budgetary allocations to the NDRF and SDRFs?

The Union government has maintained a steady flow of funds to the NDRF each year, ranging from ₹5,690 crore in 2015-16 to a budgeted amount of ₹2,500 crore for the current financial year. In addition, the Centre has also been contributing to the SDRFs every year, amounting to ₹ 8,374.95 crore in 2016-17 and ₹7,281.76 crore in 2017-18.

HOW DO OTHER COUNTRIES CLASSIFY DISASTERS?

In the US, the Federal Emergency Management Agency (FEMA) coordinates the government’s role in disaster management. When an incident is of such severity and magnitude that effective response is beyond the capabilities of state and local governments, the Governor or Chief Executive of a tribe can request federal assistance under the Stafford Act. In special cases, the US President may declare an emergency without a request from a Governor. The Stafford Act authorises the President to provide financial and other assistance to local and state governments, certain private non-profit organisations, and individuals following declaration as a Stafford Act Emergency (limited) or Major Disaster (more severe).

WEAKNESSES IN CATEGORISATION AND FUNDING OF DISASTERS

When there is lack of institutionalized and standardized mechanisms for the categorization and determining the quantum of funds to states then it results into

1. Ad hocism in the process of determining the funds
2. Politics into who should get what? Since India is a federal state and the states are dependent on Centre, hence the decisions are politically motivated
3. It results into delay in sanctioning of relief materials to states like in case of COVID-19 the states have complained for scarcity of funds and delay in release of funds by the Centre.
4. It affects decentralized governance system
5. It promotes tensions and conflicts in union-states relations

CONCLUSION AND WAY FORWARD

To deal effectively with the disasters when they strike, it is essential to have a robust mechanism for categorization and immediate relief package to the states. Since India is a federal state in which the states are heavily dependent on the Centre, hence without an institutionalized standard for the transfer of disaster funds, there can be huge loss to human life, resources and will become a hurdle in making Indian society disaster resilient.

Hence, the government should improve the NDMA 2005 by taking the following steps:

1. There should be standards set for categorizations of disasters in consultation with state governments
2. The quantum of funds should be clearly linked with the levels of disasters categorized
3. The funds should be immediately transferred when the disaster strikes

The disaster management in India has improved since 2005 due to adoption of a new legal and institutional framework according to which the Centre has also come up with the National Disaster Management Policy 2009 and the National Disaster Management Plan 2016. The states have also taken similar steps. But still there is huge scope for improvement in disaster management in India based on the COVID-19 experiences and other recent disasters like Kerala flood and cyclones in South India.

THE CONTEXT: Australia has declared a state of emergency for the state of New South Wales (NSW) along with a catastrophic fire warning the highest level of bush fire danger in light of widespread bushfires that have left at least three people dead. Bushfires are a routine occurrence in the country, but this bushfire season is believed to be the worst and has started even before the beginning of the Southern Hemisphere summer.

PRESENT ISSUE OF FOREST FIRE

AMAZON FOREST FIRE

• The Amazon rainforest, which is home to a fifth of the world’s land species and more than 30 million people, including hundreds of indigenous people, experienced the third-worst forest fires in the last ten years.
• The region has experienced more than 74,155 fires since January, according to data from Brazil’s National Institute of Space Research (INPE).
• In 2019 September 19,925 fires broke out, 19.6 per cent less than the number of fire outbreaks same period last year, according to the latest INPE data. In September 2018, there were 24,803 outbreaks in the Amazon.

CALIFORNIA FIRE

• Brush fire in Ventura county, north of Los Angeles, grew rapidly on Friday, even as calmer winds have allowed fire crews to increase containment of other wildfires plaguing California.
• The forest fire in California is frequently in a year.

BANDIPUR NATIONAL PARK

• A five-day fire that raged through the Bandipur Tiger Reserve has reportedly burnt more than 15,400 acres of forests.
• Between February 21 and 25, 2019 the reserve saw 127 fire counts in various ranges of the 912 sq km forest.

FOREST FIRE

• The most common hazard in forests is forests fire. Forests fires are as old as the forests themselves. They pose a threat not only to the forest wealth but also to the entire regime to fauna and flora seriously disturbing the bio-diversity and the ecology and environment of a region.
• During summer, when there is no rain for months, the forests become littered with dry senescent leaves and twinges, which could burst into flames ignited by the slightest spark.
• The Himalayan forests, particularly, Garhwal Himalayas have been burning regularly during the last few summers, with colossal loss of vegetation cover of that region.
• Forest fire causes imbalances in nature and endangers biodiversity by reducing faunal and floral wealth. Traditional methods of fire prevention are not proving effective and it is now essential to raise public awareness on the matter, particularly among those people who live close to or in forested areas.

CAUSES OF FOREST FIRE

Causes of forest fires can be divided into two broad categories

1. Environmental (which are beyond control) and
2. Human related (which are controllable).

Environmental causes

• Are largely related to climatic conditions such as temperature, wind speed and direction, level of moisture in soil and atmosphere and duration of dry spells.
• Other natural causes are the friction of bamboos swaying due to high wind velocity and rolling stones that result in sparks setting off fires in highly inflammable leaf litter on the forest floor.

Human related causes

Result from human activity as well as methods of forest management.  These can be intentional or unintentional, for example:

• Graziers and gatherers of various forest products starting small fires to obtain good grazing grass as well as to facilitate gathering of minor forest produce like flowers of Madhuca indica and leaves of Diospyros melanoxylon
• The centuries old practice of shifting cultivation (especially in the North-Eastern region of India and in parts of the States of Orissa and Andhra Pradesh). etc..

Classification of Forest Fire Forest fire can broadly be classified into three categories;

1. Natural or controlled forest fire.
2. Forest fires caused by heat generated in the litter and other biomes in summer through carelessness of people (human neglect) and
3. Forest fires purposely caused by local inhabitants.

Types of Forest Fire: There are two types of forest fire

1. Surface Fire and
2. Crown Fire

Surface Fire

• A forest fire may burn primarily as a surface fire, spreading along the ground as the surface litter (senescent leaves and twigs and dry grasses etc) on the forest floor and is engulfed by the spreading flames.

Crown Fire

• The other type of forest fire is a crown fire in which the crown of trees and shrubs burn, often sustained by a surface fire.
• A crown fire is particularly very dangerous in a coniferous forest because resinous material given off burning logs burn furiously.
• On hill slopes, if the fire starts downhill, it spreads up fast as heated air adjacent to a slope tends to flow up the slope spreading flames along with it. If the fire starts uphill, there is less likelihood of it spreading downwards.

EFFECT OF FOREST FIRE

Fires are a major cause of forest degradation and have wide ranging adverse ecological, economic and social impacts, including:

• Loss of valuable timber resources
• Degradation of catchment areas
• Loss of biodiversity and extinction of plants and animals
• Loss of wildlife habitat and depletion of wildlife
• Loss of natural regeneration and reduction in forest cover
• Global warming etc…

VARIOUS INITIATIVES

MoEFCC guidelines

MoEFCC issued a set of national guidelines for forest fire prevention and control in 2000. These guidelines call for:

• Identification and mapping of all fire prone areas,
• Compilation and analysis of database on forest fire damages,
• Development and installation of fire damage rating system and fire forecasting system,
• All preventive measures to be taken before the beginning of the fire season

National Master Plan for Forest Fire Control

The main objectives are:

• To strengthen the organizations responsible for forest fire management
• To coordinate international transfer of technology and training in the field of forest fire management
• Creation of a strong database for: number of fires, area burnt, damage to flora and fauna, effect of fire on land and soil and measures taken
• Assessment of ecological, social, and economic impact of fires
• Strong national extension strategy for people’s awareness and their participation in forest fire management through Joint Forest Management and NGOs

Forest Fire Prevention and Management Scheme

In 2017, Intensification of Forest Management Scheme was revised and replaced as Forest Fire Prevention & Management Scheme. The main objectives of the scheme are as follows:

• Minimise forest fire incidences and help in restoring productivity of forests in affected areas
• Encourage partnership with forest fringe communities for forest protection
• Prepare fire danger rating system and devise forest fire forecasting system

Pre-Warning Alert System

• Forest Survey of India has developed Pre-Warning Alert System.
• It gives alerts to state forest departments based on parameters like forest cover, forest types, climatic variables (temperature, rainfall) and recent fire incidences over the area

NDMA Guidelines

Major recommendations include:

• Incorporate Forest Fire Prevention and Management (FFPM) in existing policy and planning documents
• Establish National Forest fire Knowledge Network
• Capacity building of forest officials for better use of early warning systems
• Assess risk and prepare vulnerability and risk maps
• Document national and international good practices and utilise them for making forest fire management more effective and practical
• Increase community awareness

Draft National Forest Policy, 2018

• It calls for safeguarding ecosystems from forest fires, mapping the vulnerable areas and developing and strengthening early warning systems and methods to control fire, based on remote sensing technology and community participation.

FAO Recommendations on Forest Fire Management

• To conduct comprehensive analysis of the forest fire situation in India, including the study of number of fires and area burnt; the effects of ecological, economic and social impacts, current capacity for forest fire management at the National and States levels, including review of existing laws, regulations and policies covering forest fire management.
• To design a training package on strategic forest fire management planning which would enable Indian foresters to prepare site specific fire plans for all the forest types in the country
• To conduct training courses for the foresters and planners, who would then be capable of preparing strategic Forest Fire Management Plans and providing identical training to large number of field foresters throughout the country.
• To develop minimum one model State Forest Fire Management Plan to serve as an example for subsequent State plans and National plan. Plans are to be organized into a series of program components, which can be considered for development assistance by international donors and financiers.

ISSUES AND CHALLENGES:

1. Lack of appropriate policy: In India there are no clear guidelines for forest fire management. In November 2017, National Green Tribunal (NGT) had asked the Environment Ministry to evolve a national policy for prevention and control of forest fires. However, no progress has been made so far.
2. Lack of funding: the allocation of funds to the states for forest fire management is largely insufficient. Further, a large amount of the money allocated under the forest management schemes are not released
3. Early Warning: Unlike western countries, forest fire in India is largely man-made which makes it difficult to predict
4. Lack of community participation: In most of the Indian states, community participation in forest fire management has been poor
5. Lack of manpower: Lack of manpower hinders clearing of fire lines and also affects the patrolling of forest areas.
6. Climate Change: The forest fire management in India do not include climate change aspects in planning, policy formulations and implementation stages

WAY FORWARD:

Policy

At the national level, a cohesive policy or action plan should be formulated to set forth the guiding principles and framework for FFPM. The policy and programmes for forest fire management should incorporate the dimension of climate change

Management

Forest fire prevention and management practices used by state forest departments also need to be strengthened

Funding and Human Resource

Greater funding for construction of watchtowers and crew stations and for frontline officers and seasonal firewatchers to spot fires is needed. Further, adequate training should be provided to field officers, seasonal firewatchers, and community volunteers involved in firefighting.

Technology

Modern firefighting techniques such as the radio-acoustic sound system for early fire detection and Doppler radar should be adopted.

Data and information

There is a need to support forest fire management through improved data and research to fill critical knowledge gaps

Awareness

Awareness generation for forest communities and visitors is important to prevent loss of life and injuries. Further, regular drills on escape methods and routes based on forest types should be conducted.

Best Practices:

1.Canadian Forest fire Danger Rating System:

• The system collects data on fuels, weather, topography, foliar moisture content (how much moisture is in the leaves and pine needles), and type and duration of prediction.
• The data helps managers of various fire agencies determine the areas that are most vulnerable to fires and allocate their resources accordingly. Further, the Canadian Forest Fire Behaviour Prediction (FBP) System helps managers assess how far a specific fire can spread and its severity.

2. Role of forest community: Best Practice in India:

• Bilapaka village in Mayurbhanj District of Odhisa: The villagers have set up the Bilapaka Jangal Surakshya Parichalana Committee (BJSPC).
• The villagers have developed an effective warning mechanism and a process to immediately stop small fire incidents

CONCLUSION: A significant amount of technical options to assist Forest Department in increasing their resilience, preparedness and response capacities against forest fire are known and available at regional, national and international levels. However, the spectrum of available options is often not known or easily accessible. To make Forest Fire Management more effective, it is of utmost significance that available options are systematically assessed, documented, shared and adapted to location specific needs in a participatory way.

STATISTICAL REPORT:

Forest Fires Report in India:

• Ministry of Environment, Forests and Climate Change (MoEFCC) and World Bank recently released a joint report on forest fires in India.

Highlights:

• At least 60% of districts in India are affected by forest fires each year.
• The top 20 districts in terms of area affected by fire from 2003 to 2016 account for 48% of the total fire-affected area and they mostly fall in Central India.
• The 16 of the top 20 districts in terms of fire frequency are located mainly in the Northeast.
• Here, forest fires tend to be concentrated in a smaller area that is subject to repeated burning.
• The peak fire season is the most concentrated (shortest) in the Northeast and the Northern state of Bihar.
• Fires in other regions, particularly districts in Central and Southern India, are more expansive.
• Districts experiencing widespread and frequent forest fires include areas of dry and moist deciduous forest.
• These include the borderlands of Chhattisgarh, Maharashtra, and Telangana that are affected by fire on a nearly annual basis.
• Notably, between 2006 and 2015, forest fires were detected in just under half (281 of 614) of the protected areas in India.

What are the proposed reasons?

• In line with other parts of the world, people are the main driver of fires in India.
• Forest fires are distributed close to people and infrastructure in India.
• Also, India’s monsoons are largely responsible for the seasonal nature of forest fires in the country.
• Forest fires peak during the dry months of March or April before the arrival of the monsoon.
• The fire season mainly occurs during the four-month period between February 15 and May 15.
• Besides, the reduced contrast in land-sea temperatures had weakened the engine that drives the monsoon.
• But it is not yet clear how the drying of the monsoon has affected the intensity or frequency of forest fires.

Significance:

• Forest fires contribute to global warming and hence climate change, by releasing carbon stored in trees, undergrowth and soil into the atmosphere.
• Given this, the report gains significance with recent Intergovernmental Panel on Climate Change’s special report on global warming.
• The findings are crucial for India’s own pledge on creating additional carbon sink of 2.5 to 3 billion tonnes of Co2-equivalent by 2030.
• In the long run, climate shifts due to anthropogenic global warming may further alter India’s forest landscape and fire regime.
• Also, the MoEF issued national guidelines on Forest Fire Prevention and Management (FFPM) in 2000.
• But these are no longer being implemented in true spirit.
• The Comptroller and Auditor General (CAG) has documented the shortage of dedicated funding for FFPM at the central and state levels.
• The recent report is thus expected to be a key input in issuing a national policy on FFPM.

THE CONTEXT: The recent incidents of landslides in Himalayan states and the Western Ghats have again put the spotlight on the need for early detection, warning, and prevention systems and adopting sustainable solutions for better management of landslides disasters in India. This article analyses causes, impact & suggestive steps regarding Landslides.

WHAT IS A LANDSLIDE?

• Landslide is a physical phenomenon when a part of rock, and/or debris/ soil fall due to the action of gravity.
• It is caused by a set of terrain-specific geo-factors (e.g., slope, lithology, rock structure, land use/ cover, geomorphology, etc.) and in general is triggered by heavy rainfall or earthquake tremors.
• In Indian terrain, landslide events are mostly triggered by monsoonal rainfall but examples of earthquake-triggered landslides are also not uncommon in India (e.g., Uttarkashi Earthquake, Chamoli Earthquake, Sikkim Earthquake, etc).
• The entire Himalayan tract, hills/ mountains in sub-Himalayan terrains of North-east India, Western Ghats, the Nilgiris in Tamil Nadu Konkan areas are landslide-prone.

RECENT LANDSLIDE DISASTERS

ü  On 26th July, nine people lost their lives when a landslide suddenly flung boulders down a hill in Himachal Pradesh’s Kinnaur district.

ü  On 18th July 18, a series of landslides in two areas of Mumbai claimed at least 32 lives.

ü  On 14th July, five died in HP’s Kangra district after heavy rainfall triggered floods and landslides.

IMPORTANT FACTS RELATED TO LANDSLIDE RISK IN INDIA

• India has mountainous and hilly areas in as many as 16 states and two UTs, located in the Himalayan and sub-Himalayan region and the Western Ghats.
• The area prone to landslides accounts for about 12.6% of the Indian landmass, translating into 4.2 lakh square kilometers in absolute terms.
• This area spans across more than 170 districts.
• India accounts for about 18 percent of the total global fatalities due to landslides in the hills. Uttarakhand, Himachal Pradesh, J&K, and Ladakh record more than 65 percent of the landslides in the country, followed by the Northeast Himalayas and the Western Ghats.

WHY DO THE HIMALAYAS EXPERIENCE MORE LANDSLIDES THAN THE WESTERN GHATS?

• The Himalayas are one of the youngest fold mountains of the world. They are formed by the convergent movement of the Indian plate and Eurasian plate rather they are still rising in height. These tectonic movements cause frequent earthquakes in the region often resulting in landslides. Whereas the Western Ghats lies in the stable Deccan shieldless prone to landslides than the Himalayas.
• The Himalayas are greater in height than the Western Ghats. The slopes are comparatively steeper which increases the chance of landslide. Whereas the Western Ghats is much lesser in height than the Himalayas.
• The perennial rivers in the Himalayas carry a huge amount of silt and debris. The melting of glaciers even increasing the flow of water during summer thus leading to more amount of landslides. But the Western Ghats on the other hand does not face such a situation.

MAJOR LANDSLIDE PRONE AREAS OF INDIA

ANALYSING THE REASONS BEHIND LANDSLIDE

HUMAN INTERVENTION

• Human activity such as the construction of roads, buildings, and railways, mining and quarrying, and hydropower projects damage hilly slopes and impact natural drainage by removing soil and vegetation, loosening soil and gravel, and making the hills more susceptible to landslides.
• India accounted for 28% of construction-triggered landslide events, followed by China (9%), and Pakistan (6%).
• India also accounted for maximum landslides triggered by mining, at 12%, followed by Indonesia (11.7%), and China (10%).
• Bootstrapping an incompatible model of development in the hills, represented by big hydroelectric projects and large-scale construction activity involving the destruction of forests and damming of rivers, is an invitation to disasters like landslides.
• According to the GSI report, infrastructural development for tourism that involved the modification of slopes – construction of new roads and widening of existing ones, building houses, hotels, and homestays – increased the vulnerability of mountains in both the Himalayas and the Western Ghats to the rain and made the landslides and floods that much more devastating. For example, landslides in Kodagu.
• In the Western Ghats, Plantations are also the major reason for landslides. Imported tree species cannot withstand the local weather conditions and get uprooted even in a slight downpour. For example, Nilgiris initially had a lot of native trees and millet species but monoculture transformed the soil. With the use of pesticides, chemical fertilizers, and repeat planting methods, the texture of the soil changed gradually.

UNPLANNED DEVELOPMENT, FLAWED REGULATIONS

• A study analyzing building regulations in eight towns in the Himalayan region found that building bylaws do not make provisions for the particular geo-environmental context of a settlement. The same land use regulations apply regardless of topographical location, slope angle and direction, and the hazard potential of a site.
• The National Landslide Risk Management Strategy published by the NIDM in September 2019 also flagged this anomaly. The regulations are mostly inspired by Delhi Master Plan(s).
• Lack of local land use planning or its updation in the urban local bodies of the Himalayan region and the Western Ghats is resulting in ill-conceived planning, unplanned development, and ultimately slope instability.

EXTREME WEATHER

• Severe, unpredictable weather events such as heavy, intense rainfall due to the climate crisis are adding another layer of complexity to landslide incidents in the country.
• Of the total landslides triggered by rainfall, 16% were reported from India. Of these, 77% occurred during the monsoon.

NDMA’S GUIDELINES FOR LANDSLIDE AND SNOW AVALANCHES DISASTER MANAGEMENT (2009) AND NATIONAL LANDSLIDE RISK

MANAGEMENT STRATEGY (2019)

LANDSLIDE HAZARD, VULNERABILITY, AND RISK ASSESSMENT

• It includes delineating areas susceptible to landslide hazards and the status of landslide hazards in different areas and to assess the resources at risk due to these hazards as per the requirement of communities and for planning and decision-making purposes.
• This also involves site-specific studies of landslides and preparation of landslide inventory.

MULTI-HAZARD CONCEPTUALISATION

• Integrating landslide concerns into multi-hazard disaster management plans at different levels for effective risk assessment, mitigation and response.

LANDSLIDE REMEDIATION PRACTICE

• Encouraging implementation of successful landslide remediation and mitigation technologies, and execution of pacesetter examples in mitigation and remediation strategies to build confidence amongst the affected communities.

RESEARCH AND DEVELOPMENT; MONITORING AND EARLY WARNING

• Research is of critical importance in managing landslides. Developing a predictive understanding of landslide processes and triggering mechanisms; regional real-time landslide warning systems based on threshold values of rainfall; real-time monitoring and establishing early warning systems are some of the important fields of research that need immediate attention.

KNOWLEDGE NETWORK AND MANAGEMENT

• Establishing an effective system for gathering information on landslides, loss assessment resulting from landslides, and the effective dissemination of technical information and maps is an essential component of the disaster management process.

PUBLIC AWARENESS AND EDUCATION

• Effective communication of landslide hazard issues to the affected communities through education, public awareness programmes, posters, audio-visual aids, media campaigns, etc., is required.

EMERGENCY PREPAREDNESS AND RESPONSE

• Development of coordinated landslide rapid response capability involving scientists, engineers, local authorities, the National Disaster Response Force, and paramilitary forces. Rescue, relief, and rehabilitation are covered in this component.

WAY FORWARD: LANDSLIDE-PRONE AREAS NEED TECH SUPPORT

HOW MAPPING LANDSLIDES CAN MINIMISE DAMAGE

• Improvement in early warning systems, monitoring, and susceptibility zoning can reduce the damage caused by landslides.
• The Geological Survey of India (GSI) has done a national landslide susceptibility mapping at 1:50,000 scale for 85% of the entire 420,000 square km landslide-prone area in the country.
• This would not only help avoid many new landslides that are caused heavily by human interventions but also reduce damages to life and property if an incident happens.
• The maps need to be localized to give a more magnified view of the locality to be more useful. This would help to build plans and local construction activities.

PLANNING AHEAD

• Aizawl Municipal Corporation (AMC) has developed a landslide action plan using 1:5,000 scale susceptibility maps and new regulations to guide construction activities.
• It has set up a landslide policy committee involving stakeholders from various departments and researchers to prepare a long-term safety plan.
• After years of facing tragedies, Kerala is also trying to ensure disaster-resilient development in its hilly regions. The ‘Rebuild Kerala’ action plan has given high priority to the preparation of landslide hazard zonation maps in hilly areas at the municipality and panchayat levels.
• NHAI while building roads took remedial measures such as concreting with wire mesh and rock bolting, use of rockfall nets, concrete cladding, and proper diversion of surface runoff through catch drains, chutes and toe drains on berms, etc. It provides stability to the slopes.

MONITORING FOR EARLY WARNING

• Local geographical indicators offer warning signs for landslides.
• New cracks, unusual bulges and depressions in the ground; tilting trees, telecom poles or retaining walls; soil moving away from foundations; and sudden increase in water flow in streams with more mud, or decrease in flow when it is still raining or rainfall has recently stopped, can signal landslides.
• Rainfall is a key indicator. The GSI started an experiment in Landslide Early Warning System (LEWS) in Darjeeling (West Bengal) and the Nilgiris (Tamil Nadu), which could be expanded to other landslide-prone states if it proves successful. The model is based on rainfall threshold, which is the amount of rainfall a slope can hold before a landslide gets triggered, which is estimated using past cumulative rainfall data combined with landslide susceptibility data.
• Some experiments are also going on to monitor landslides through movement sensors and rain gauges. These systems alert the officials and scientists through SMS or emails once a threshold value is reached. Coimbatore-based Amrita Vishwa Vidyapeetham, for instance, has set up real-time landslide monitoring and early warning systems in Munnar (Kerala) and Gangtok (Sikkim).
• The Indian Institute of Technology (IIT), Mandi, has also installed surface-level motion-sensor-based early warning systems in Himachal Pradesh and Uttarakhand. The device collects weather parameters, soil moisture, soil movement, and rainfall intensities. When the device detects a significant displacement of the earth which could result in a landslide, it alerts the officials.

SWISS MODEL

• Prof.Madhav Gadgil who headed the Western Ghats Ecology Expert Panel (WGEEP) suggested ‘Swiss Model’ is the solution to prevent landslides in the Western Ghats

ü  The extensive forest cover of Switzerland has developed only over the last 160 years.

ü  Before that, only about 4% of that country’s lands had retained forest and there were disastrous landslides.

ü  This led to a public awakening and a restoration of the tree cover.

ü  This regeneration was managed by local communities, not by government departments.

ü  Working together, communities of Switzerland, practicing genuine participatory democracy, have revived the country’s ecology.

CONCLUSION: There is a cost to pursuing development goals without paying attention to environmental constraints. Therefore, development goals must be pursued without breaching environmental regulations. Recent devastating landslides signal the dire need for ramping up disaster alert systems while enhancing climate change mitigation efforts.

THE CONTEXT: Recently, torrential rains that took place in Hyderabad have caused massive urban floods. In many Indian cities, the urban floods have become a frequent phenomenon in recent years.The scale of destruction has been unprecedented. This experience is not unique to the city of Hyderabad but something that cities across India have been experiencing in recent years. This article discusses about the urban flooding, causes, impacts and the possible solutions.

WHAT IS URBAN FLOODING?

Flooding in urban areas can be caused by flash floods, or coastal floods, or river floods, but there is also a specific flood type that is called urban flooding. It is different from normal floods, because

• Urban flooding is specific in the fact that the cause is a lack of drainage in an urban area. As there is little open soil that can be used for water storage nearly all the precipitation needs to be transport to surface water or the sewage system.
• High intensity rainfall can cause flooding when the city sewage system and draining canals do not have the necessary capacity to drain away the amounts of rain that are falling.
• Overburdened drainage, frenzied and unregulated construction, no regard to the natural topography and hydro-geomorphology all make urban floods a man-made disaster.

CAUSES

Natural causes

• Meteorological Factors- Heavy rainfall, cyclonic storms and thunderstorms causes water to flow quickly through paved urban areas and impound in low lying areas.
• Hydrological Factors- Overbank flow channel networks, occurrence of high tides impeding the drainage in coastal cities.
• Climate Change- Climate change due to various anthropogenic events has led to extreme weather events.

The rainfall received in Hyderabad in 2020 has been the highest for the month of October in a century.

Anthropological causes

• Unplanned Urbanization is the key cause of urban flooding. A major concern is blocking of natural drainage pathways through construction activity and encroachment on catchment areas, riverbeds and lake beds.
• Destruction of lakes is a major issue in India cities. Lakes can store the excess water and regulate the flow of water.
• Pollution of natural urban water bodies and converting them for development purposes has increased risk of floods.

Poor and old drainage system

Cities like Hyderabad, Mumbai rely on a century-old drainage system, covering only a small part of the core city.

• In the last 20 years, the Indian cities have grown manifold with its original built-up area.
• As the city grew beyond its original limits, not much was done to address the absence of adequate drainage systems.
• Inability to manage the city’s drainage systems is an another cause of urban flooding.

Incremental land use change

• Neglecting issues of incremental land use change, particularly of those commons which provide us with necessary ecological support — wetlands.
• This has led to creation of urban terrain which is incapable of absorbing, holding and discharging water.
• The number of wetlands has reduced to 123 in 2018 from 644 in 1956.
• Green cover is only 9 per cent, which ideally should have been at least 33 per cent.

Overlooking environmental regulations

Overlooking environmental regulations in mega-projects is fairly common in the country.

• Commonwealth Games Village (CWG) were built right on the Yamuna’s floodplain.
• The secondary runway of Chennai International Airport was also built right over the Adyar river. Most of the airport was constructed on the riverine floodplains, leading to massive flooding during the 2015 Chennai floods.
• Recent developments such as Andhra Pradesh’s Amaravati Capital City Project, had major areas proposed to be built on the floodplains of Krishna river.

IMPACTS OF URBAN FLOODS

• Economy- Damage to infrastructure, roads and settlements, industrial production, basic supplies, post disaster rehabilitation difficulties etc.
• Human population and wildlife– Trauma, loss of life, injuries and disease outbreak, unhygienic living conditions in slums, contamination of water etc.
• Environment- Loss of habitat, tree and forest cover, biodiversity loss and large scale greenery recovery failure.
• Transport and communication– Increased traffic congestion, disruption in rail services, disruption in communication- on telephone, internet cables causing massive public inconvenience.

WHAT SHOULD BE DONE?

Holistic engagement

• Floods needs to be managed with concerted and focused investments of energy and resources.
• The Metropolitan Development Authorities, National Disaster Management Authority, State revenue and irrigation departments along with municipal corporations should be involved in such work together.
• Such investments can only be done in a mission mode organisation with active participation of civil society organisations at the metropolitan scale.

Developing Sponge Cities

• The idea of a sponge city is to make cities more permeable so as to hold and use the water which falls upon it.
• Sponge cities absorb the rain water, which is then naturally filtered by the soil and allowed to reach urban aquifers.
• This allows for the extraction of water from the ground through urban or peri-urban wells.
• This water can be treated easily and used for city water supply.

Wetland Policy

There is a need to start paying attention to the management of wetlands by involving local communities.

• Terrain alteration needs to be strictly regulated and a ban on any further alteration of terrain needs to be introduced.
• To improve the city’s capacity to absorb water, new porous materials and technologies must be encouraged or mandated across scales.
• Examples of these technologies are bio-swales and retention systems, permeable material for roads and pavement, drainage systems which allow storm water to trickle into the ground, green roofs and harvesting systems in buildings.

EIAs and enforcement will remain vital to ensure that fragile wetlands and floodplains are not concretised.

Drainage planning

• Watershed management and emergency drainage plan should be clearly enunciated in policy and law.
• Urban watersheds are micro ecological drainage systems, shaped by contours of terrain.
• Detailed documentation of these Urban watersheds must be held by agencies where natural boundaries instead of governance boundaries (like wards) are used to come up with drainage plan.

Water sensitive urban design

• Methods should be adopted which takes into consideration the topography, types of surfaces (permeable or impervious), natural drainage and leave very less impact on the environment.
• Vulnerability analyses and risk assessments should form part and parcel of city master plans.
• In a changing climate, the drainage infrastructure (especially storm water drainage) has to be built considering the new ‘normals’.
• Tools such as predictive precipitation modelling can help do that and are also able to link it with the adaptive capacity of urban land use.

These can all be delivered effectively through an urban mission along the lines of the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), National Heritage City Development and Augmentation Yojana (HRIDAY) and Smart Cities Mission.

CONCLUSION: Urban Flood management will not just help control recurring floods but also respond to other fault lines, provide for water security, more green spaces, and will make the city resilient and sustainable. We need to urgently rebuild our cities such that they have the sponginess to absorb and release water without causing so much misery and so much damage to the most vulnerable of our citizens

CASE STUDIES OF URBAN FLOODING

1. HYDERABAD FLOODS

Urban flooding has become a common occurrence these days in India. The latest victim of urban flooding is Hyderabad.

Basic information-The city as well Telangana received unusually excessive rainfall October 13-14, 2020, due to a deep depression that developed in the Bay of Bengal. Heavy damage to property, roads and human lives has been reported.

The population of the city has grown exponentially. It is 10 million today.

Geographical setting- Hyderabad is located on the banks of the Musi river. The Himayat Sagar and Osman Sagar dams on the river, supply the water to the city.

Based on hydrology, present-day Hyderabad can be divided into Krishna and Godavari basins. Traditionally, all the rainwater falling in the catchment areas of Musi would discharge into Musi which is one of the 22 tributaries of the Krishna river. And newer localities to the west of Hyderabad, including Gachibowli and the IT corridor, are all in the catchment areas of the Godavari.In both Krishna and Godavari basins, the city has a network of lakes and drains which carry the excess water from one to another and then finally into the Musi and Majeera rivers.

Over the years, owing to the expansion of the city, the lakes were not in demand for their primary purposes of irrigation and drinking water. But they continued to be relevant for flood regulation.

Issue-The city of Hyderabad doesn’t usually get flooded due to monsoonal rain, which is spread over a long period. There is a natural system of flow of water from a high elevated area to a lower one. But Lakes in the town have shrunk due to encroachment. Discharge of sewage and industrial effluents, encroachments by government and private individuals, and decades of neglect had everyone thinking the river would never flow again. Most of the former waterways are open sewers now. But, on October 13, the river was in spate once again after a record downpour. Low-lying localities and colonies that were built on the lake beds and nullahs were submerged in no time. Many days later, hundreds of these colonies were still under water.

Large water bodies that existed for centuries have shrunk in size, encroachments have eaten into natural waterways, and stormwater drains get easily clogged.

Losses-As many as 33 lives have been lost to heavy rains and floods in the city, with the GHMC estimating that at least 37,409 families have been affected. The Municipal Administration minister pegged the city’s losses at Rs 670 crore.

2. MUMBAI FLOODS

Basic information-The 2005 Maharashtra floods impacted many parts of the Indian state of Maharashtra including large areas of the metropolis Mumbai, a city located on the coast of the Arabian Sea, on the Western coast of India. The floods were caused by the eighth heaviest-ever recorded 24-hour rainfall figure of 944 mm (37.17 inches) which lashed the metropolis on 26 July 2005, and intermittently continued for the next day.

Approximately 1,094 people died and city of Mumbai came to a standstill due to flooding.

Issues

• The present storm-water drainage system in Mumbai was put in place in the early 20th century and is capable of carrying only 25.1237 millimetres of water per hour which was extremely inadequate on a day when 993 mm of rain fell in the city. The drainage system was also clogged at several places.
• Haphazard Development- Development in certain parts of Mumbai is haphazard and buildings are constructed without proper planning. The drainage plans in northern suburbs is chalked out as and when required in a particular area and not from an overall point of view.
• Destruction of mangrove ecosystems- Mangrove ecosystems which exist along the Mithi River and Mahim Creek are being destroyed and replaced with construction. These ecosystems serve as a buffer between land and sea.
• Sewage and garbage dumps have also destroyed mangroves. The Bandra-Kurla complex in particular was created by replacing such swamps. The most acclaimed Mindspace CBD (INORBIT MALL) in Goregaon & Malad has been built by destroying a large patch of mangroves in Maharashtra.

3. CHENNAI FLOODS

Basic information-Chennai received 1,049 mm (41.3 in) of rainfall in November, the highest recorded since November 1918 when 1,088 mm (42.8 in) in of rainfall was recorded. On 1 December, heavy rains led to inundation in many areas of Chennai.

Chennai is built on flat coastal floodplains. Wetlands – including natural and artificial drains are the city’s insurance against heavy rains and cyclonic storm surges.

Issues-A study revealed how the city’s built-up area grew nine-fold – from 47 sq km in 1980 to 402 sq km in 2012 – even while area under wetlands declined from 186 sq km to 71 sq km during the same period. Between 1996 and 2015, more than 1,000 acres of this wetland was allegedly illegally diverted to accommodate industrial installations belonging to state-owned companies, including a large port and several coal-fired power plants.

The 2015 rains crippled the neighbourhoods drained by the creek. Some went under because power plants, coal ash ponds and coal yards blocked the flowing run-off from their habitations to the creek. Others were harmed by waters backing up far inland because their natural holding area – the backwaters – had been eaten into. The floods brought the refinery to a halt.

A parliamentary committee that enquired into the cause of the 2015 floods was categorical in its report that “encroachment of lakes and riverbeds played a major role in causing massive floods in Chennai”.

Impact-Power supplies were suspended to 60% of the city while several city hospitals stopped functioning. The Southern Railways cancelled major train services and Chennai International Airport was closed until 6 December.

THE CONTEXT: The ever-growing mechanisation, electrification, chemicalisation and sophistication have made industrial jobs more and more complex and intricate leading to increased dangers to human life in industries through accidents and injuries. In fact, the same underline the need for and importance of industrial safety. This article discusses about the industrial disaster related problems, measures and possible solutions.

DEFINING INDUSTRIAL ACCIDENT

• An industrial accident may be defined as “an occurrence which interrupts or interferes with the orderly progress of work in an industrial establishment.
• According to the Factories Act of 1948, it is “an occurrence in an industrial establishment causing bodily injury to a person which makes him unfit to resume his duties in the next 48 hours.

In other words, it is an unexpected event which is neither anticipated nor designed to occur. It is always sudden, for a gradual process does not constitute an accident.

SOME MAJOR INCIDENTS

• Bhopal Gas Tragedy, 1984
• A chlorine gas leak at Jamshedpur (2008),
• A fire at an Oil and Natural Gas Corporation Ltd (ONGC) platform at Bombay High (2005),
• A toluene fire at a Ranbaxy Laboratories Ltd factory in Mohali (2003),
• A chlorine gas leak in Vadodara (2002) that affected 250 people.
• Ammonia gas leaked at Oswal Chemicals and Fertilisers Ltd at Paradip, Odisha, in 1999 during a supercyclone,
• An earthquake damaged a phosphoric acid sludge containment at Bhuj, Gujarat, in 2001.

Recent incidents

• On 20th August 2020, a major fire broke out in late night hours, in an underground hydroelectric power plant in Srisailam in the state of Telangana. The fire blaze killed 9 people, including 5 engineers.
• On 7th May 2020, a gas leak from the LG Polymers plant in Visakhapatnam, which was operating without environmental clearance for over two decades, killed 12 people and sickened hundreds.

ISSUES RELATED TO THE INDUSTRIAL DISASTERS

Less attention

• Since May 2020, there have been 30 industrial accidents in India, killing at least 75 workers, according to IndustriALL, a global union of workers.
• From 2014 to 2017, 8,004 such incidents occurred in Indian workplaces killing 6,368 employees.
• Most such incidents took place in Delhi, Maharashtra and Rajasthan.

Industrial reforms v/s Industrial safety

• The Department of Industrial Policy and Promotion has identified about 400 plus reforms, some of which have an adverse impact on industrial safety.
• The government, as part of these reforms, is dismantling the inspection system which overlooked regulations to a self-certification system or third-party certification.

Issue of decommissioning

• There is no proper mechanism for decommissioning of power plants for example the atomic power plants which have completed their lifespan of 30-40 years have still not been decommissioned.
• Even the Nuclear Liability Act is inadequate to deal with such disasters.

Inadequate compensation

• Inadequate compensation policy for example the inadequacy of the compensation under the PLI Act, which is the only legislation we have for compensating victims of tragedies such as Bhopal and Vizag, is best highlighted by the amount offered which was too less.

MEASURES TAKEN BY THE GOVERNMENT

• 1948-Draft regulations on the control of, major accident hazards were first prepared as model rules that were then notified to the states under the Factories Act of 1948.
• 1987 amendment-One important change that followed Bhopal and the oleum gas leak case came in 1987, when the Factories Act, 1948, was amended to extend the scope of risk from such industries. What used to be a narrowly defined scope covering only workers and the premises of the factory was extended to the general public in the vicinity of the factory.
• 1989-The Ministry of Environment and Forests included the rules as the ‘Manufacture, Storage and Import of Hazardous Chemicals Rules, 1989’ under the Environment (Protection) Act of 1986 which detail and catalogue chemicals deemed “hazardous” entering the country, the port of entry and the quantity imported.
• The Public Liability Insurance Act, 1991, which is an insurance meant to provide relief to persons affected by accidents that occur while handling hazardous substances.
• The Chemical Accidents (Emergency Planning, Preparedness, and Response) Rules, 1996, which address gas leaks and similar events.
• Chemical Accidents (Emergency, Planning, Preparedness and Response) Rules, 1996: Centre is required to constitute a central crisis group for management of chemical accidents; set up quick response mechanism termed as the crisis alert system. Each state is required to set up a crisis group and report on its work.
• The Hazardous Wastes (Management, Handling and Transboundary Movement) Rules, 2008, fix responsibility on those who have control over a facility dealing with such hazardous substances, and those who import, handle or transport such waste, making them “liable for all damages caused to the environment or third party” as well as payment of “financial penalties”.
• The National Green Tribunal (NGT),which was set up by an Act of Parliament in 2010 for the Public Liability Insurance Act would provide interim relief and that the tribunal would determine the final compensation. The Act also provides for the “principle of no fault liability”, which means that the company can be held liable even if it had done everything in its power to prevent the accident.
• Factory Advice Service and Labour Institute– The Government has set up Factory Advice Service and Labour Institute, Bombay, which functions as an integral body to advise Government, industry and other interests concerned with matters relating to safety, health and welfare of factory workers.
• National Program for Co-ordinated Action Plan – The Government has drawn up a “National Program for Co-ordinated Action Plan” for control of hazards, and protection of occupational health and safety workers in dangerous manufacturing processes. The Action Plan lists out the responsibilities of the Government, management and workers’ organisations in the field of safety and health in work environment, and includes ‘Model Scheme for setting up Full Safety Control System Cell’ in hazardous industries and ‘Safety and Health Accidents Reduction Action Plan’ (SAHARA) in all industries.
• National Safety Council– National Safety Council was set up in 1966 to promote safety consciousness among workers to prevent accidents, minimise dangers and mitigate human sufferings, conduct programs, lectures and conferences safety.
• National Safety Awards– To give recognition to good safety performance on the part of industrial undertakings and to stimulate and maintain the interest of both the managements and the workers in accident prevention programs, the Central Government instituted in 1965 the National Safety Awards.

WHAT SHOULD BE DONE

Some of the steps for ensuring safety and preventing industrial disasters are:

Intervention at the Managerial Level

• Management should assess the overall workplace safety aspects and possible threats or hazards.
• Drafting safety policy according to the assessment of the possible threats. Safety policy implementation & follow-up should be taken on a regular basis.
• Safety Training & drills on a periodic basis.
• Workload assessment and Equipment and maintenance audit on regular basis for the proper assessment of hazards.

Technological Interventions

The technological interventions refer to technology-audit and ensuring that better technologies are used and employed in the organizations that enhance safety aspects.

• Design and construction of plant and workplace should be safe.
• Arrangement of machinery equipment and material should be such as to eliminate risk of accident.
• Machines and equipments should be kept in good working conditions.
• Good working environment free from noise, pollution, and other environmental hazards should be ensured.
• Use of fire-retardant materials in construction, dual exits, easy vertical escape routes using staircases and alarm systems should be the part of safety codes.

Training and Placement Side

• Great cares should be taken while selecting persons for the jobs only skilled persons should be selected to handle machinery and equipment.
• Workers should be given proper in plant training and education regarding safety and use of safety devices.

Behavioural Interventions

• Making safety at workplace a way of life rather than a periodic inspection issue is the real challenge.
• Safety should become everyone’s agenda rather than being an enforcement issue.
• Zero tolerance for any unsafe practice or unsafe act, zero procrastination of safety aspects, prioritizing safety over everything are some of the desired behaviour from employees especially from managers.

Government interventions

• Once government allows setting up a factory manufacturing hazardous substances or is otherwise hazardous, it is essential for government to ensure an adequate buffer zone and not permit people to stay around in that zone or allow any business shops or constructions therein.
• The central crisis group is required to constantly monitor post-accident situations, conduct analyses of these accidents and suggest preventive steps to avoid recurrence.
• Effective monitoring and regular follow up of safety measures.

ACCOUNTABILITY NEED TO BE FIXED

• After the Bhopal gas tragedy the judiciary evolved what came to be called the Doctrine of Absolute Responsibility in a case of oleum gas leak from a Delhi Cloths Mill factory.
• In a public interest litigation (1986) a five-judge bench of the apex court defined “absolute liability” as an enterprise which is engaged in a hazardous or inherently dangerous industry which poses a potential threat to the health and safety of the persons working in the factory and residing in the surrounding areas owes an absolute and non-delegable duty to the community to ensure that no harm results to anyone on account of hazardous or inherently dangerous nature of the activity which it has undertaken,”
• In the judgement court also said that compensation needs to have a “deterrent effect” and must be reflect the “magnitude and capacity of the enterprise”. The larger and more prosperous the enterprise, the greater must be the amount of compensation payable by it, the court said.
• Accountability of local administration is also need to be fixed as the administration is responsible for safety measures is being taken or not by the enterprise.

WAY FORWARD

• There are so many rules and regulations related to industrial disasters but the questions arises as to what extent are these laws relevant today? Have they been effectively used? Or is there a need for a more comprehensive law?
• Major risks are recognized, but preventive laws are generally inadequate to cope with hazards and emergencies. The enforcement efforts of the governmental agencies concerned with the protection of workers, the public, and the environment need to be properly coordinated.
• With industrialisation and a growing number of industries using hazardous substances, our legislative framework is no longer in sync with the changing times.

CONCLUSION: In this era of competition, market volatility and uncertainty there may be sometimes a tendency to cut-corners when it comes to safety issues. No such steps must be permitted that endangers lives of the employees or of any other member of the society due to operations of an organization.

THE CONTEXT: The spike in recent years in extreme calamities, topped by the Covid outbreak, spotlights the urgency of better disaster preparedness in Indian states and the Centre. Health pandemics like Covid and climate hazards like the Uttarakhand floods or Delhi heat waves have differing origins, but they spotlight common gaps in readiness. With extreme health and climate disasters set to continue, these events must be seen as regular occurrences rather than one-off acts of nature. Ranked by HSBC as the most vulnerable to climate change among 67 nations, India needs to make a paradigm shift to prioritize preparedness and not just recovery. This preparedness plan must be tailor made to the unique requirements of the states.

WHAT IS A DISASTER?

• As per Disaster Management Act, 2005 disaster is defined as “A catastrophe, mishap, calamity or grave occurrence in any area, arising from natural or manmade causes, or by accident or negligence which results in substantial loss of life or human suffering or damage to, and destruction of property, or damage to, or degradation of environment and is of such a nature or magnitude as to be beyond the coping capacity of the community of the affected area.”
• The United Nations defines disaster as “the occurrence of sudden or major misfortune which disrupts the basic fabric and normal functioning of the society or community”.

UNDERSTANDING DISASTER MANAGEMENT

• As per Disaster Management Act, 2005, “disaster management” means a continuous and integrated process of planning, organising, coordinating and implementing measures to deal with disasters.
• In other words, Disaster Management is the organization and management of resources and responsibilities for dealing with all humanitarian aspects of emergencies, in particular preparedness, response and recovery in order to lessen the impact of disasters.
• Disaster management includes administrative decisions and operational activities that involve Prevention · Mitigation · Preparedness · Response · Recovery · Rehabilitation
• Key Phases of Disaster Management There are three key phases of activity within disaster management:

1. Pre – Disaster: Before a disaster to reduce the potential for human, material or environmental losses caused by hazards and to ensure that these losses are minimized when the disaster actually strikes.
2. During Disaster: It is to ensure that the needs and provisions of victims are met to alleviate and minimize suffering.
3. Post Disaster: After a disaster to achieve rapid and durable recovery which does not reproduce the original vulnerable conditions

DISASTER PREPAREDNESS: CONCEPT

• The focus of this write up is on the necessity of state specific Pre disaster preparedness/readiness plans.
• Hitherto, the approach towards coping with the effects of natural disasters has been post disaster management, limited to problems such as law and order, evacuation and warnings, communications, search and rescue, fire-fighting, medical and psychiatric assistance, provision of relief and sheltering, etc
• It is not possible to do away with the devastation of natural hazards completely. However, experience has shown that destruction from natural hazards can be minimised by a well-functioning warning system, combined with preparedness on the part of the vulnerable community.
• Warning systems and preparedness measures reduce/ modify the scale of disasters
• It is becoming increasingly evident now that a relatively smaller investment in disaster preparedness can save thousands of lives and vital economic assets, as well as reduce the cost of overall relief assistance.
• This preparedness process embraces measures that enables governments, communities and individuals to respond rapidly to disaster situations to cope with them effectively.
• Preparedness includes for example, the formulation of viable emergency plans, the development of warning systems, the maintenance of inventories, public awareness and education and the training of personnel.
• It may also embrace search and rescue measures as well as evacuation plans for areas that may be „at risk‟ from a recurring disaster.
• All preparedness planning needs to be supported by appropriate rules and regulations with clear all allocation of responsibilities and budgetary provision.
• According to Sendai Framework (2015-2030), one of the priorities of action is enhancing disaster preparedness for effective response.

BENEFITS OF DISASTER PREPAREDNESS PLANS: CASE STUDY FROM STATES

STATE

MEASURES TAKEN

KERALA

• Kerala stands out for its handling of recent catastrophes.
• Despite high levels of recorded infection rates, Kerala has a 0.3% death rate from Covid, the same as Singapore’s, which has the world’s lowest death rate.
• Early detection, swift isolation and speedy contact-tracing have been responsible.
• The use of frugal innovative methods as platforms for decision-making has been effective, as has been Kerala’s oxygen management, direct procurement of vaccines and a policy of zero vaccine wastage.
• The state has effectively used the E-E Sanjeevani telemedicine portal, offering psycho-social support for the sick.
• The needs of frontline workers, the elderly living alone and of migrant labourers—challenges in other Indian states too—have been a priority for Kerala’s government.

ODISHA

• Odisha has a great community outreach system through which people are being reached on time.
• It now has a network of 450 cyclone shelters and there is a robust mechanism for the maintenance of the cyclone shelters—each cyclone shelter has a maintenance committee where youth have been involved and trained for search and rescue, first aid medical attention, and for providing cyclone warnings.
• Through a network of these shelters and committees and training, the state has involved the entire community; it is now fairly easy to disseminate warnings and move people into safe cyclone shelters.
• The state’s disaster management systems are monitored twice each year, given the propensity of natural disasters in the state.
• This is not the first time that a poor state like Odisha has managed to successfully evacuate millions of people during a natural disaster; it also did so during Cyclone Phailin in 2013.
• Odisha has managed to create a sense of community during such disasters that other states can also emulate.
• This disaster readiness was evident when Cyclone Fani hit Odisha in May 2021.
• The Odisha government showed a high degree of preparedness and effectively managed to evacuate about 1.2 million people based on these predictions.
• The government of Odisha successfully managed to minimize the loss of life; this itself was not a small exercise and required tremendous effort.

WHY INDIA NEEDS STATE SPECIFIC DISASTER PREPAREDNESS PLANS?

REASON

EXPLANATION

LEGAL REQUIREMENT

• According to Section 23 of DMA Act, there shall be a plan for disaster management for every State called as State Disaster Management Plan.

SPECIFIC VULNERABILITIES

• Vulnerability is the inability to resist a hazard or to respond when a disaster has occurred. For instance, people who live on plains are more vulnerable to floods than people who live higher up. The vulnerability of states and the different parts of the State vary to different forms of disasters. For instance, coastal areas are vulnerable to cyclones while mountain regions to landslides.

ADMINISTRATIVE SET UP

• The administrative arrangements in the states differ on multiple counts. For instance, the number of departments, the human, physical, financial resources available, their roles and responsibilities etc vary considerably. Thus a specific disaster preparedness plans can account for these diverse factors.

DISASTER RISK ASSESSMENT AND REDUCTION

• India has a Protocol for Disaster Risk Assessment and Reduction, based on composite methods of states and the experience of the National Disaster Management Authority in disaster management. But a vast gap remains from the parts of states in implementing vital investments in infrastructure, education and health needed for disaster mitigation.

SUCCESS STORIES

• The Kerala and Odisha success stories provide a strong and compelling case for tailor made state disaster preparedness plans to be formulated by other states.

COMMUNITY OWNERSHIP

• In Gorakhpur, local communities are using nature-based solutions to build resilience against frequent floods. Gorakhpur Environmental Action Group has come up with climate resilient methods for vulnerable communities. For example, farmers switched from mono-cropping to rotating multiple crops to improve soil health and drainage. Several adopted organic practices, which reduce harmful run-off in nearby rivers. A weather advisory group helps farmers use a text message-based early warning system to schedule irrigation and harvesting.

CLIMATE CHANGE CHALLENGES

• Climate change can increase disaster risk in a variety of ways – by altering the frequency and intensity of hazard events, affecting vulnerability to hazards, and changing exposure patterns. Climate change is already modifying the frequency and intensity of many weather-related hazards as well as steadily increasing the vulnerability and eroding the resilience of exposed populations that depend arable land, access to water, and stable mean temperatures and rainfall. States face unique challenges of climate change related disasters.

CAPACITY BUILDING

• The resource endowments of states in India vary considerably. For instance, State investments in health differ enormously. Kerala’s per capita public health expenditure, for example, is about twice that of Uttar Pradesh and Bihar. Thus, states’ preparedness plans can provide for a streamlined strategy for acquisition, organisation, training and coordination of all relevant stakeholders.

WHAT ARE THE PROBLEMS IN STATE DISASTER PREPAREDNESS?

The problem areas in preparedness are organisational and planning related issues, like inadequate policy direction, outdated plans and over concentration on recovery and response activities, which leads to low preparedness.

Lack of resources or resource organisations and unclear allocation of these resources is also likely to create gaps or overlaps in the preparedness arrangements.

Other problems like inadequate coordination and lack of cooperation at the policy making and implementation level, public awareness and suitable training for the disaster managers usually contribute significantly to poor disaster preparedness activities. The problems in state disaster preparedness are summarized below

FRAGILE INSTITUTIONS

• Disaster Management Act 2005, provides for institutional mechanisms like, State Disaster Management Authorities (SDMAs), District Disaster Management Authorities (DDMAs).  However, in many cases, these institutions are not active and operational except a few exceptions.
•  Recently, In its performance audit report on the disaster management mechanism in the country, submitted to Parliament, CAG had highlighted that the Uttarakhand disaster management authority (SDMA), constituted in 2007, had not formulated any rules, regulations, policies or guidelines for disaster management in the state.
• One of the major reasons why the Uttarakhand government was unable to contain the scale of the devastation that has taken place in the state because of flash floods was its lack of preparedness to deal with such disasters.
• The Second wave of Corona pandemic saw a near total collapse of health systems in the States. The total lack of disaster preparedness despite warnings has proved very costly in terms of human lives.

POOR  COMPLIANCE OF POLICIES

• Even though the Disaster Management Act 2005 stipulated the setting up of the Disaster Response Fund and the Disaster Mitigation Fund at national, state and district levels, only the National and State Disaster Response Funds have become operational till now.
• The increasing frequency and damage to property, assets and infrastructure caused by recurring disasters makes it imperative that the provisions of the Disaster Management Act 2005 are enforced in letter and spirit

HAZARD RISK AND VULNERABILITY ASSESSMENTS

• Identifying the characteristics, frequency and potential severity of the hazards a community faces are crucial. Also it is vital to Identify the particular geographical areas and communities that are most susceptible and vulnerable to those hazards and to anticipate how they might be affected. Every state’s hazard risk and vulnerability profile is unique.

PREPAREDNESS PLANNING

• Disaster preparedness planning involves identifying organisational resources, determining roles and responsibilities, developing policies and procedures and planning preparedness activities aimed at ensuring timely disaster preparation and effective emergency response. However, the preparedness planning of the states, wherever they exist, have been largely affected by adhocism, duplication and overlapping of roles, and poor policy coherence.

COORDINATION

•  Coordination between Various levels of governments, agencies and departments, civil defence,  fire brigades, health departments and clinics, international agencies, NGOs and others etc are very important. The poor state of coordination has been visible when the oxygen crisis in the National Capital lead to death of scores of Covid positive patients for want of timely supply of oxygen. A visibly angry Supreme Court had to intervene to remedy the situation by setting up a National Task Force on medical oxygen allocation.

PUBLIC EDUCATION, TRAINING AND REHEARSALS.

• Public education campaigns, training of response teams and rehearsals of emergency response scenarios must be an integral part of state’s disaster preparedness. Hardly any concrete steps being taken by the states to mainstream this aspect in its governance process. An example to be emulated is that of Kerala. In order to assess the preparedness of the district in mitigating the impact of monsoon -related calamities, the district administration conducted a mock drill in line with the action plan of the State Disaster Management Authority (SDMA).
• It  tested  the efficiency of the rescue operations and relief activities in case of a major landslide in the high ranges and the consequent rush of floodwaters

COMMUNITY BASED DISASTER PREPAREDNESS

• Local populations in disaster-stricken areas are the first to respond to a disaster.
• They also have keen awareness of unique challenges of the area in terms of vulnerability etc.
• They are usually involved in search and rescue activities as well as in providing emergency treatment and relief to their families, friends and neighbours. Thus, making community a vital part of disaster preparedness rather than seeing them as ‘victims of disaster who must be helped” should be on the agenda of disaster readiness planning.

WHAT MUST BE DONE?

• In dealing with covid, local efforts have also played a critical role, be it citizens’ responses in such cities as Delhi, Guwahati and Jaipur, or those of gram panchayats in rural areas.
• But across the country, covid has revealed glaring gaps in health systems, and, in many instances, poor governance and often a lack of trust in governments.
• In Australia, following its deadly bushfires of 2018 and 2019, Insurance Australia Group recommended that government funding prioritize risk reduction, lessening the need for spending on disaster recovery. To aid in better preparedness, the Australian Natural Disaster Resilience Index now assesses the risk profiles and resilience of communities faced with bushfires.
• In a similar vein, an audit of how the central and state governments have handled covid will offer valuable lessons that can guide them to upgrade hospitals, increase medical inventories and create/update crisis response plans, for example.
• Every state should conduct a ‘stress test’ of how well it can cope in the event of even more frequent and intense calamities. These results should be published transparently
• In India, it would pay to establish inter-state pooling of technical capabilities, supplies and staff power to manage deficits and gaps.
• The overarching lesson for the Indian states and the Centre is to make more and better investments in health, education and social safety nets.
• Local initiatives will continue to aid disaster preparedness, but governments must act in anticipation of emerging calamities rather than scramble to respond after they strike.

INTERNATIONAL EXPERIENCe: SINGAPORE

Bloomberg ranks Singapore highest in Covid resilience, based on fatality rates, test rates and vaccination rates. Drawing on its experience with Sars and Influenza A, the Singapore government has prioritized disaster preparedness in its investments. One indication of this priority is that the government has built up digital infrastructure and engineering capabilities that can be deployed before, during and after calamities strike. For example, tools for contact tracing, like Safe Entry and Trace Together, are enabling Singapore to respond swiftly to the spread of Covid. A suite of digital tools is helping disseminate information and enabling government agencies to better coordinate and manage the crisis.

THE WAY FORWARD

• Section 10 and 11 of the DM Act 2005 provides for a national plan to be formulated under the direction of the NDMA to deal with However, the Central Government and the NDMA has not formulated it despite the ravages of the pandemic. This has set a poor example for states’ covid/disaster preparedness. Leadership role by the Union can nudge and inspire the states to be proactive in disaster readiness.
• The Fifteenth Finance Commission in its first report covering the financial year 2020-21 has recommended 10 percent of the SDRF allocation  for Preparedness and Capacity-building. The states must utilise this fund for conceiving and operationalizing and upgrading the whole gamut of disaster readiness.
• The Second Administrative Reforms Commission, in its report on “Crisis Management” made a strong pitch for enhanced role of local self-governments in entire disaster management cycle with special focus on pre disaster stage and preparedness. States must empower and build local bodies capacities in this regard.
• Excessive focus on Post disaster cycle that rely on relief, recovery, reconstruction etc have led to neglect of disaster preparedness. It is imperative for states to concentrate on equal measures and evaluate the preparedness at all governmental and non-governmental (schools, hospitals, business, NGOs etc) for the purpose of responding to any threatening disaster situation or disaster and give directions, where necessary, for enhancing such preparedness.

CONCLUSION: Disaster Preparedness” means the state of readiness to deal with a threatening disaster situation or disaster and their effects. It deals with measures to be taken for preparedness and capacity building to effectively respond to any threatening disaster situations or disaster. India’s unique geo climatic vulnerabilities and poor socio economic infrastructural base have made it quite vulnerable to disasters. The Covid pandemic has exposed the countries’ lack of preparedness for meeting the challenges. Although, almost all states bore the brunt of the Virus, some better prepared states could come out stronger. For instance, while Uttar Pradesh and Delhi reeled under oxygen shortage, Kerala was well prepared. This and other evidence makes a strong case for state specific disaster preparedness plans which can be a game changer in India’s disaster management strategy.

THE CONTEXT: Recently, in an unfortunate incident, an office of Haryana police was mowed down by a dumper as he was trying to stop illegal mining. His death again highlighted the issue of illegal mining in the country and started a debate about the same. In this article, we will analyze the issue in detail and will try to give way forward to stop such activities.

HOW DEEP THE ILLEGAL MINING IN INDIA

• Haryana officer murder is only the latest in a string of killings of activists, journalists, law enforcers and whistle-blowers trying to uncover the menace of illegal mining in India.
• Stones, coal, iron, and other minerals and more frequently, and are illegally mined in India. The murders are usually carried out by the mafia, which in turn, are connected to powerful political leaders.
• According to data collected by SANDRP — South Asia Network on Dams, Rivers and People, five journalists/activists, 11 government officials, and 23 citizens/villages / farmers have been killed since January 2019 due to illegal sand mining in India.
• According to the last report of the National Crime Records Bureau released in 2020, 61,767 environment-related offences were committed in India.
• Of these, 199 offences related to the National Green Tribunal (NGT) were committed across the 29 states of the country. Maharashtra (33 offences), Meghalaya (93) and Uttar Pradesh (68) recorded the highest number of NGT-related offences.

Death toll in India due to illegal sand mining since January 2019 

WHY ILLEGAL MINING IN INDIA

India has grossly underestimated the issue of illegal mining, which damages the environment and causes revenue loss

• With the increase in the pace of development, the demand for minor minerals such as sand and gravel has crossed 60 million metric tons in India. This also makes it the second largest extractive industry on the planet, after water.
• However, while laws and monitoring have been made stringent for the mining of major minerals consequent to the unearthing of several related scams across the country, the fact is that rampant and illegal mining of minor minerals continues unabated.
• In many instances, one comes across gravel being removed from agricultural lands or fallow lands of the government near major highways or construction projects, as the contractor finds it easier and cheaper to do so even though the estimates for such work include the distance (called ‘lead’) to transport such gravel from authorised quarries.

Issue of regulation

• Unlike major minerals, the regulatory and administrative powers to frame rules, prescribe rates of royalty, mineral concessions, enforcement, etc., are entrusted exclusively to the State governments.
• The Environment Impact Assessment (EIA) Notifications of 1994 and 2006 made environmental clearance compulsory for mining in areas more than or equal to five hectares.
• However, the Supreme Court of India, after taking cognisance of a report by the Ministry of Environment, Forest and Climate Change on Environmental Aspects of Quarrying of Minor Minerals (2010) directed all State governments to make the requisite changes in the regulatory framework of minor minerals, requiring environmental clearance for mining in areas less than five hectares.
• Consequently, the EIA was amended in 2016, which made environmental clearance mandatory for mining in areas less than five hectares, including minor minerals.
• The amendment also provided for the setting up of a District Environment Impact Assessment Authority (EIAA) and a District Expert Appraisal Committee (EAC).
• However, a State-wise review of EACs and EIAAs in key industrial States such as Gujarat, Uttar Pradesh, Karnataka and Tamil Nadu shows that these authorities review over 50 project proposals in a day and the rejection rate at the State level has been a mere 1%.
• This raises a pertinent question on whether introducing clearances alone can help eliminate irregularities in the illegal mining of minor minerals. The situation now indicates that the problem is even more complex and widespread and that a robust technology-driven enforcement approach is required.

The problem has not been taken seriously

• The problem of illegal mining of minor minerals is often under-estimated, thus accentuating undesired environmental consequences. There have been numerous cases of the illegal mining of dolomite, marble and sand across the States. For example, in Andhra Pradesh’s Konanki limestone quarries alone, 28.92 lakh metric tonnes of limestone have been illegally quarried. However, the relentless pace of sand mining.

Apart from the above, there are many other reasons for such activities

• There is a lack of coordination within the Ministry of Environment and forests which led to illegalities and consequential ecological damage.
• There is also a lack of timely checks by the Indian Bureau of Mines (IBM).
• The boundary markings of the leased-out area are not clearly defined.
• One of the reasons that illegal mining thrives is the lack of timely renewals for mining.
• The responsibility is on the mine owners, who do not apply in time, and also on the various regulatory authorities where the applications are not processed in time.

WHAT ARE THE OBSERVATIONS BY AGENCIES?

• The United Nations Environment Programme, in 2019, ranked India and China as the top two countries where illegal sand mining has led to sweeping environmental degradation. Despite this, there is no comprehensive assessment available to evaluate the scale of sand mining in India.
• Nevertheless, regional studies such as those by the Centre for Science and Environment of the Yamuna riverbed in Uttar Pradesh have observed that increasing demand for soil has severely affected soil formation and the soil holding ability of the land, leading to a loss in marine life, an increase in flood frequency, droughts, and also degradation of water quality.
• Such effects can also be seen in the beds of the Godavari, the Narmada and the Mahanadi basins. As has been pointed out in a study of the Narmada basin, sand mining has reduced the population of Mahseer fish from 76% between 1963 and 2015.

IMPACTS OF ILLEGAL MINING

• Economic loss to the state exchequer as there is no royalty to be paid.
• Excessive sand mining can alter the riverbed, force the river to change course, erode banks and lead to flooding. It also destroys the habitat of aquatic animals and micro-organisms, besides affecting groundwater recharge.
• Illegal mining activities were identified as the cause of environmental problems such as water pollution, deforestation, poor soil fertility and limited access to land for agriculture productivity.
• It is not just damaging to the environment. Illegal mining causes copious losses to the state exchequer.
• As per an estimate, U.P. is losing revenue from 70% of mining activities as only 30% area is legally mined.
• Similarly, the absence of royalty has caused a loss of ₹700 crore in Bihar, while non-payment of various cesses due to unregulated mining resulted in a loss of ₹100 crore to Karnataka and ₹600 crore to Madhya Pradesh in 2016-17.
• Aravalli and Western Ghat are the two examples of illegal mining:
• Aravalli Hills:Illegal mining in Aravalli hills is rampant because it has a rich reserve of copper, lead, zinc, rock phosphate, soapstone, silica sand, limestone, marble and gypsum.The water ecology has been changing due to the illegal mining activities. Although many lakes in the Aravalli hills skirting south Delhi may be disappearing, but some new water bodies are popping up in the region that has been ravaged by mining in recent years. These water bodies have filled the depressions left by mine contractors.
• Western Ghat: Reports indicate that at least 5,000 quarries, both legal and illegal, operate in the Western Ghats. It appears 60 percent of them are illegal. Some of them are run by politicians, a few them members of the Legislative assembly, or their friends and relatives.Heavy rains flooded river basins and its impact was compounded by reckless construction along riverbanks. Watersheds, ponds and farmlands were flattened for construction activities.

WHAT ARE THE JUDICIAL INTERVENTIONS, AND WHAT WAS THE STATE RESPONSE?

• Judicial orders are often neglected by State governments.
• For instance, as in the report of the Oversight Committee by the National Green Tribunal (NGT), Uttar Pradesh (where illegal sand mining has created a severe hazard) has either failed or only partially complied with orders issued regarding compensation for illegal sand mining. Such lax compliance can be seen in States such as West Bengal, Bihar, and Madhya Pradesh too.
• A State-wide review of the reasons behind non-compliance suggests a malfunction of governance due to weak institutions, a scarcity of state resources to ensure enforcement, poorly drafted regulatory provisions, inadequate monitoring and evaluation mechanisms, and excessive litigation that dampens state administrative capacity.

WHAT SHOULD BE THE WAY FORWARD?

• Protecting minor minerals requires investment in production and consumption measurement and also monitoring and planning tools. To this end, technology has to be used to provide a sustainable solution.
• Satellite imagery can be used to monitor the volume of extraction and also check the mining process. Even for past infractions, the NGT and administrative authorities can obtain satellite pictures for the past 10 to 15 years and uncontrovertibly show how small hillocks of earth, gravel or small stone dunes have disappeared in an area. Recently, the NGT directed some States to use satellite imagery to monitor the volume of sand extraction and transportation from the riverbeds. Well-planned execution of these directions increased revenue from minor minerals mining in all these States.
• Additionally, drones, the internet of things (IoT) and blockchain technology can be leveraged to monitor mechanisms by using the Global Positioning System, radar and Radio Frequency (RF) Locator. State governments such as Gujarat and judicial directions such as the High Court of Madras have employed some of these technologies to check illegal sand mining.
• The state governments and the Indian Bureau of Mines (IBM) should coordinate better to see that the mine production sums up with the mining plan.
• Protecting minor minerals requires investment in production and consumption measurement and also monitoring and planning tools.

THE CONCLUSION: Illegal mining has become a serious issue in India. The incidents related to illegal mining, like the death of officers and tragedies, are daily events. Apart from it, impacts on the environment and   Economic loss to the state exchequer are some other negatives of such activities. Government should come up with strong regulations to stop it, and technology should be used to monitor these activities.

QUESTIONS TO PONDER

Discuss how the use of technology can be a game changer in stopping illegal mining in India.

Why the issue of illegal mining persists in India? What should be the way forward to stop such activities?

THE CONTEXT: Recently, RBI released the report titled ‘State Finances: A Risk Analysis,’ in which the public finances of the 10 most heavily indebted states of India were analysed. This article intends to analyse the key findings of the report and further discuss the implications of unregulated state finances.

STATE BORROWINGS: THE CONSTITUTIONAL PROVISIONS

• Chapter II of Part XII of the Constitution of India deals with borrowing by the Central Government and State Governments.
• It comprises two provisions:
  • Article 292 covers borrowing by the Central Government, and Article 293, covers borrowing by State Governments.
  • Article 293 (3) requires State Governments that are indebted to the Central Government to seek the consent of the Central Government before raising further borrowings.

KEY HIGHLIGHTS OF THE REPORT

• According to the report, ten states have a significantly high debt burden. These include Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh and Haryana. These ten states account for around half of the total expenditure by all State governments in India.
• According to the report, Punjab is anticipated to stay in the worst situation because of continuing worsening in its fiscal situation and a predicted debt-to-GSDP ratio that would reach 45% in 2026–2027. By 2026–2027, it is anticipated that Rajasthan, Kerala, and West Bengal will have debt-to-GSDP ratios higher than 35%. To stabilize their debt levels, these states will need to take major remedial action.
• The benchmarks for fiscal deficit and debt for the ten states established by the 15th Finance Commission were exceeded by Andhra Pradesh, Bihar, Rajasthan, and Punjab.
• According to the RBI analysis, Rajasthan, Kerala, and West Bengal are expected to exceed the 15th Finance Commission targets for debt and fiscal deficit in 2022–2023 (BE).

DEBT-TO-GSDP RATIO

The measure used to compare a state’s public debt to its gross state domestic product is called the debt-to-GSDP ratio (GSDP). The debt-to-GSDP ratio accurately predicts a state’s capacity to repay its debts by contrasting what it owes with what it generates.

REASONS FOR EXCEEDING BORROWING LIMITS

IMPACTS OF THE PANDEMIC

• The pandemic dried up the revenue streams of all states due to the protracted lockdown and other containment measures, while expenditure went up due to the subsidies that had to be provided to the poor and the vulnerable to survive.
• As a result, almost all states ended up beaching the FRBM limit, with Bihar’s GFD: GSDP ratio reaching as much as 11.3 per cent, and those of Punjab, Rajasthan and Uttar Pradesh reaching 4.6, 5.2 and 4.3 per cent, respectively. This led to higher borrowing by states and a swelling of their debt ratios (debt as a percentage of GSDP) much above the safe limits.

ATTENUATING TAX BUOYANCY

• The own tax revenue of some of these states like Madhya Pradesh, Punjab and Kerala has been declining over time, making them fiscally more vulnerable.
• The Goods and Services tax implementation has been one of the prime causes for this mismatch of funds. For example, the revenue might fall sharply if the GST compensation is stopped from July 2022, primarily as a significant part of guaranteed revenue of states like Punjab was met using compensation (37% in 2018-19, 47% in 2019-20, and 56% in 2020-21).

OVERBURDENED DISCOMS

• The power sector accounts for much of the financial burden of state governments in India, both in terms of subsidies and contingent liabilities.
• Illustratively, many state governments provide subsidies, artificially depressing the cost of electricity for the farm sector and a section of the household sector.
• Despite various financial restructuring measures 17, the performance of the DISCOMs has remained weak, with their losses surpassing the pre-UDAY level of 0.4 percent of GDP.

POLITICS OF ‘FREEBIES’

• Political parties are outdoing each other promising free electricity and water, laptops, cycles etc.
• The freebies put a significant strain on the fiscal position of State governments and can’t be easily taken back by succeeding governments.
• Freebies for Andhra Pradesh and Punjab exceeded two per cent of the GSDP, while for Jharkhand, Madhya Pradesh and West Bengal, it was between one and two per cent of GSDP.

LEGAL LOOPHOLES

• The current FRBM provisions mandate that the Governments disclose their contingent liabilities, but that disclosure is restricted to liabilities for which they have extended an explicit guarantee.
• In reality, the State governments resort to extra-budgetary borrowings to finance their populist measures. This debt is concealed to circumvent the FRBM targets. Further, there is no comprehensive information in the public domain to assess the size of this off-budget debt.

THE BORROWING SPREE: LOOMING CONCERNS

MENACE OF ‘ESCROW ACCOUNTS

• The report points out that, unable and unwilling to control expenditure, these states have been borrowing from banks against the collateral of future revenues by creating escrow accounts which is clearly unconstitutional, and by also pledging government assets.
• An escrow account is one that is kept outside government accounts and managed by the bank till the liability is cleared, and into which future revenues will go directly, instead of going into the consolidated fund of the states as mandated by the constitution.
• At least five states have escrowed their future revenues in this manner to raise loans.

BY PASSING CONSTITUTIONAL PROVISIONS

• Between 2019-20 and 2021-22, Andhra Pradesh raised Rs 23,899 crore, UP Rs 17,750 crore, Punjab Rs 2,879 crore, MP Rs 2,698 crore, and Himachal Rs 90 crore.
• By doing so, they were trying to bypass article 293 of the Constitution, which requires the states to take permission from the Centre to raise loans from the market if they are indebted to the Centre, which they are.

AGGRAVATING BANKING SECTOR STRESS

• Most of these loans have been given by the public sector banks, including the SBI.This could have serious implications for the already significant NPA crisis.
• RBI has now issued a directive to them to stop this practice forthwith and report compliance within three months.

REPLICATING THE SRI LANKAN CRISIS

• Taking a cue from what is happening in Sri Lanka as a result of its unsustainable debt and the precarious finances of states, the RBI report has cautioned that the tendency towards handing out cash subsidies, in normal times, provision of free utility services, the revival of the old pension scheme by some states and extension of implicit and explicit guarantees by various state governments in India is a perfect recipe for an economic disaster.

THE BORROWING SPREE: NEED FOR CAREFUL CONTEMPLATION

Considering all possible causes and concerns of unregulated borrowing by states in India, one can opine that while some expenses are inevitable, some can be addressed with more prudence and probity. For instance, one can certainly be in favour of expanding, for example, the MGNREGA type of spending and subsidy in the form of food ration schemes. These go a long way in increasing the productive capacity of the population. So, they’re not just freebies. However, what should be regulated is announcing freebies merely in the name of vote bank politics. For instance, when it comes to simply giving away loan waivers, one cannot go in favour of these because they have undesired consequences such as destroying the whole credit culture.

THE WAY FORWARD

• RBI has proposed a “triple E framework” to assess expenditure quality, which has constituents of expenditure adequacy, effectiveness and efficiency:
  • Expenditure adequacy is terms of focusing on the government’s primary role;
  • Effectiveness is about assessing performance;
  • Efficiency involves an assessment of the output-input ratio.
• Other recommendations are given by RBI:
  • Fiscal discipline: The state governments must restrict their revenue expenses by cutting down expenditure on non-merit goods in the near term. In the medium term, these states need to put efforts toward stabilizing debt levels.
  • Power sector reforms: Further, large-scale reforms in the power distribution sector would enable the DISCOMs to reduce losses and make them financially sustainable and operationally efficient.
  • Focus on capital creation: In the long term, increasing the share of capital outlays in the total expenditure will help create long-term assets, generate revenue and boost operational efficiency.
  • Risk testing analysis: State governments need to conduct fiscal risk analyses, and stress test their debt profiles regularly to be able to put in place provisioning to manage fiscal risks efficiently
• Legal measures: The FRBM Acts need to be amended. Its provisions should be expanded to cover all liabilities of the Government, whether budget borrowing or off-budget borrowing, regardless of any guarantee.

THE CONCLUSION: Given that the Constitution of India provides clear provisions regarding the borrowing by the Central Government and State Governments, both must diligently abide by the constitutional values and limits. State borrowings must be more transparent and prudent. Also, there must be a behavioural change within political parties to participate in elections on their working capabilities rather than hampering state finances in the name of vote bank.

QUESTIONS TO PONDER

• “Taking a cue from what is happening in Sri Lanka as a result of its unsustainable debt and the precarious finances of states, the given status of significant indebtedness of India’s federal units act like swords of Damocles”. Analyse critically in the light of the recent RBI report on State Finances.
• Discuss the various causes for exceeding off-budget borrowings by state governments in India. Do you think unregulated off-budget borrowings will have economic implications? Justify your views.

THE CONTEXT: Many developing countries have reorganized their subnational administrative boundaries as a part of administrative reforms and decentralization. Theoretically, organisational proliferation can lead to better developmental outcomes by better managing ethnic heterogeneity, bringing public services closer to people, and better matching services to local preferences. This article analyzes the demographic and developmental outcomes of such administrative proliferation in India.

THE OVERVIEW: In a bid to arrive at the optimal population size in a local government unit, many national governments have reorganized their sub-national boundaries and have implemented vast decentralization reforms with the explicit goal of improving governance. The fundamental argument for decentralized administration is that there is heterogeneity in demand for public services. The variance in preferences can be better understood and catered to by a government that is closer to the citizens, thus raising well-being throughout society. Small jurisdictions have an information advantage and can tailor their services, tax appropriately, and raise welfare. In addition, it also enhances the capability of the citizens to monitor their government and hold the responsibility of the public official to better match local preferences.

ADMINISTRATIVE PROLIFERATION:

• Administrative proliferation is the creation of new administrative units by the splitting of existing ones at subnational levels. Although administrative proliferation may be associated with decentralization reforms, it is a distinct policy choice. Decentralization involves the devolution of responsibility, authority, and resources to lower-level governmental units, while administrative proliferation only creates new governmental units without changing the underlying power structure.
• Many developing countries create new districts as a part of their administrative reforms process, also referred to as administrative proliferation or government fragmentation.

WHY ADMINISTRATIVE PROLIFERATION?

• Administrative proliferation may claim some of the theoretical benefits of decentralization as it brings citizens closer to their administrators. Each administrative unit is smaller and more homogeneous—with less heterogeneity in preferences, they are able to provide better services to citizens. Splitting of administrative units also may reduce the bargaining power of each unit.
• Another consideration in the creation of administrative units is the management of ethnic diversity. Ethnic politics constitutes a crucial dimension of public life and serves as an intermediary between public administration and the economic well-being of citizens, especially in cases where multiple hierarchically nested administrative units interact to provide public goods. In ethnically diverse states, it is common to devolve power to subnational units as a compromise between the demands of territorially concentrated ethnic groups and the need to preserve the higher-level territorial integrity.

ADMINISTRATIVE PROLIFERATION IN INDIA

Administrative proliferation in India has been occurring since Independence, but it has picked up pace since the enactment of the decentralization reforms in 1992. India enacted extensive decentralization reforms with a constitutional amendment in 1992. Until the 73rd and 74th amendments to the constitution, the government structure in India was two-tiered, with the union and state governments—and the district level administrators performing such tasks as assigned to them by the state governments, such as rural development programs. With the passing of the 73rd and 74th Amendments, the local government units became the third tier of government. The local government units are of three levels – district level, 220 sub-district (taluka) level and village (panchayat) level.

According to the 2011 Census, between 2001-2011 alone, as many as 46 districts were added. Since the 2011 Census, approximately 100 districts have been added in India.

• In 2021 Punjab created Malerkotla as its 23rd district.
• The surge in several districts is primarily due to the bifurcation of Andhra Pradesh into A.P. and Telangana in 2014. Telangana currently has 33 districts and Andhra Pradesh has 26 districts (13 new communities were created in 2022).
• Most recently, in August 2022, WEST BENGAL also announced for the creation of 7 new districts.

ADVANTAGES OF CREATING NEW DISTRICTS IN INDIA

• Better administration and governance: This is one of the foremost advantages stated by state governments during creating new districts. To some extent, it is also true.
• The smaller district ensures better governance: New districts will host a range of administrative machinery in the district. This will result in better implementation of government schemes, proper fund utilization, enhanced coverage of schemes, etc. All this will improve governance in the new district.
• Service to the increased population: Since 1981, the average district area has become 44% smaller in 2019. But, the average number of people in a district has risen from 16.6 lakh to 18.6 lakh in 2019. So the new districts can ensure better service delivery for the increased population.
• Bring administration closer to the people: Bigger districts hinder the administration process in some areas of that district itself. For example, before the bifurcation of the Amravati district, the farthest taluka was around 150 km from the district headquarters. So, administrative officers in taluka have to travel nearly 3 hours to district headquarters. A new district can bring the administration closer to the people.
• District-specific government initiatives: New districts might attract more district-specific schemes. For example, the government can set up an agricultural research and assistance centre or a residential school for gifted children. The state government can provide better funding for backward districts. This will benefit the local population.
• Increase employment: Since the new district will require new officials from the top down, this will increase employment in government directly. It will also spur employment opportunities indirectly. For example, government tender and associated employment for locals, new shops and services near government buildings, etc.

DEMOGRAPHIC AND DEVELOPMENT OUTCOMES OF ADMINISTRATIVE PROLIFERATION

The district bifurcations benefit the overall district – and especially newly created districts – in terms of economic output. There could be two underlying reasons for the observed outcomes – it may be arising due to the greater homogeneity in population distribution after the split, or due to the redistributive benefits of bifurcation.

• After the bifurcation, the child and the parent region tend to be more homogeneous. Compared with a similar district that was never split, both child and parent districts do better in terms of economic outcomes. This suggests that the greater homogeneity in population distribution and preferences after the split could be playing a part in the observed positive outcomes.
• However, the child regions do better than the parent regions in the post-bifurcation period. This is reasonable to expect because the villages in the child district gain the advantage of having a new administrative setup built closer to them. This is consistent with the idea that reducing the distance between citizens and administrative centres could lead to better outcomes. [The parent region already has an established administrative system; therefore, the redistributive effects due to the creation of a new district headquarters do not come into play in the parent district. The observed benefit to the child region over the parent region seems to suggest that the positive outcomes are due to redistributive benefits.]

CHALLENGES IN THE CREATION OF NEW DISTRICTS IN INDIA

Creating a number of districts without any rationale can be challenging. This is due to various reasons such as,

• Creating one district is challenging: The government has to find office space for different departments and fill many new positions. All this will require a huge government expenditure. The government will also face challenges with land acquisition.
• Substitute for genuine decentralization: Zilla Parishad and the Panchayat Samiti do not enjoy much power in many states. So, these officials take most of their grievances to the collector. Creating smaller districts without empowering these bodies does not conform to the idea of decentralization in the real sense.
• The increased cost of living in new districts: The growth centres created in new district headquarters will also increase land rates and other service costs. This will increase the cost of living in the new district headquarters in the long run.
• Political motive: Many states reorganize the existing districts and form new ones due to political motives. However, the 2nd Administrative Reforms Commission stated that the political gains from forming a new district are a “minor dividend” and not the major one.

THE ANALYSIS OF THE ISSUE

• In democratic societies, small jurisdictions are believed to enhance political participation, make politics less abstract, politicians more responsive, and facilitate exit-based empowerment of citizens. Decentralization may promote responsiveness and effectiveness of the government as it enhances the capability of the citizens to monitor their government and aligns the incentive structure facing the public official. Decentralization will increase economic efficiency as local governments have an information advantage and can respond better to variance in preferences at the local level and population mobility will lead to competition between local authorities and better provision of public goods [One District, One Product; Aspirational District Programme; Swachh Bharat Mission etc will incentivise the general public in a more comprehensive way].
• Decentralized service delivery, especially when citizens directly elect the local governments, is expected to provide better coverage, quality, and efficiency. Competing local governments may experiment with various ways to provide public goods and lead to innovations [ making use of locally available resources, traditional knowledge and manpower] that can also be applied/replicated elsewhere.
• Local government proliferation also brings citizens closer to their government and may engender a better match between the supply and demand of public goods and services.
• At the same time, there is a counterargument in favour of larger jurisdiction sizes because larger units allow for economies of scale in providing public goods. Local bureaucracies may be poorly staffed and ill-equipped to handle the responsibilities associated with the decentralized provision of public goods [such as in cases of natural disasters and climate change-related issues which impact a larger geographical area and needs more coordinated efforts at a large scale]. Making each unit smaller and increasing the number of units, may increase the total cost of coordination and cooperation.
• There is also the possibility that the newly created administrative units may struggle to generate resources due to poorer administrative capability, thus leading to subpar public good provision. Thus critics also argue that the effectiveness of decentralization measures/administrative proliferation is often hampered by the particular context of its implementation, which may or may not always lead to better outcomes.

THE WAY FORWARD:

1. Ensure proper decentralization: Instead of creating new districts every time, the State governments might reform their decentralization policy as the Panchayats and Zillas face many challenges in their functioning. If the state government provides more powers, this will improve the functioning of Panchayats and Zilla Parishad. For example,

• Creation of SFCs(State Finance Commission) properly and allocating funds properly.
• Widening their tax base and providing access to the Capital market to raise funds.
• State Governments should provide local bodies with the power to properly recruit personnel to fulfil their functions.

2. Guidelines for the formation of new districts: With new districts added every year, the Center may prescribe certain criteria for the formation of a new district. For example, the Center may release a guideline that contains the minimum area of the district, its population, etc.
3. Work on other alternatives: Instead of creating new infrastructure, the States may conduct special camps and frequent field visits from officials. This will not only save the government exchequer but also serve the majority of the administrative and governance targets.
4. Information and communication technologies (ICT) are key instruments for achieving higher competitiveness in the economy and improving the social living standard of the citizens. Wide usage and incorporation of ICT in these two directions are targeted to achieve innovative, sustainable and associative growth, which is envisaged.
5. The present times is an era of technology and underlining the benefits of technology as demonstrated during the time of the pandemic, the union government is working to provide high-speed internet to every village and it is imperative to invest even further in technology and innovation, which will help in better administration and good governance initiatives, reducing the need for further bifurcation of the districts.
6. Parallel steps to enhance the Accountability, Responsibility, and Transparency of the public offices will further enhance the overall functioning of the administration along with the administrative proliferation which indeed helps in bringing the government and administration closer to the people.

THE CONCLUSION: Administrative proliferation as a policy measure has mixed results with specific public service measures such as education, sanitation, water supply, or maternal health. Compared to districts that are not split, split districts (parent and child) are better off in terms of economic outcomes. However, the child regions have an advantage over the parent regions in the post-bifurcation period. Government functions are many and varied and the effect of population size on one of those functions might not be the same as that on others. The demographic and developmental outcomes may fall off the line with the conceived notions of administrative proliferation at lower levels of population per administrative unit.

Mains Practice Question:

1. What are the reasons for creating new districts in the state? are they helping in administrative ease or just a populist measure?
2. Does the concept of administrative proliferation conform to the idea of a leviathan state? In the era of minimum government, maximum governance justifies the idea of creating more administrative centres in the state.
3. Do newly added districts yield desired governance results? critically analyze.

The Context: The world, after a throbbing pandemic, is under the grasp of yet another zoonotic disaster called MonkeyPox. A recent study revealed that the rate of genetic changes in the monkeypox virus was higher than expected. In this article, we will analyse the ills of monkeypox and possible solutions from the UPSC perspective.

ABOUT THE MONKEYPOX VIRUS

MONKEYPOX

• Monkeypox is a viral zoonosis (a virus transmitted to humans from animals) with symptoms similar to those seen in the past in smallpox patients, although it is clinically less severe.
• With the eradication of smallpox in 1980 and the subsequent cessation of smallpox vaccination, monkeypox has emerged as the most important orthopoxvirus for public health.
• Monkeypox primarily occurs in central and west Africa, often in proximity to tropical rainforests, and has been increasingly appearing in urban areas. Animal hosts include a range of rodents and non-human primates.
• Ever since it was first reported in humans in 1970, monkeypox virus infections have been largely restricted to countries in Central and Eastern Africa until recently.

RECURRENCE OF MONKEYPOX

• Early in 2022, multiple cases were identified in Spain and several cases were reported from countries where the disease is not endemic, including regions in Europe and North America, and in patients with no history of travel to endemic regions.
• Following a rapid rise in cases, the World Health Organization (WHO), on July 23, 2022, declared the 2022 monkeypox outbreak as a Public Health Emergency of International Concern (PHEIC).
• As of early August 2022, over 25,000 cases of monkeypox have been reported from 83 countries, 76 of which have never historically reported monkeypox.

VIRUSES: A BASIC STUDY

DEFINITION

• A virus is an infectious microbe consisting of a segment of nucleic acid (either DNA or RNA) surrounded by a protein coat.
• Viruses are non-cellular organisms that are characterized by having an inert crystalline structure outside the living cell.

WORKING & FEATURES

• A virus cannot replicate alone; instead, it must infect cells and use components of the host cell to make copies of itself.
• Often, a virus ends up killing the host cell in the process, causing damage to the host organism. Well-known examples of viruses causing human disease include AIDS, COVID-19, measles and smallpox.
• In addition to proteins, viruses also contain genetic material, which could be either RNA or DNA.
• No virus contains both RNA & DNA.
• Viruses that infect plants have single-stranded RNA & Viruses that infect animals have either single or double-stranded RNA or double-stranded DNA.
• Bacteriophages (viruses that infect bacteria) are usually double-stranded DNA viruses.

TYPES

DIFFERENCES BETWEEN DNA AND RNA VIRUSES

• DNA viruses contain DNA as the genetic material while RNA viruses contain RNA as the genetic material. Some examples of DNA viruses are Herpes viruses, poxviruses, and hepatitis B.
• Generally, DNA genomes are larger than RNA genomes. Furthermore, most DNA viruses contain double-stranded DNA while most RNA viruses contain single-stranded RNA. Rhabdovirus, coronavirus, SARS, poliovirus, rhinovirus, hepatitis A virus, influenza virus, etc., are some examples of RNA viruses.

PROLIFERATING GENETIC MUTATIONS: THE EVOLUTION AND CONCERN

Recently, a team of researchers at the National Institute of Health Doutor Ricardo Jorge in Portugal has found that the monkeypox virus has been evolving at a faster rate than expected.

KEY FINDINGS

• Scientists said the latest strain of monkeypox, once previously confined to parts of Africa, has about 50 genetic variations compared to related viruses that circulated in 2018-2019.
• They found the virus is continuing to evolve during the current outbreak, including a number of small changes in the genetic code, minor gene variants and a deleted gene.

LOOMING CONCERNS

• The monkeypox virus has a DNA genome of around 2,00,000 base pairs, roughly six times larger than that of SARS-CoV-2. Like other viruses, the monkeypox virus evolves by the accumulation of genetic errors, or mutations, in its genome when it replicates inside a host.
• Information about mutations occurring in different genome sequences of the monkeypox virus across different regions can, thus, provide essential insights into how the virus is evolving, its genetic diversity and other factors that may be relevant to the development of diagnostic tools.

RISKS OF PARALLEL EVOLUTION

• Being a DNA virus, the monkeypox virus, like other poxviruses, was believed to have a small rate of accumulating genetic changes compared to viruses with an RNA genome like SARS-CoV-2, which have a much larger rate of mutations. For poxviruses, this rate is estimated to be as low as a couple of genetic changes every year.
• A recent study, however, revealed that the observed rate of genetic changes in the virus was higher than the expected average of around 50 genetic changes.
• The higher-than-expected rate of evolution coupled with the rapid rise in monkeypox cases across the world could potentially be due to highly parallel evolution in a large number of individuals simultaneously, as the present outbreak came out of a super spreader event.

ASPECT OF APOBEC3 PROTEIN

• The researchers also suggest that several mutations that have been identified in the new sequences of the monkeypox virus may have emerged due to interaction between the virus genome and an important family of proteins coded by the human genome known as the Apolipoprotein B Editing Complex (or APOBEC3). These proteins offer protection against certain viral infections by editing the genome sequence of the virus while it replicates in the cell.
• Therefore, researchers suggest that many of the genetic mutations in the monkeypox genomes from the current outbreak are remnants of the effect of APOBEC3 and may not provide a significant evolutionary advantage to the virus.

POSSIBLE OUTREACH OF THE VIRUS

• Monkeypox virus can infect a range of hosts, including non-human primates and rodents, which could act as a natural reservoir. Infections in the reservoir could also enable continued transmission and accumulation of mutations before spilling over to cause human infections.

MONKEYPOX LINEAGES

• Clusters of genomes having common and shared mutations and a common origin are referred to as a lineage or clade. In the early 2000s, two different clades of monkeypox virus were defined in Africa, where several cases of the disease have been seen the Central African (Congo Basin) clade and the West African clade, of which the Congo Basin clade has been shown to be more transmissible and cause more severe disease.

HOW ARE LINEAGES OF VIRUSES NAMED?

• Since naming viral lineages using the country or geography of origin could be discriminatory and possibly not in the right spirit, a new system of naming monkeypox lineages has been proposed by researchers recently.
• Under the new proposed system, the Congo Basin clade is denoted as clade 1, while the West African clade is divided into clade 2 and clade 3.
• This new system will also describe sub-lineages of the virus, with the original parent lineage being denoted as lineage ‘A’, and its descendants as ‘A.1’, ‘A.1.1’, ‘A.2’, and ‘B.1’.
• Lineage B.1 denoted the current 2022 outbreak of monkeypox virus infections which is a descendant of the A.1.1 lineage.

SIGNIFICANCE OF LATEST MONKEYPOX OUTBREAK

UNDERSTANDING GEOGRAPHICAL DISTRIBUTION OF THE VIRUS

• With several genome sequences of the monkeypox virus available in public databases, it is possible today to understand the prevalence of different lineages of the virus across different regions.
• Over 95% of the recently deposited genome sequences of the virus belong to the B.1 lineage of the monkeypox virus, and this lineage is epidemiologically linked to the super spreader events in Europe that formed the basis for the current outbreak of monkeypox.

TRACKING THE SPREAD

• While a majority of the genomes deposited could be linked to the 2022 outbreak of monkeypox, sequences deposited recently in 2022 from the U.S., Thailand and India suggest that there is a second distinct lineage of the monkeypox virus that is currently in active circulation in 2022.
• These genomes are classified as the A.2 lineage of the monkeypox virus and currently encompass six genome sequences, including two that were collected from Kerala.
• The earliest genome belonging to this lineage was collected from Texas in 2021, while the two sequences from Kerala collected in 2022 cluster closely with a genome collected from Florida in the same year.

AIDING GENOMIC SURVEILLANCE

• Genomic surveillance of pathogens provides interesting insights by following a molecular approach for contact tracing and understanding the transmission of the virus across the world.
• As cases of monkeypox continue to rise, it is therefore important to strengthen the genomic surveillance for the monkeypox virus.
• Since data from the present outbreak suggest a sustained human-to-human transmission, continuous genomic surveillance is important to understand the evolution and adaptation of the virus, apart from providing useful data to epidemiologists.

THE WAY FORWARD

• Genomic surveillance has played a crucial role in the global Covid -19 response, with countries like South Africa able to make essential contributions in detecting variants due to their capacities in this area. Thus, in the wake of the COVID-19 cases continuing unabated and monkeypox having a proliferating trend, there is an urgent need to build a sustainable system for genomic surveillance in India.
• Genomic sequencing is a crucial part of every country’s approach to detecting and containing outbreaks of other pathogens. Indian SARS-CoV-2 Consortium on Genomics (INSACOG) has conducted various surveillance studies on genomic mutations. It provides an accurate real-time picture of how a pandemic is moving, and thus, its capabilities must be continuously refined. The INSACOG is crucial in:
  • Early detection of genomic variants of public health implications through sentinel surveillance.
  • To determine the genomic variants in unusual events/trends (Vaccine breakthrough, super-spreader events, high mortality/morbidity trend areas etc.).
  • To correlate the genome surveillance data with epidemiological data.
  • To suggest public health actions based on the analysis of genomic and epidemiological surveillance data.
• A Rapid Response Team (RRT) must be formed in each State/UT by the Health Department. The team should comprise a clinician, a microbiologist and a member of the Medical College (preferably from the Community Medicine Department). As soon as any mutation is detected and conveyed to the State/UT, the RRT must be deployed by the State/UT to the site, where it will investigate the mutant

THE CONCLUSION: Recently, WHO’s Science Council released a report, “Accelerating access to genomics for global health”, advocating for passing on Genomic Technologies to developing countries. The report mentions that countries with established expertise must come forward in support of vulnerable developing nations for the cause of enhancing their genetic sequencing and surveillance capabilities.

QUESTIONS TO PONDER

• “With COVID-19 continuing unabated and monkeypox around the corner, the time has never been better, and the need never more acute, to build a sustainable system for genomic surveillance in India.” In the light of this statement, examine the efficacy of the recently formed Indian SARS-CoV-2 Genomics Consortium (INSACOG).
• “A recent study revealed that the rate of genetic changes in the monkeypox virus was higher than expected.” In the light of this statement, explain the potential causes of the proliferation of viruses like MonkeyPox.
• Discuss the types of viruses. How are lineages of viruses named? Explain in the light of the monkeypox virus.

THE CONTEXT: The discourse on privatization and public assets sale is not new in India. Some people favour it, and some oppose it. The sale of the loss-making national carrier Air India to the Tata Group is a move that evoked a mixed response. While some hailed it on the assumption that it would no longer spell a further loss to the exchequer, its opponents felt that a national asset was being sold at a throwaway price without transparency by the Union government. Critics of the government say that the government failed to fill fiduciary duty in the case of Air India selling.

THE ISSUES WITH THE AIR INDIA SALE

WHAT IS FIDUCIARY DUTY?

In brief, fiduciary duty is a requirement that a person in a position of trusts, such as a real estate agent, broker, or executor, must act in good faith and honesty on behalf of a client. Fiduciary duty is a legal obligation of the highest degree for one party to act in another’s best interest.

The person to whom a fiduciary owes their duty is the principal or beneficiary. Accordingly, the fiduciary must work to the best of their ability to benefit the principal and bring about a satisfactory result or capable stewardship of the principal’s assets.

THE ISSUE OF PUBLIC TRUST

• It is prudent to extend the doctrine of ‘public trust’ to the government’s management of public sector enterprises. There is a fiduciary duty cast upon the government to act reasonably and in a transparent manner while dealing with public assets. Unlike a private asset sale, a government selling public assets and assuming liabilities without proper planning will impose an enormous debt burden on citizens.

SET A DANGEROUS PRECEDENT FOR OTHER SALES

• The Air India asset sale needs scrutiny in light of the Government’s new National Monetisation Pipeline (NMP), where public assets will be monetised either as leases or outright sales. Air India’s asset sale and retention of liabilities set a dangerous precedent as it could result in selling public assets to government faithful and leaving the liabilities to citizens.

CRISIS OF TRANSPARENCY

• The privatisation of loss-making public sector enterprises may prevent the state from incurring further losses. However, unless the sale proceeds are substantial, genuine and transparent, a crisis of legitimacy may arise.

SIMILAR CASES WHERE FIDUCIARY DUTY IS NOT BEING FOLLOWED BY THE GOVERNMENT:

1. One example is the anonymous electoral bonds scheme which taps corporate funding to help any political party and where the details are known only to the ruling party, which could fuel mistrust of such asset sales. A Right to Information filing by the Association for Democratic Reforms showed that with the State Bank of India as the sole authorised dealer of electoral bonds, out of ₹3,429 crores of the total value of electoral bonds generated by the bank (FY19-20), the ruling party at the Centre alone devoured a whopping ₹2,606 crores or 76% of the total bonds issued so far. This is also the period that saw some major privatisation of public sector enterprises.Here, the role of discreet political funding through anonymous electoral bonds needs to be assessed more closely.
2. The recent award of a contract worth ₹1,126 crores to a Chinese firm (Shanghai Tunnel Engineering Co. Ltd.) to construct an underground rail stretch in Delhi and a contract worth ₹170 crores to another Chinese firmfor the supply of wheels to Vande Bharat trains cannot be seen in isolation. It is important to remember that China is an aggressor at the Line of Actual Control.

TYPES OF SALES

• Enterprise sale: In order to unlock the value of assets, liabilities are retained by the seller either by himself or through an SPV, and assets are sold for a competitive price; otherwise, the liabilities will surpass the value of the assets, rendering the enterprise value to negative.
• Asset sale: An asset sale involves selling a business asset to another party, i.e. the purchaser. This includes tangible assets such as equipment and inventory, and intangible assets such as business goodwill, its intellectual property (IP) and customer lists.
• Private asset sale: It involves the consent of the secured creditors (mostly banks) who give their consent to park the liability only when they are satisfied that the promoters or the shareholders of the private enterprise would be able to satisfy the liabilities either from the proceeds of the sale or otherwise.
• Public asset sale: The sale of assets controlled by the government (sovereign), has a few shortcomings as follows:
• Directly or indirectly government-controlled banks cannot conduct due diligence independently on the nature of the sale
• Banks also cannot report fairly on whether the sale proceeds are sufficient to satisfy the debt because the government has given an undertaking to repay the debt, or the government may even force banks into a settlement with lesser repayment or even a write-off.

THE PRESENT PRIVATIZATION POLICY OF THE GOVERNMENT

Fulfilling the government’s commitment under the Atma Nirbhar Package to coming up with a policy of strategic disinvestment of public sector enterprises, with the following feature

• Strategic Sector: Bare minimum presence of the public sector enterprises and remaining to be privatised or merged or subsidiaries with other CPSEs or closed.
• Strategic sector: Industries are considered strategic if it has large innovative spillovers and if it provides a substantial infrastructure for another forum in the same or related industry
• Following 4 sectors come under it :

• • • Atomic energy, Space and Defence
    • Transport and Telecommunications
    • Power, Petroleum, Coal and other minerals
    • Banking, Insurance and financial services
• Non-Strategic Sector: In this sector, CPSEs will be privatised, otherwise shall be closed.

Non-strategic sector

• will include hotel and tourist services, transportation vehicle and equipment, industrial and consumer goods, trading and marketing, and transport and logistics

The policy of the government on the 18 strategic sectors Other sectors

18 strategic sectors under 3 different classificatory types are

• mining and exploration
• processing and generation and
• the service sector

Policy regarding PSU by the govt

• Govt will completely exit the non-strategic sector
• in the strategic sector govt will keep a maximum of 1-4 PSU and subsequently opt for strategic disinvestment

PRIVATIZATION OF PSU SINCE 2014, INCLUDING BANKS

The increase in the supply of PSU stocks and the constrained investor appetite had started affecting the prices. The trade-off between the political objective to privatize and revenue maximization was witnessed the most in this period. Resultantly, the government resort to Strategic Sales.

However, a departure from past govt is also disinvesting profit-making ventures with a rationale that disinvestment of profit-making enterprises by a public offering of shares is desirable as it leads to dispersed shareholding and avoids concentration of economic power.

However, in the case of the bank, an amalgamation policy was followed which reduced the number of the national bank from 28 to 12 by merging various banks.

• But even after this, there was no meaningful resolution of the NPA crisis.
  • In fact, post the covid crisis, this problem will increase as small banks are facing the problem of balancing credit growth and risk.
  • With the spectre of insolvencies looming at the start of pandemic-led lockdown, there was a flight of deposits from small banks to bigger ones.
• In view of this, the govt has focused on taking PSBs out of government control.

Overall approach

Since 2014, the Modi government’s strategic disinvestment approach was to sell minority stakes in public companies to raise revenue, while retaining management control. During the 2014-2019 period, the government raised Rs. 2,79,622 crore from the disinvestment of public sector enterprises (PSEs), compared to Rs 1,07,833 crore collected during 2004-14. However, this has changed now. Recently, five companies were up for 100 per cent disinvestment, including three large profitable companies such as Bharat Petroleum Corporation Ltd. (BPCL), the Container Corporation of India and the Shipping Corporation.

THE CRITICAL ANALYSIS OF PRIVATIZATION POLICY BY THE PRESENT GOVERNMENT

Is privatization of banks panacea for success

• Private players in the financial sector are prone to failure: this fact gave the world economic shock of astronomical proportion, which was over reachingly created by private bank
• Private banks fail all the time. In the 20 years from 2001 to 2020, as many as 559 private banks with assets of $721 billion failed in the US.
• The principle followed by private banks is when they make profits, it goes to shareholders: When they make losses, it gets socialised and falls in the lap of the government to make good the deposits either through insurance or taxpayer bailout. (Yes Bank, Federal Deposit Insurance Corporation (FDIC), bailed out the above bank.)
• Big private banks can fail at any time: There is a myth that if a bank gets large enough, it will not fail. While one can agree that the larger the bank, the greater its ability to absorb losses, this does not mean it cannot fail. The axiom “Higher you go, harder the fall” applies best to private banks. Yes, Bank, Citi Bank, and Washington Mutual Bank are all such examples.

Looking at the larger interest

• The move towards divesting ownership in strategic sectors will have long-term consequences. A diluted public sector would possibly mean that India missing out on the opportunity to capitalise on the global distrust against Chinese supply lines in the wake of the current crisis.
• Moreover, the valuation of PSU is at an all-time low. At the start of NDA-2, the valuation of PSU at the BSE was 22% which has reduced to 9.4% in Oct 2020.
• At present, because of the crisis presented by the pandemic, it is highly unlikely that more than 10 per cent of the shares of the LIC is subscribed, as the market may not be able to absorb more.

PSU MODELS IN DIFFERENT COUNTRIES

PSUs exist virtually everywhere. In Asia where PSUs have played an important role in shaping the economy. According to an OECD report, PSUs pull plenty of economic might —

• in China, they account for 30% of GDP,
• in Vietnam, 38%,
• and they account for roughly a fourth of GDP in India and Thailand.
• PSUs are also big employers in many of these countries — 15% in China, and 5% in Malaysia.
• PSUs play an important role in BRICS economies.
  • According to a recent KPMG report, of the 2,000 largest companies globally, 260 are from BRICS economies.
  • About 123 or 47% of the largest BRICS enterprises are PSU. The market value of PSU amounts to 32% of GNIs (gross national income) among all BRICS countries.

All the above example shows that privatization is not the only panacea for bringing efficiency, improving productivity, and building productive assets.

THE GLOBAL PRACTICES

Reshaping the PSU buy other countries

Three former planned economies have set up centralized holding entities — SASAC in China in 2003, SCIC in Vietnam in 2007 and Druk Holdings and Investments in Bhutan. In 2006, the Philippines pioneered the development of a PSU governance scorecard which has become an important tool for pushing PSU reforms. Since 2004, Malaysia has rolled out a comprehensive ‘transformation programme” to overhaul its PSUs.

An incorporated holding company Temasek to better manage its assets on a commercial basis was launched in Singapore. This allowed its Ministry of Finance to focus on policy making. At inception, Temasek’s initial portfolio was S$354 million, spanning 35 companies. Thereafter began the process of restructuring SOEs. Some were corporatized and privatized, others were allowed to go for big global expansions.

THE CHINA EXAMPLE: 

In 2003, a holding company, the State-Owned Assets Supervision & Administration Commission (SASAC), was created to manage the SEO. The agency, which controls nearly 100 of the largest SOEs, lies “at the heart of China’s industrial deep state

THE WAY FORWARD: WHAT CAN INDIA LEARN?

ALTERNATIVES TO PRIVATISATION (WITH PAST EXAMPLES)

 A fire sale privatisation, as is prescribed by free market evangelists, is an also less efficient method of value maximization, besides being completely impractical in India’s political economy. Neither disinvestment nor the few outright privatizations that have taken place seem to have really maximized value for the key shareholder — the taxpayer of India.

The case for privatisation is trickier and the trick lies likely elsewhere – in control. Within the Indian landscape, there are examples, albeit few, where significant (or even majority) government ownership has not prevented the company from creating enormous value for shareholders. Since Independence, while most government-funded enterprises were set up as public sector undertakings, mostly under enabling legislations, there were other models explored too.

1. Maruti Udyog was set up as a Joint Venture of the government of India with Suzuki of Japan, with the latter initially holding a minority stake. But the cornerstone of the structure was on management control – government, despite its majority stake, allowed a very substantial amount of management and operational freedom to Suzuki to manage the company on commercial lines.
2. A second model used often, mostly in financial services, has been that of indirect ownership — via other PSUs while allowing private sector-level management and operational freedoms. The Industrial Credit and Investment Corporation of India (ICICI), the erstwhile parent company of ICICI Bankwas set up as a joint venture of public sector banks, insurance companies and the World Bank.
3. UTI Bank (known as Axis Banknow) was sponsored by the government owned UTI-1, a special purpose vehicle created out of the restructuring of Unit Trust of India.
4. HDFC, the mortgage lender, was initially sponsored by ICICI, with minority shareholdings with IFC (part of the World Bank group) and the Prince Aga Khan foundation.

Apart from above, government should a progressive approach for privatization as given below:

NEGATIVE BIDS

• The government should permit negative bids: a bid where the government pays someone to take the company off its hands. Negative bids were an important part of the massive privatization which took place in Germany after the end of socialism and helped to get productive assets rapidly into the hands of efficient managers in the private sector.

MOU MODELS

• In  South Korea, PSUs with high social obligation operates with private sectors with the help Of MOUs.
• But one of the most important things, that is forgotten in the outright privatization of CPSUs is that it is unaccompanied by the necessary reforms in the overall regulatory framework in which they operate. Reforms of the regulatory frameworks and the markets are crucial for the performance of both PSUs and private companies, ensuring a rule-based competitive structure covering entry, exit, bankruptcy and competition among existing companies, as manifested by the British privatization of the 1980s and 90s.

CRISIS OF LEGITIMACY

• The privatization of loss-making public sector enterprises may prevent the state from incurring further losses. However, unless the sale proceeds are substantial, genuine and transparent, a crisis of legitimacy may arise.

RECOGNISING THE ROLE OF STATES

• It is vital to recognise the role of States in establishing a public asset such as Air India, They have actively participated in the growth of the airline in the form of land and other infrastructure to its offices.

o   States were not consulted in the whole process which is a breach of the spirit of ‘cooperative federalism’.

THE CONCLUSION: While the experience of other countries is available to India by way of guidance, it would have to evolve its own techniques, best suited to its level of development. The historic, cultural, and institutional context influences the way in which and the pace at which privatization is implemented. Where the market economy is not fully developed, ways would have to be found to safeguard the interests of consumers and investors, which would ensure a fuller play to the wealth-creating role of the entrepreneurs.  Apart from it, along with profit-driven marketplace, the welfare policy interventions of public sector enterprises such as social uplift, full employment need to be advocated.It is prudent to extend this doctrine of ‘public trust’ to the management of public sector enterprises by the government, as selling public assets and assuming the liabilities without proper planning will impose an enormous debt burden on citizens.

QUESTIONS TO PONDER

1. Why is fiduciary duty an important element of government functioning? How can government fulfil its fiduciary duty in its functioning, especially related to asset sale processing?
2. How far do you think that the central government’s approach to the asset sale is facing a trust deficit, and it is resulting in liabilities being left to citizens? Substantiate your views with examples.

“Now I am careful about the kind of roles that I do.”

-Rajendra Prasad

THE CONTEXT: In July 2022, Droupadi Murmu took oath as the 15th President of India. Chief Justice N. V. Ramana administered the oath of office to Murmu. She is the first tribal of India. Apart from it, she is the second women president of India after Pratibha Devisingh Patil. In this article, we will know the election, functions and powers of the president of India.

ABOUT DROUPADI MURMU

• Hailing from Odisha’s Mayurbhanj district and coming from a Santals Tribal Community, Murmu started as a teacher and then entered into Odisha politics; here’s everything you need to know about India’s first president from the tribal community.
• In 2015, Murmu was sworn in as the first woman Governor of Jharkhand.
• She was also the first Odia woman and tribal leader to be named governor of an Indian state and serve for the entire term of her office.
• A two-term former MLA from Rairangpur, Murmu, held on to her assembly seat in 2009 when the BJD had snapped ties with the BJP weeks ahead of the state elections swept by Chief Minister Naveen Patnaik.
• Having been born into a tribal family that was battling poverty in one of the country’s most remote and underdeveloped districts, her childhood had been full of challenges.
• Overcoming all odds, she earned her Bachelor’s degree in Arts from Ramadevi Women’s College in Bhubaneswar. She served as a junior assistant in the irrigation and power department in the Odisha government.
• She began her political career as the vice-chairman of the Rairangpur NAC. In addition, the Odisha Legislative Assembly honoured her with its Best MLA of the Year 2007 award.
• She has diverse administrative experience, having handled ministries such as transport, commerce, fisheries and animal husbandry in the Odisha government.

CONCEPT OF THE PRESIDENT: THE BACKGROUND

Constituent Assembly, while debated in Constituent Assembly, gave weightage to the parliamentary form of government over the Presidential form of government due to:

• Familiarity with the system under two centuries of British rule.
• Our forefathers prefer ‘responsible government’ over ‘stable government’.

CONSTITUTIONAL POSITION OF THE PRESIDENT

• Article 52 to 78 in Part V of the constitution deals with the Union executive. The President is the head of the Indian state. He is the first citizen of India and acts as the symbol of unity, integrity and solidarity in the nation.
• The Constitution of India has provided for a parliamentary form of government. Consequently, the President has been made only a nominal executive, the real executive being the council of ministers headed by the prime minister.

PROCEDURE OF PRESIDENTIAL ELECTION

VOTES OF MEMBERS OF

• The Electoral College, which elects the President through the system of proportional representation, comprises elected MPs and members of state legislative assemblies — a total of 4,896 voters, including 4,120 MLAs and 776 elected MPs.
• While 233 are elected members of the Rajya Sabha, 543 are from the Lok Sabha.

METHOD TO ASCERTAIN THE VALUE OF VOTE

 HOW IT WORKS OUT

• The winning candidate needs to secure a certain quota of votes which is 50% of the valid votes polled +1.
• Each MP and MLA indicates his/her choices in the case of multiple candidates in order of preference.
• Each vote cast is given a value based on various factors such as the first preference order, value of the vote of each electorate, etc.

NEED TO KNOW

All doubts and disputes in connection with the election of the President are inquired into and decided by the Supreme Court whose decision is final.

DISCRETIONARY POWERS OF THE PRESIDENT

Though the President has no constitutional discretion, he has some situational discretion. In other words, the President can act on his discretion (that is, without the advice of the ministers) under the following situations:

• Appointment of Prime Minister when no party has a clear majority in the Lok Sabha (Hung Parliament) or when the Prime Minister in office dies suddenly and there is no obvious successor.
• Dismissal of the council of ministers when it cannot prove the confidence of the Lok Sabha.
• Dissolution of Lok Sabha if the council of ministers has lost its majority.

OTHER POWERS OF THE PRESIDENT

EXECUTIVE POWERS

Article 53(1) vests the executive power of the union in the president. All executive actions of the Government of India and all contracts and assurances of the property made by the Government of India are formally taken in the president’s name.

The President of India makes an appointment to other constitutional officers and other important members of the union government. These include:

• Prime Minister
• Other ministers, on the advice of Prime Minister
• Chief Justice of India
• Other Judges of the Supreme Court, on the advice of the Chief Justice
• Chief Justice and other judges of high courts
• Chairman and other members of UPSC and Joint Public Service Commissions, etc.

The executive powers vested in the president have to be exercised in accordance with the advice of the Council of Ministers as per Article 74(1). However, he has the power to send back the advice to the council of Ministers for reconsideration. If the council of Ministers adheres to the previous advice, the president has to act as per this advice.

LEGISLATIVE POWERS OF THE PRESIDENT

As a part of Parliament, President has the power to summon or prorogue the two houses of parliament.

The President may dissolve the Lok Sabha.

After the General Elections, the president addresses both the houses of the parliament.

He may address either House or a joint sitting.

He also nominates 12 members of the Rajya Sabha.

PARLIAMENT BILLS

The bills passed by the parliament become acts only after the assent of the president. When a bill is sent to President after it is passed in parliament, President has the following options:

• can either give his assent (he must give assent in case of Constitution Amendment bill),
• withhold his assent if it is not a Constitution amendment bill,
• Return the bill to the parliament for reconsideration if it is not a money bill.
• When Parliament passes again a bill sent to it with or without amendments, the president has to give assent to that bill.

STATE BILLS

Governor has been given the power to reserve a bill for consideration of the president, provided the such bill is not a money bill of that state. When the governor sends the such bill to the president, the president has the following options:

• give his assent to the bill
• withhold his assent to the bill
• Direct the governor to return the bill for reconsideration by the state legislature.
• If the state legislature again passes the bill with or without amendments; and
• If the governor again sent to the president, it is NOT obligatory for the president to give assent to the such bill.

POCKET VETO

In the case of an ordinary bill or a bill got introduced by a private member and passed by both houses, the president can just keep the bill in his pocket and forget it.

CONSTITUTIONAL AMENDMENT BILL

After the 24^th amendment in 1971, it was made clear that once passed by parliament, the president has to give his assent to Constitutional Amendment Bill.

While the president cannot block a constitution amendment bill, such bills are subject to judicial scrutiny. They can be nullified by Supreme Court if they are violative of basic structure doctrine.

MONEY BILLS

Money bills can be introduced in the Parliament only with the prior recommendation of the President. Due to this President can agree to that bill or withhold his assent but can NOT return a money bill to the house for reconsideration.

THE BILLS THAT NEED PRIOR RECOMMENDATION OF THE PRESIDENT

The bills that need the prior recommendation of the president for introduction in parliament are as follows:

• Any bill that seeks to alter the boundaries of the states and names of the states. (Article 3)
• Money Bill (as per Article 110)
• Any bill which affects the taxation in which the states are interested (Article 274)
• State Bills impose a restriction on freedom of trade (Article 304).

ORDINANCE MAKING POWERS OF PRESIDENT

When both or any house of Parliament is not in session, the constitution via article 123 provides the power to the president to issue ordinances if he is satisfied with the circumstances of issuing a such ordinance.  Ordinances are promulgated when parliament is not in session.

The ordinance has a similar effect to an act of parliament. However, every ordinance must be laid before both houses of the parliament within six weeks from the reassembling of the parliament; if not, it lapses.

However, it may be withdrawn by the president at any time on the aid and advice of the CoM headed by the PM.

JUDICIAL POWERS / POWER TO PARDON

Article 72 says that the President shall have the power to grant pardons, reprieves, respites or remissions of punishment or to suspend, remit or commute the sentence of any person convicted of any offence. The meaning of these terms is as follows:

• Pardon: Complete pardon
• Reprieve: Temporary suspension of sentence
• Respite: awarding fewer sentence
• Remission: Reducing amount of sentence
• Commutation: Changing one punishment to another

The power to grant pardon is not absolute and is exercised by the President on the advice of the Council of Ministers like any other power. Further, the power to pardon is subject to judicial review.

MILITARY POWERS OF THE PRESIDENT

Article 53 vests the supreme command of the Armed Forces of India in the President.

The President of India can declare war or conclude peace, under the regulation of the parliament.

DIPLOMATIC POWERS OF THE PRESIDENT

India is represented in an International forum by the President of India. He sends and receives ambassadors.

All international treaties and agreements are concluded on behalf of the President, subject to ratification by the parliament.

EMERGENCY POWERS

President has been conferred extraordinary powers in case of national emergency (Article 352), President’s rule (Article 356 & 365) and financial emergency (article 360).

THE CONCLUSION: Though the President of India is a nominal head, he has, along with some situational discretion, played a very important role in upholding Constitutional rule. Article 53 says endowed the executive power of the Union shall be vested in President and shall be exercised by him either directly or through officers subordinate to him in accordance with the Constitution.

1. ‘Executive power of the Union shall be vested in President and shall be exercised directly or through officers subordinate to him by the constitution’. Discuss the essence of the statement.
2. Discuss the role of the President at the time of hung parliament and also other discretionary powers that constitution endowed to him.

THE CONTEXT: The Supreme Court judgement recently held protected land in Aravalli ranges as forests, guarding it against non-forest use. This article will analyse the implications of this judgement from the UPSC perspective.

BASICS ABOUT THE ARAVALLIS

LOCATION & FORMATION

• They stretch for a distance of about 720 km from Himmatnagar in Gujarat to Delhi, spanning Haryana, Rajasthan, Gujarat, and Delhi.
• The Aravallis date back to millions of years when a pre-Indian subcontinent collided with the mainland Eurasian Plate.
• The Aravallis of Northwestern India, one of the oldest fold mountains of the world, now form residual mountains with an elevation of 300m to 900m. Guru Shikhar Peak on Mount Abu is the highest peak in the Aravalli Range (1,722 m).
• It has been formed primarily of folded crust when two convergent plates move towards each other by the process called orogenic movement.

SIGNIFICANCE OF THE ARAVALLIS

ACTING AS A GREEN BARRIER

• The Aravallis act as a barrier between the fertile plains in the east and the sandy desert in the west.
• Historically, it is said that the Aravalli range checked the spread of the Thar desert towards the Indo-Gangetic plains, serving as a catchment of rivers and plains.

INFLUENCING CLIMATE & RAINFALL

• During monsoons, it forms a parallel wall to monsoon clouds moving eastwards, thus helping nurture the sub-Himalayan rivers and feeding the north Indian plains.
• In the winter months, it protects the fertile alluvial river valleys from the cold westerly winds from Central Asia.

HABITAT FOR DIVERSITY

• The Aravallis provides habitat to 300 native plant species, 120 bird species and many exclusive animals like the jackal and mongoose.

PROVIDING BREATHING SPACE

• This Aravalli range is considered the “lungs” for the polluted air of Delhi–National Capital Region (NCR).
• For Haryana, having the lowest forest cover at around 3.59% of the total forest cover in India, the Aravalli range is the only saving grace, providing the major portion of its forest cover (2017 Forest Survey Report).

PROTECTING THE ARAVALLIS: OFFICIAL DEVELOPMENTS & RULINGS

OFFICIAL DEFINITION OF THE ARAVALLIS `ARAVALLI NOTIFICATION’ (1992)

• In 1992, to protect the ecologically sensitive Aravallis, the ministry of environment and forests (MOEFCC) introduced what is colloquially called the Aravalli notification.
• It says that apart from reserved forests or places already classified as `forest’ in government records, areas categorised as gair mumkin pahar (uncultivable hill), gair mumkin rada (foothills, pastures), gair mumkin be hed (ravined foothills), Banjar beed (cultivable grassy foothills) and round (rocky areas between two hills) will be treated as Aravallis.
• The same status is also to be given now to any land classified under sections 4 and 5 of the Punjab Land Preservation Act. All such areas in NCR will be protected and identified as Aravallis; the MoEFCC has told the green court.
• The immediate implication is that it extends a protective cover to large swathes of land in NCR, especially in Gurgaon and Faridabad.
• Before this notification, the Haryana government claimed that the status of such land was not yet been decided, leaving them open to real estate projects. Before this, the Aravali notification was applicable only to Gurgaon and Alwar (Rajasthan).

EVOLUTION OF THE ARAVALLI ISSUE

IMPORTANT SUPREME COURT JUDGEMENTS

TN GODAVARMAN THIRUMULPAD ‘VS UNION OF INDIA (1996)

• Clarified definition of the forest: ‘Forest’ must be understood according to its ‘dictionary meaning’. The ‘SC asks states to identify accordingly.
• COMPLIANCE: Haryana hasn’t identified areas that fulfil the dictionary meaning of forest.

MC MEHTA VS UNION OF INDIA & OTHERS (2002)

• Ban on groundwater extraction and mining: The SC bans drawing groundwater in ‘an area within 5km radius of Delhi border on Haryana side
• and in the Aravalli hills. Also, mining in 448 sq km area of Aravallis in Faridabad, Gurgaon and Mewat.
• COMPLIANCE: Borewells are still active. Mining has reduced but not stopped altogether.

LAFARGE CASE (2011)

• The SC directs all states to complete the process of identifying forests.
• COMPLIANCE: Haryana has Not initiated the process yet.

ANSAL CASE (2012)

• Any change in revenue records to sell land invalid: Some areas recorded as ‘gair mumkin pahar’ were converted to ‘gair mumkin farmhouse’.
• The SC says these are not to be accepted

2018 KANT ENCLAVE CASE

• The SC said that area notified under PLPA in Haryana must be treated as ‘forest’ and ‘forest land’. The judgment regarding construction in the Aravalli hills of Haryana holds serious implications for the ongoing litigations and preservation of the entire Aravallis in Haryana.
• COMPLIANCE: The Haryana Assembly passed the controversial Punjab Land Preservation (Haryana Amendment) Act, 2019, which opens up nearly 30,000 hectares of protected land for development.

2022 JUDGEMENT BY SC

• The Supreme Court held that all land covered by the special orders issued under Section 4 of the Punjab Land Preservation Act (PLPA) in Haryana would be treated as forests and be entitled to protection under the 1980 Forest Conservation Act.
• Such land covered under Section 4 can see no commercial activity or non-forest use without the consent of the central government.
• It also stated that land covered by the special orders issued under Section 4 of PLPA has all the trappings of forest lands within the meaning of Section 2 of the Forest Act.
• The court directed the state government to clear any non-forest activity from such land in three months and report compliance.
• The bench considered a September 2018 judgment (Kant Enclave case) which held all land under PLPA could be treated as forest.
• The recent verdict clarified that the previous judgment failed to closely examine the scheme of Section 4 of PLPA and its legal effect in relation to Section 2 of the Forest Act.

SECTION 4 OF PLPA & SECTION 2 OF FOREST ACT: THE CAUSES OF CONCERN

Section 4 of the Punjab Land Preservation Act (PLPA):

• Special orders under Section 4 of PLPA are the restrictive provisions issued by the state government to prevent deforestation of a specified area that could lead to soil erosion.
• When the state government is satisfied that deforestation of a forest area forming part of a larger area is likely to lead to erosion of soil, the power under Section 4 can be exercised.
• Therefore, the specific land which a special order under Section 4 of PLPA has been issued will have all the trappings of a forest governed by the Forest Act.
• While the land notified under the special orders of Section 4 of PLPA shall be forest lands, not all land under PLPA will ipso facto become forest lands within the meaning of the Forest Act.

Section 2 of the Forest Act:

• Section 2 of the Forest Act imposes prohibitions on the de-reservation of forests or use of forest land for non-forest purposes without prior approval of the central government.
• Once land is covered under Section 2 of the Forest Act, whether the special orders under Section 4 continue to be in force or not, it shall continue to remain forest land.

Plans to override SC judgements: Analysing Government Steps

• Environmentalists fear the ruling may fast-track amendments to Forest (Conservation) Act (FCA), 1980. The amendments are likely to be tabled in the ongoing monsoon session of Parliament as the Forest (Conservation) Amendment Bill, 2022.
• As per FCA, activities like the felling of trees or activities like construction, mining and others are considered non-forest use. However, there is no clarity on whether afforestation or planting trees is a forest activity or a non-forest activity.
• The amendment bill aims to clarify the applicability of the Act in various types of land and to streamline the process of approvals. Changing forest conservation rules regarding clearance to projects and ease of business will have major ramifications.
• The forest Act draft proposed in 2021 wanted to remove the forest labels for a deemed wasteland or private forests.
• Under the new amendments, permissions will be granted by the state government instead of the Gram Sabhas. The government’s plan to create land banks by scrapping non-forest areas is just a step away from handing it over to commercial entities.
• While many ‘forests’ are proposed to be de-notified, Gram Sabhas and local communities are not being empowered to protect their rights.

THE WAY FORWARD

• Adhering to SC’s directives: Mining in the Aravalli region has been banned since 2002 under the Supreme Court orders unless expressly permitted by the Union Environment Ministry. However, mining continues illegally. The government should, thus, take immediate steps to follow SC’s directive regarding mining as well as encroachments, as mentioned in its other judgements.
• The Centre is contemplating an ambitious plan to create a 1,400km long and 5km wide green belt from Gujarat to the Delhi-Haryana border. Such projects need to be further upheld and supported by the states sharing the Aravalli ecology.
• There must be increased devolution of decision-making powers to gram sabhas.

THE CONCLUSION: The ethical dilemma of choosing between preserving the environment and the economic growth of the country is persistent for a developing nation like ours. For this, the policymakers must take into consideration the Constitutional morality, the commitments to Sustainable Development goals and the effective consensus of the local community for sustainable and inclusive policy formulations.

QUESTIONS TO PONDER

• “The ethical dilemma of choosing between preserving the environment and economic growth of the country is a persistent issue.” In the light of the statement, analyse the recent ruling of the Supreme Court, which considered protected land in Aravalli ranges as ‘forests.’