1.Need of investor awareness on cryptocurrencies (The Hindu)

2.Performance of Parliament in 2017 (Indian Express)

3.Economic policy challenges in 2018 (Live mint)

1.Need of investor awareness on cryptocurrenciesThe Hindu)

Synoptic line: It throws light on the issue of bitcoins and threats associated with it. (GS paper III)

Overview

  • The government has joined the Reserve Bank of India in cautioning potential customers about investing in cryptocurrencies like bitcoin, likening them to ponzi schemes where investors risk losing their money.
  • There has been a phenomenal increase in recent times in the price of virtual ‘currencies’ (VCs) including Bitcoin, in India and globally.

No intrinsic value

  • VCs don’t have any intrinsic value and are not backed by any kind of assets. The price of bitcoin and other VCs therefore is entirely a matter of mere speculation resulting in spurt and volatility in their prices.
  • There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes which can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money. Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes.
  • The government added that since VCs are stored in an electronic format, this makes them vulnerable to hacking, loss of password, malware attacks, etc, which could also result in a permanent loss of money. As transactions of VCs are encrypted they are also likely being used to carry out illegal/subversive activities, such as, terror-funding, smuggling, drug trafficking and other money-laundering acts.

The bitcoin boom

  • The Finance Ministry’s warning to potential investors in bitcoin and other cryptocurrencies has come at a time when a new, seemingly attractive investment area has opened up that few have enough information about. The price of bitcoin, the most popular of all crypto currencies, not only shot up by well over 1000% over the course of the last year but also fluctuated wildly.
  • One of the main reasons for this volatility is speculation and the entry into the market of a large number of people lured by the prospect of quick and easy profits. The government’s caution comes on top of three warnings issued by the Reserve Bank of India since 2013.
  • Investment in bitcoin and other cryptocurrencies increased tremendously in India over the past year, but most new users know close to nothing of the technology, or how to verify the genuineness of a particular cryptocurrency. A number of investors, daunted by the high price of bitcoin, have put their money into less well-established and often spurious cryptocurrencies, only to lose it all. Even some private cryptocurrency operators in India have gone on record saying that as many as 90% of the currencies are scams.

Exploring the utility

  • The use value of cryptocurrencies both as a medium of exchange and as a store of value is still being explored. Global tech firms such as IBM are developing their own cryptocurrency platforms to speed up cross-border transactions in a secure and transparent manner.
  • At the same time, countries like South Korea and the U.S. are intensifying regulatory scrutiny of the market. South Korea, where bitcoin became something of a craze, recently proposed legislation to either heavily regulate exchanges or ban them.
  • In the U.S., in November, a court ordered a popular cryptocurrency platform to hand over information related to 14,000 accounts to the Internal Revenue Service, undermining the anonymity the digital currencies offer.

Way ahead

  • India must be careful to differentiate between cryptocurrencies and the blockchain technology they are based on. Cryptocurrencies may or may not emerge as a useful tool, especially since the government may not want to encourage the proliferation of anonymous, non-fiat currencies as its anti-black money fight intensifies.
  • But blockchains, basically digital ledgers of financial transactions that are immutable and instantly updated across the world, are worth looking at as aids to ease doing business. They have the potential to greatly streamline payment mechanisms and make them transparent.
  • Blockchain technology is useful and should not as yet have regulatory oversight. The inter-ministerial panel on cryptocurrencies will take a call on their future.

Question: What do you mean by Block chain? What are its utility in enhancing the productivity and efficiency of businesses?

2.Performance of Parliament in 2017 (Indian Express)

Synoptic line: It throws light on the issue as Parliament in 2017 was marked by disruptions, delays and comparatively less discussion on national issues but also, the passing of key Bills. (GS paper III)

Overview

  • The proceedings of Parliament in the current session have been regularly disrupted. Last year, demonetisation and other issues derailed the entire Winter Session. While disruption of proceedings has been common in recent years, Parliament’s functioning in 2017 was different in some respects. The Houses had a productive Budget Session, and some work could be achieved in the Monsoon Session. State elections delayed the Winter Session.

The key performances

  • This year, Parliament worked for fewer days than the annual average since 2000. By the end of this month, Parliament would have worked for 57 days, short of the average 70 days during this period. The last time Parliament met for fewer days (in a non-general election year) was in 2008, when it met for 46 days during the 14th Lok Sabha.
  • In 2017, Parliament discussed 34% of the government’s expenditure this was the second highest proportion of total expenditure discussed by Parliament over the last decade.
  • There were three key changes in the Budget process: it was presented on February 1 instead of the usual last day of February; the Railway Budget was merged with the Union Budget, discontinuing a 92-year-old practice; and the Plan and non-Plan classifications of expenditure were removed.

Legislative progress

  • The government was successful in getting some key Bills approved by Parliament. Four bills passed in April operationalised the Goods and Services Tax (GST) regime. In February, a Bill removing the guarantee of the government to honour demonetised currency notes was passed by Lok Sabha. In August, the government was successful in pushing through a Bill empowering the Reserve Bank to give directions to banks for the resolution of their non-performing assets.
  • In March, Parliament passed a Bill increasing maternity leave for women from 12 weeks to 26 weeks. It also passed a Bill in the same month to protect the rights of persons with mental illness, and promote their access to mental healthcare. In April, a legislative proposal pending since 2014, prohibiting discrimination against HIV positive individuals, was passed by both Houses. In the ongoing Winter Session, a bill giving 20 Indian Institutes of Management the power to grant degrees was approved by Parliament.

Other dimensions

  • It was not all smooth sailing for the government in Parliament. The Opposition in Rajya Sabha scored a legislative victory in July when it forced the amendment of a key provision of a Bill giving constitutional status to the National Commission for Backward Classes (NCBC).
  • A key takeaway from the functioning of Parliament this year was the reduced role of Parliamentary Committees in scrutinising legislation. All the four GST-related Bills, the Bill related to demonetisation, the powers of the RBI, maternity benefits and the IIMs were passed without being examined by a Committee of Parliament.
  • In the 16th Lok Sabha, less than 30% of Bills have been scrutinised by departmentally-related Standing Committees, compared to approximately 70% in the 15th and 60% in the 14th Lok Sabha.
  • In addition to debating legislation, the two Houses deliberated on national issues. These ranged from electoral reforms to lynching and mob violence, the Quit India Movement (which completed 75 years), sustainable development goals, the crisis in the farm sector, and floods. But the time for deliberation on both national and legislative issues was curtailed by disruption of proceedings in the Houses.
  • While the Budget Session functioned smoothly, this momentum was not carried forward to the Monsoon Session and the ongoing Winter Session. During the Monsoon Session, six Opposition MPs were suspended for lowering the dignity of the Speaker of Lok Sabha.
  • A casualty of the disruptions was Question Hour. During the Budget Session, Lok Sabha worked for 108% of its scheduled time, and Rajya Sabha for 86%. During the Monsoon Session, this fell to 67% for Lok Sabha and 72% for Rajya Sabha. In the first week of the Winter Session, this number fell further to approximately 50% and 36% for the two Houses respectively. 2017 saw the elections of a new President and Vice-President of India.

The legislative agenda ahead

  • THE LEGISLATIVE AGENDAwill include, in the current session itself, the Bill to criminalise instant triple talaq. Should the Bill go to a Parliamentary Committee, it will come before Parliament in the coming year. A Bill to monitor the financial health of banks and insurance companies is pending before a Joint Committee of Parliament. This Committee’s report is expected in the Budget Session of 2018. The Committee report on The Code on Wages Bill, 2017, which seeks to consolidate laws related to wages and empower the Centre to decide a minimum national wage, is expected around the same time.
  • A Bill prohibiting commercial surrogacy, another overhauling the country’s consumer protection framework, are listed for passage in the ongoing session. Earlier this year, the government had set up a committee under the chairmanship of Justice B N Srikrishna to identify and suggest ways to address key data protection issues, and to draft a data protection Bill. This Bill could form part of the legislative agenda for 2018.

Question: How Parliamentary performance and accountability can be improved to achieve the desired results?

3.Economic policy challenges in 2018 (Live mint) 

Synoptic line: It throws light on the problems that has grappled Indian economic scenario. (GS paper III)

Overview

The last leg of 2017 did not pan out exactly the way the government would have wanted it to. It also showed the kind of policy challenges that the government will have to deal with in 2018. The goods and services tax (GST) continues to face implementation issues and distress in the agriculture sector started to reflect in electoral outcomes.

  • Even though the latest gross domestic product (GDP) data showed that the Indian economy is recovering from the twin policy shocks of demonetization and GST, and the pace of growth is likely to be higher in 2018 than 2017, broader economic management will not be easy. This is despite the ongoing synchronized global recovery, which will help the Indian economy during the year.

Impending challenges

  • The biggest challenge will be the management of government finances. Last week, the government announced that it would go in for additional market borrowings of Rs50,000 crore. The latest data showed that the government’s fiscal deficit reached 112% of the full-year target during April-November 2017. Most analysts now expect the government to breach the fiscal deficit target of 3.2% of GDP in the current year.
  • Since there is still a fair bit of uncertainty in terms of revenue shortfall on account of GST, the extent to which it will miss the target will only become clear in coming weeks. This also makes the outlook for next fiscal uncertain. The decline in GST collection for December indicates that the system is likely to take more time to stabilize.
  • Further, the problem may not remain limited to revenue. The government has indicated that the next budget will focus on rural India. Voting patterns in the recently concluded Gujarat election and the ensuing commentary suggest that the government will have to do something for the agriculture sector. Politically, this will also be important for the ruling Party because of crucial assembly elections during the year. Preparations will also start for the general election. Increase in expenditure will add to the pressure on government finances in the next fiscal.

Balancing the priorities

  • The challenge for the government will be to find a balance where it is able to address problems in the agriculture sector, which are genuine and need attention, with the minimum possible fiscal slippage. It will need to work on multiple fronts to keep finances in control. First, it will immediately need to work to stabilize the GST system.
  • Better visibility on the revenue side will also help in managing expenditure. Second, the government has done reasonably well so far this year on the disinvestment front. It should aggressively use this option to overcome temporary glitches on the revenue side and maintain the momentum on capital expenditure. Third, the government will need to continue to move forward with reforms in order to improve the ease of doing business. India managed to move up 30 notches in the World Bank’s doing business rankings in 2017. Continued progress will increase economic activity, which will also help in generating revenue.
  • The economy is unlikely to get support from monetary policy. Government intervention in the farm sector in terms of higher support prices, or higher import tariffs, will push up food prices. Crude prices have firmed up in recent months, rising significantly from the lows seen in 2015. Higher food and fuel prices and the possibility of fiscal slippage are unlikely to encourage the monetary policy committee of the Reserve Bank of India (RBI) to lower rates in the foreseeable future.
  • However, the RBI can support economic activity through currency management. Even though the central bank intervened in the market in 2017, the real effective exchange rate is still showing significant overvaluation. As monetary policy is likely to move towards normalization in advanced economies and could affect capital flows, the RBI would do well to allow the rupee to depreciate.
  • Overall, even though the headline growth numbers are likely to improve, economic management will be comparatively difficult in 2018. Fiscal management will be a real challenge and a big downside surprise could affect market sentiment. Further, the government would be well advised to move forward on the reforms path. Both foreign and domestic investors, for instance, will closely watch how well the bank recapitalization plan is executed.
  • It is possible to use this opportunity to transform the sector forever. In the process, the government can also prepare the ground for privatization of some public sector banks. A lot is riding on how well the system adjusts to GST. Improvement in collection, among other things, would help in further rationalization of rates.

Way ahead

  • Economic reform is a continuous process, the government should carry this process forward even in the last part of its tenure. The way it handles its finances and manages the economy in 2018 will have a bearing on growth and macroeconomic stability over the medium term.

Question: How government may find a balance where it is able to address problems in the agriculture sector with minimum possible fiscal slippage?