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1.Rectifying the insolvency regime (Live Mint)

2.Need of a privacy law for Aadhar (Live Mint)

3.BS-VI fuel norms from April 1, 2018 in Delhi instead of 2020 (Down to Earth)

1.Rectifying the insolvency regime (Live Mint)

Synoptic line: It throws light on the need of a robust insolvency regime in India. (GS paper III)

Overview

  • Better lending standards and a robust mechanism to address insolvency will lead to better allocation of capital and help augment growth in the medium to long run.

Situation of bad loans

  • The Indian banking system is struggling with a deluge of bad debt. At the end of the last financial year, total stressed assets including non-performing and restructured assets were estimated to be at over 12% of advances. In June, the Reserve Bank of India directed banks to start proceedings under the Insolvency and Bankruptcy Code (IBC) in 12 large accounts.
  • The banking regulator has also asked banks to initiate the insolvency procedure in another set of at least 28 accounts if they don’t get resolved in the given time frame.

Insolvency and bankruptcy code (IBC)

  • The implementation of the IBC has been one of the most important reforms in recent years. Banks and other creditors can now take the defaulting company to the National Company Law Tribunal to initiate insolvency proceedings.
  • There is now a real chance that promoters can lose control and are no longer in a position to take creditors for a ride. Last week, in order to further strengthen the framework, the Insolvency and Bankruptcy Board of India amended the corporate insolvency resolution process.
  • The resolution plan will now have details, such as whether the applicant or other connected persons have been convicted for any offence in the preceding five years; or have been disqualified to act as a director under the Companies Act, 2013; or have had any transactions with the debtor in the preceding two years.
  • The revision in regulation now makes it incumbent upon the resolution professional to ensure that the resolution plan presented to the committee of creditors contains relevant details to assess the credibility of the resolution applicants.
  • The basic idea is that with more information about resolution applicants at their disposal, the committee of creditors will be better placed to take a more prudent decision. However, the amendments are likely to make it more difficult for promoters to regain control. For example, among the ongoing cases, Essar Group is reported to have submitted an expression of interest for Essar Steel.
  • Since the scope of evaluation has been broadened and, among other things, the committee of creditors will now also explicitly look at the credibility and creditworthiness of applicants, the fact that existing promoters were in command when the company defaulted is likely to work against them.
  • It is often observed that deterioration in company finances doesn’t necessarily affect the promoter’s financial well-being. Therefore, it is possible that in order to regain control, promoters would be willing to put funds on the table in return for a significant reduction in debt. But this will now become difficult.
  • Differently put, going by the regulatory design, promoters would not be in a position to game the system any more. Lenders may not be willing to hand the company back to the same promoters who could not manage the business in the first place. This is not to suggest that all promoters work with ill intentions or are inefficient.
  • It is possible that a company landed in financial difficulty because of regulatory issues or an unforeseeable change in the business environment. While the changes are likely to make the insolvency resolution process more robust and transparent, they would increase the pressure on the resolution professional as the entire process is time bound.

Way ahead

  • One of the reasons why they have not been able to address the issue of bad debt in a meaningful way till now is because of the fear of investigative agencies in case of a large haircut. Although it looks unlikely that they will face similar problems under the insolvency process as the resolution plan will be approved by a committee of creditors and accepted by the adjudicating authority, it still remains to be seen if public sector bankers will be confident enough to take bold decisions.
  • Overall, the changes will make the insolvency resolution process more robust and make things difficult for unscrupulous promoters. At a broader level, while the IBC will now be addressing the resolution part of stressed assets, and efforts are being made to strengthen the framework, Indian policymakers now also have an opportunity to work towards minimizing the origin of bad loans. The government is working on a massive Rs2.11 trillion bank recapitalization plan.
  • It will be important that capital find a way to more efficient banks and be accompanied by structural reforms. Reckless lending by banks was one of the significant reasons for the accumulation of bad debt in the system. Public sector banks should have the capability to properly evaluate risks in lending to a particular company. This will reduce pressure on the system at the aggregate level.

Question– How IBC regime will give a boost to the economic development in India ?

 

2.Need of a privacy law for Aadhar (Live Mint)

Synoptic line: It throws light on the urgent need to resolve the controversy surrounding Aadhar and privacy concerns. (GS paper III)

Overview

  • The Supreme Court’s (SC’s) landmark judgement upholding our right to privacy has intensified the debate on whether and how Aadhaar infringes on this right. With the upcoming five-judge Constitution bench hearing petitions on Aadhaar, these debates will soon be settled by the highest court.

UIDAI’s claims

  • The Unique Identification Authority of India (UIDAI) has unequivocally asserted that Aadhaar meets the privacy test. But many others, both within the government’s fold and outside it, have said that Aadhaar can become an instrument to profile individuals, surveil them, and suppress dissent.

Present need

  • Important truth is that both sides are right to some degree. Aadhaar, if unregulated, can be a tool to abrogate our privacy. However, Aadhaar is only a tool. Other tools of the government such as CCTV cameras, permanent account number (PAN) cards, Digital India, among others—are also capable of invading privacy.
  • When dispassionately analysed, each of these tools, including Aadhaar, meet some, but not all, principles of adequate data privacy.
  • The solution, therefore, is not to annul Aadhaar on the grounds of data privacy. Like we do with any tool in the public domain, we need to avail of its benefits and manage the risks, while evaluating whether the benefits are worth the risks. To this end, we need two parallel initiatives to complement the court’s decisions.
  • One, rigorous, and independent research such as the Indian School of Business’ digital ID research initiative is vital to ascertain the benefits and risks across Aadhaar’s uses. This can help decide which uses should be furthered, adjusted, or even dropped. This is critical because Aadhaar’s uses are proliferating, but most of the available numbers on its impact are disputed and alternative narratives are based on journalistic accounts or small surveys.
  • Two, we need an independent regulator to protect data privacy and regulate data initiatives (as argued in the data privacy Bill introduced by Baijayant Panda). This regulator must be backed by a robust law, and be competent to understand the nuances of data privacy and keep pace with new developments. This is urgent. We are many strides into a digital economy and are already suffering the consequences of this void.
  • Debate on Aadhaar and privacy has largely reached an impasse as those involved often use different definitions of data privacy. This can be avoided by the universal adoption of National Privacy Principles. Aadhaar is often analysed in a vacuum, without paying enough attention to national benchmarks (such as PAN, voter ID, passport, etc.). In this article, we examine data privacy issues with these factors in mind.
  • One potential harmful abuse of Aadhaar is using the unique number to link data sets that previously existed in silos. Depending on the breadth of data sets seeded with Aadhaar, they can be merged to uncover a person’s “food habits, language, health, hobbies, sexual preferences, friendships, ways of dress, and political affiliation”, as the SC worried in its judgement on right to privacy. Not only is this objectionable in and of itself, such profiling can be used to discriminate against individuals and stifle dissent.
  • Aadhaar is not the only unique identifier in our lives that can be used to link databases. Our mobile numbers, email addresses, PAN, voter ID, ATM card numbers and IP addresses can all serve this purpose (and indeed have).
  • Four features, however, make Aadhaar particularly potent for database linking. One, it covers almost all Indian adults. Two, the database has practically no duplicates (according to UIDAI), enabling a higher quality of linking. Three, it uses a 12-digit unique identifier, making linking easy. Four, over 120 government agencies require Aadhaar to provide services, paving the way for the first step of data linking seeding each individual database with Aadhaar numbers. The irony is that the quality of the Aadhaar database (the first three reasons) leads to its widespread use (the fourth reason), making it susceptible to misuse.
  • Unauthorized database-linking violates almost all the National Privacy Principles, including “Purpose Limitation”, whereby “a data controller shall collect, process, disclose, make available, or otherwise use personal information only for the purposes as stated in the notice after taking consent of individuals.
  • An operative phrase here is “data controller”. UIDAI’s chief executive officer, Ajay Bhushan Pandey, recently reaffirmed that Aadhaar meets the principle of Purpose Limitation. He is partially right: while Aadhaar can be used for database linking, UIDAI as a “data controller” does not engage in this practice (though it cannot prevent it either). However, other “data controllers” (say, criminal investigation agencies or credit card companies) with access to data-sets seeded with unique identifiers, such as Aadhaar, can link databases without due notice or consent and use it nefariously.

Way ahead

  • Attacking only Aadhaar for the larger privacy risk of database linking is not based on a practical understanding of how linking works. Aadhaar is only the means to an end. If Aadhaar ceased to exist, the threat of database linking using unique identifiers will endure, albeit with higher difficulty. This reinforces the need for a strong data privacy law and regulator to curb and manage database-linking practices.

Question– What should be the govt.’s approach to tackle the privacy issue vis-à-vis aadhar controversy?

3.BS-VI fuel norms from April 1, 2018 in Delhi instead of 2020 (Down to Earth)

Synoptic line: It throws light on the advancement of the date to implement BS vi standards in India. (Paper III) 

Overview

  • In a welcome move, the Union Ministry of Petroleum and Natural Gas (MoPNG) has announced a 2-year advancement of the introduction of Bharat Stage (BS)-VI fuel norms from April 1, 2018 in Delhi, currently suffering from its worst smog crisis in years.

Fastening the BS vi regime

  • BS-VI norms are scheduled to be implemented across India in April 2020. BS-VI fuel will bring down sulphur by 5 times from the current BS-IV levels a whopping 80 per cent reduction and would make fuel extremely clean.
  • The Delhi-based Centre for Science and Environment (CSE) has welcomed the move and said it would like to thank the MoPNG for responding to the smog crisis in Delhi and taking the drastic proactive measure.
  • “This is the kind of proactive and responsive leadership we need to see in our government. This is also the kind of drastic measure that is required given the scale of the crisis.
  • Ironically, this leadership has come from the MoPNG and not from Ministry of Environment and Forests (MoEF&CC) that remains the nodal ministry for environmental regulations.
  • In fact, points out CSE, the MoEFCC has given repeated affidavits to the Supreme Court contesting the provision of the Comprehensive Action Plan on clean air submitted by the Environment Pollution (Prevention and Control) Authority (EPCA) that has asked industry to both manufacture and sell BS-VI models from April 1, 2020.
  • MoEF&CC has mentioned in its affidavit that “the technical challenges of leapfrogging directly from BS-IV to BS-VI are far more complex and challenging. If the date shifts to become the date of registration then it would actually reduce the time available to industry for manufacturing to a mere two years or so although BS-VI fuel will not be available across the country till April 1, 2020.

Way ahead

  • Even though the full air quality gains will come when vehicles also move to BS-VI emissions standards, the current move should not be underestimated in a choking city like Delhi. With substantially cleaner fuel emissions, control system in on-road fleet will improve and give some emissions benefits.

Question– What do you mean by BS standards of emission? How they are different from earlier standards?