1.A big broom (The Hindu)

2.Doubling farmers’ incomes (The Financial Express) 

3.Nuclear deal in danger (The Hindu)

1.A big broom (The Hindu) 

Synoptic line: It throws light on the issue on need to duly investigate the shell company. (GS paper III)

Overview

  • According to the finance ministry’s data, there are about 1.5 million registered companies in India, while only 600,000 companies file their annual return. The decision by the Ministry of Corporate Affairs to crack down on so-called ‘shell companies’, disqualify select directors in these entities and debar them from taking board positions for a specified period of time cannot be faulted.
  • Though the ministry cited that this step will “break the network of shell companies” and it will fight against, but there is a real danger of inadvertently tainting genuine firms and individuals.

What are shell companies?

  • Though there is no clear definition of what shell company is in the Companies Act, or any other Act. But typically shell companies include multiple layers of companies that have been created for the purpose of diverting money or for money laundering.
  • Most shell companies do not manufacture any product or deal in any product or render any service. They are mostly used to make financial transactions. Generally, these companies hold assets only on paper and not in reality. These companies conduct almost no economic activity.
  • Under Section 248 of the Companies Act- Registrar of Companies has powers to remove name of a company from register of companies where a company fails to commence its business within one year of its incorporation or the subscribers to the memorandum have failed to pay their subscription within a period of 180 days or where a company is not carrying on any business or operation for a period of two years.

Recent move

  • The ministry identifying more than 1.06 lakh directors for disqualification, it is imperative that there be great care and diligence to ensure that the authorities do not penalise anyone who for non-mala fide reasons failed to comply with the relevant provisions of the Companies Act.
  • As the intention is to create “an atmosphere of confidence and faith in the system” as part of improving the climate for ease of doing business, so the onus must be on taking to task only those who intend to subvert the law.
  • It is important to note that, not all shell companies may be money laundering vehicles. There are many shell companies that work within legal limits and do not have financial irregularities. For example, a company may separate its HR function into another company altogether. The second one is a legal entity, which operates like any other company.
  • It has been seen that public limited companies, a major portion of the extralegal activities including price rigging of shares, insider trading and other questionable practices have been found to occur in the large mass of smaller companies. There are problems of acute illiquidity, weak governance and regulatory oversight that have combined with the difficulty in delisting to make these firms prime targets for financial fraudsters and money launderers.

Way ahead

  • There is need to target the addressing the deep-rooted maladies rather than just the symptoms, making it easier for entrepreneurs to deregister and or delist a company. Government has plan to enact the necessary legislation to address banking sector stress by adopting the Insolvency and Bankruptcy Code.
  • There is need to ensure that all stakeholders from small retail investors to corporate promoters have an enabling atmosphere to operate freely by remaining compliant with the law or risk facing stringent penal action.

Question– What is a shell company? What economic burden does it poses on economic system of India?

 

2.Doubling farmers’ incomes (The Financial Express) 

Synoptic line: It throws light on the issue of need to shift our focus on Rabi crops. (GS paper III)

Overview

  • The Union Finance Minister while presenting general budget, have mentioned about the government intention to go beyond Food Security and give back a sense of income security to our farmers. It was mentioned that Government intends to double the farmers’ income by 2022.
  • Around rs. 35,984 crore for agriculture and farmers’ welfare has been allocated in the budget, government has the intention to address issues of optimal utilization of water resources, create new infrastructure for irrigation, conserve soil fertility with balanced use of fertilizer and provide connectivity from farm to market.

Assessment

  • India is now the largest producer in the world of a host of farm products, be it jute or dairy or total pulses, buffalo meat and chicken products. Data suggests that the food grain production in India has more than doubled, from 108.42 million tonnes in 1970-71 to 252.22 million tonnes in 2015-16.
  • It has been noticed that, there is the shift in the seasonal cropping pattern that has accompanied this dramatic change, viz. the growing contribution of Rabi crop vis-a-vis kharif. Though the Rabi crops are 22.4% less than under kharif, but the share of Rabi food grain production in total food grain production of the country has increased from 36.4% in 1970-71 to 50.83% in 2015-16. While in contrast, the share of kharif food grain production has declined from 63.6% to 49.16% during the same period.

 The contribution of rabi crop

  • The higher contribution of Rabi crops has been driven primarily by higher productivity. The 70th round of the National Sample Survey Organisation (NSSO) that collected information on the area under each crop, quantity produced, value of production and yield rates for both seasons (rabi was January-June, 2013, and kharif was July-December, 2012) for 10 common crops cultivated in both seasons—paddy, potato, jowar, maize, arhar (tur), moong, sugarcane, groundnut, coconut and cotton.
  • Except for two crops, viz. jowar and cotton, the productivity in terms of kgs is much higher in the Rabi season than in the kharif season. Specifically, it is estimated that 57.85% of paddy, 68.35% of maize, 51% each of arhar (tur), moong and sugarcane, 65% of groundnut and 51% of coconut output comes from crops grown during the Rabi season. 
  • The NSSO’s 70th round estimated about the agricultural households in the country, 86.5% households were engaged in crop production during the kharif season, whereas only 71.1% of agricultural households in the country were engaged in cultivation in the Rabi season.  
  • But despite the higher share of households engaged in kharif cultivation, the average gross cropped area was higher at 0.937 hectare per agricultural household during the kharif season as compared to 0.782 hectare per household during the Rabi season. The income received from five products, viz. paddy, jowar, maize, potato and coconut, is higher for the rabi season than the income received from these same crops grown in the kharif season because of seasonal price variations.
  • The NSSO’s 70th round- Situation Assessment Survey of Agricultural Households assess the efficiency of inputs used in agricultural production by the farmers with varying holdings in terms of land size, both in rabi and kharif seasons, it is clear that there are decreasing returns to scale on investment on agricultural inputs among all categories of farmers in both rabi and kharif cultivation.

Way ahead

  • The Rabi food grain production contributes more to total food grain production, despite lower land use and lower participation by agricultural households. At the same time, individual farmers benefit more from Rabi than from kharif crops, the greater focus need to shift on Rabi cultivation which could be a win-win at both the micro and macro levels for government’s plan to double the farmers’ income by 2022.

Question–  What are the economic advantages for India to move focus on rabi crops?

3.Nuclear deal in danger (The Hindu) 

Synoptic line: It throws light on the issue of US tirade against Iran, which undermines the non-proliferation regime. (GS paper III)

Overview

  • S President in his first address to the United Nations mentioned that he was on the course to undo the nuclear deal with Iran concluded by his predecessor, he called the Iran a “rogue nation” and mention the deal is “an embarrassment” to the United States.
  • The president’s speech was in line with his America First agenda and it was reiteration of his stated positions, but the combative tone of its delivery signalled impending U.S moves that could have destabilising impact on Asia.

Perplexed situation

  • In his first address at the UN General Assembly, the president has listed about his administration’s foreign policy priorities, to slam Tehran and the nuclear accord, he has put to rest any hope for improvement in ties with Iran.
  • The announcement has triggered a reaction from Iran. Iranian Foreign minister mentioned about Mr. Trump’s “ignorant hate speech” and said that it belonged to “medieval times”.
  • The Internal Atomic Energy Agency have found no evidence of Iran violating the terms of the deal but the Trump administration has been threatening action against Tehran. Mr Trump wants from the entire world to join in demanding that Iran’s government end its pursuit of death and destruction.
  • The decades-old hostility between the U.S. and the theocratic regime in Tehran stands resumed. The real test before Mr. Trump and the Iranians will come in less than a month, as according to U.S. law, the administration must certify the Iran deal every 90 days and the next deadline is October 15.
  • Trump has already signalled that he would withdraw the certification next time. If he does so, it would be the beginning of the unravelling of an agreement that was forged after months of intense negotiation.
  • The Iran nuclear deal is a multilateral agreement and the International agencies have repeatedly certified that Iran is fully compliant with the terms of the agreement, which means the country is not pursuing any nuclear weapons programme. But the failure of the U.S. to respect an international agreement it’s a signatory to would set a dangerous precedent.
  • It the US is actually serious about non-proliferation, and then it should use the Iran deal to resolve other complex international conflicts. But in the contrary Iran has been slapped with more sanctions by the U.S. over its missile programme. If Iran is not spared even after it agreed to give up a substantial part of its nuclear programme under a multilateral agreement, what message does it send to other countries about international diplomacy?
  • The decision of U.S. to pull out of the Iran deal would be a great setback for rules-based multilateral mechanisms.

Way ahead

  • The US has totally changed the rules of engagement in the fight against the Taliban and other terrorist groups.  In Syria and Iraq, it has made big gains toward lasting defeat of ISIS. According to the USA, it has achieved more against ISIS in the last eight months than it has in many, many years combined.

Question–  What will be the impacts of USA’s move against Iran will make on India?