A relationship adrift (The Hindu and Live Mint)
Saving the National Health Service (The Hindu)
Can banking recover? (The Hindu)
A relationship adrift
(The Hindu and Live Mint)
Synoptic line: It throws light on the issue that India and Canada need to repair the ties.
(GS paper II)
- Canadian Prime Minister Justin Trudeau was in eight-day state visit to India, co-operation in security and counter-terrorism as well as exchange of views on global and regional issues of mutual interest will also form important components of the visit.
- India-Canada share a strategic partnership underpinned by shared values of democracy and pluralism. These have expanded significantly in recent years aided by heightened economic engagement, regular high level interactions and long-standing people-to-people ties.
- The visit is aimed at further strengthening bilateral relations between the two countries in key areas of mutual interest trade and investment, energy, science and innovation, higher education, infrastructure development, skill development and space.
- Terrorism and extremism are a threat to India and Canada, the Prime Minister of India says that it is important that both nations must fight them together.
- Visiting Canadian Prime Minister Justin Trudeau’s office and the Indian government faced a major embarrassment; after it emerged that a convicted terrorist and Khalistan activist from Canada had been a part of the official delegation’s events in Mumbai and were personally invited to a reception by the Canadian High Commission in New Delhi.
- The controversy over the invitation to Jaspal Atwal came on the back of a series of allegations against the Trudeau government for its failure to rein in separatist Khalistani groups in Canada, and the perception that it is catering to more extremist parts of their Sikh constituency in Canada.
- The real casualty amidst all the controversies was the India-Canada bilateral relationship, which has turned frosty after a decade of excellent progress. In this period, the two sides had forged close cooperation on energy and trade, including a civil nuclear cooperation agreement and a commitment from Canadian pension funds to invest in India.
- India and Canada have much in common as two pluralistic, diverse democracies with very strong people-to-people ties: there is an Indian Diaspora of 1.3 million in Canada, besides 100,000 Indian students.
- India is the world’s fastest growing major economy, and Canada’s relationship with India offers tremendous opportunities for increased business-to-business and people-to-people collaboration that will bolster our shared prosperity. India and Canada must work to repair the rupture.
- India and Canada need to encourage joint research and development projects and spurring entrepreneurship and innovation.
Question- To realize the full potential of bilateral trade and investment, India and Canada need to renew their efforts to expand and diversify bilateral economic and commercial relations. Analyse.
Saving the National Health Service
Synoptic line: It throws light on the issue of crisis of Health Service in U.K.
(GS paper III)
- Though the U.K. government denies a crisis, but a recent case highlights yet again the systemic failings in the system, National Health Service (NHS) doctors have received unexpected level of support, when they launched an online fundraising campaign to help a trainee paediatrician in the U.K. The campaign sought to launch a legal challenge to the decision by Britain’s General Medical Council to remove Dr. Bawa-Garba permanently from the medical register.
- Dr. Bawa-Garba, was solely in charge of the emergency department the day, when the person named Adcock, who had Down’s Syndrome died from sepsis. Dr. Bawa was convicted of manslaughter by gross negligence by a high court in late January.
- Over £350,000 has been raised through the campaign, launched following the high court decision in favour of the GMC. The amount was well over the target, with hundreds of people, many medical professionals themselves, and from as far as New Zealand, pledging amounts right up to several hundred.
- A subsequent investigation at the hospital had pointed to systemic failings and changes had been advised at the hospital level. The system was founded underfunded and overstretched. The Bawa-Garba ruling came at the end of a particularly difficult couple of months for the NHS, which has been facing repeated winter crises in recent years.
- In early January, the NHS cancelled non-urgent planned surgeries and outpatient appointments at hospitals till the end of the month to ease pressure on the system. Scenes of ambulances queuing outside hospitals, and patients waiting for hours on trolleys in hospital corridors, led to accusations from the Labour Party that the NHS was in the midst of its worst winter on record.
- The root of the crisis is complex, though funding is undoubtedly at the heart of it. Funding has failed to keep up with the needs of a system pressurised by an expanding and ageing population, and advancing medical technology. Adding to this are the cuts that have been made to social care budgets across the country.
- In Britain, where the elderly and infirm are heavily dependent on state support mechanisms, the NHS has had to pick up much of the slack. There are recruitment problems too: tens of hundreds of posts remain unfilled, while hospital trusts fail to recruit the necessary staff.
- Options previously relied on, including recruiting staff from abroad even on a temporary basis, have become much more difficult. For three months in a row, Britain has hit its monthly cap for tier-2 visas. This is a development which many believe falls particularly hard on the NHS, where salaries fall below the higher minimum thresholds that kick in once the cap has been reached.
- While the government has repeatedly insisted that it is spending more than ever before on the NHS, medical organisations have argued that the increases are well below the rate needed to maintain standards.
- Though it was estimated that while the NHS budget rose at a rate of roughly 4% a year between 1961 and 2010, the increase has been 2% or less since the Conservative government came to office in 2010.There itself is a shortfall of around £20 billion.
- The pressures on the NHS have unsurprisingly led to it playing an increasingly pivotal role in British politics, such as during the run-up to the Brexit referendum when the Leave campaign pledged to channel £350 million a week in extra funding towards the NHS.
- Since then it has continued to come into play: whether in pro-Remain critiques of unfulfilled promises, or in the power struggle within the Conservative Party, as Foreign Secretary Boris Johnson attempted to portray himself as the one fighting the NHS corner, much to the ire of his cabinet colleagues. There is also concern over the extent to which NHS services, some of which are already contracted out, could be opened up to foreign firms (particularly from the U.S.) in any post-Brexit free trade agreements.
- A recent survey of the public, conducted by a right-of-centre think tank, on attitudes towards nationalisation and the role of the government, found a clear majority in favour of more funding for the NHS.
- Universal healthcare, free at the point of provision, is a fundamental human right and the U.K. is perhaps the only country in the world that has truly tried to meet that requirement.
Question – The U.K. government denies a crisis, but a recent case highlights yet again the systemic failings in the system, explain in the context of online fundraising campaign.
Can banking recover?
Synoptic line: It throws light on the issue of need stricter adherence to sound banking rules and more transparency from public and private players.
(GS paper III)
- The Indian banking system is reeling under the pressure of growing NPAs, or non-performing assets, which will touch nearly ₹10 lakh crore by March this year. This does not include the ₹6 lakh crore already written-off. This has already caused a slowdown in disbursal of bank credit, in turn affecting productive investment.
- Recently the bank frauds involving Punjab National Bank (PNB) and the companies associated with businessmen Nirav Modi and Mehul Choksi as well as the Rotomac case couldn’t have come at a worse time.
- The recent fraudulent practices have been carried out and the length of time over which they continued suggests that the rot is much deeper. The scams are fundamentally and overwhelmingly a failure of regulation. At the level of the bank, it is impossible to believe that only a handful of employees have been implicated. Senior management and auditors did not track these problematic transactions for years.
- The Reserve Bank of India (RBI) did not monitor banks properly and created opacity with new financial instruments. The Finance Ministry failed in its oversight and regulation. And successive Central governments, including the present one, did and have not done anything to address the obvious problems that were festering, and made them even worse.
Letter of undertaking
- The PNB scam relied on the existence of an unusual financial instrument, the letter of undertaking (LoU). This is a bank guarantee that enables a bank’s customer to raise short-term credit from another Indian bank’s foreign branch. It has to be another Indian bank, because the LoU as a form of underwriting other borrowing does not exist in other countries and is not even recognised by foreign banks. It was created by the RBI as an additional incentive to importers who could then avail of cheaper credit abroad, even though import credits already exist.
- The PNB case involves pure criminal fraud, but there is a thin line between fraud and the many large defaults that plague the system. Commercial bank lending is massively skewed, according to the RBI, in March 2016, around 11,643 borrowers accounted for 38% of all bank loans; large corporate borrowers had the overwhelming share (84%) of bad loans.
- Finance is one of the many ways in which concessions and advantages are distributed. Some favoured companies are not declared wilful defaulters even when the government’s own investigating agencies find that they are diverting funds. Those declared as wilful defaulters are neither punished nor prevented from leaving the country.
- Some insolvent companies are made to sell their assets which are then purchased at throwaway prices by relatives or associates of the defaulting owners. Despite claims to the contrary, shell companies held by influential people continue to enable the siphoning of assets and money laundering in various forms.
- Many analysts within and outside government have responded to these scams by pointing the finger at public sector banks, claiming that they are more vulnerable to influence peddling and crony capitalism. The current mess has also become an excuse to demand the privatisation of state-held banks. This completely misses the point since privatisation would actually make things much worse for Indian banking.
- The key issue is one of poor regulation, and not ownership. Indeed, the reason why the current scam has not led to a widespread run on the PNB and other banks is precisely because of the sovereign guarantee that, despite everything, still generates trust in the public banking system.
- Poorly regulated private banks are even more prone to scams and failure as the financial sector is rife with information asymmetries and market imperfections. Private profit orientation generates incentives for managements to exploit loopholes in the rules and engage in risky behaviour, as examples by U.S. and European bank behaviour leading to the great financial crisis of 2008-09 show. The bailouts they then require tend to be even more expensive for the public exchequer because bank runs have to be prevented.
- In India, in the decade before the nationalisation of banks in 1969, there was an average of more than 35 private bank failures every year. After the liberalising reforms of the 1990s, the collapse of the private Global Trust Bank and Centurion Bank among others resulted in mergers, with the losses being borne by public sector banks. In fact, because of the opacity of banking practices, public banks are actually easier to regulate.
- There is need for stricter adherence to sound banking rules and more transparency and accountability from both public and private players. But most of all, these would apply to the regulators themselves and the government that frames all this.
Question– Discuss the ongoing banking crisis, also explain why there is need of stricter adherence to sound banking rules and more transparency from public and private players?