Mitras Analysis of News : 20-04-2017

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1.A case for long term finance banks (Live Mint)

2.The Degree Disease (The Hindu)

3.SPARK- an independent science body (The Hindu)

4.Explained: UK Prime Minister’s decision to call snap elections 

 

1.A case for long term finance banks (Live Mint)

 Synoptic line: It throws light on the prospects of the long term finance banks for the economic boost in India.(GS paper II)

Overview

  • The Reserve Bank of India (RBI) has published a discussion paper on the need for wholesale and long-term finance (WLTF) banks.
  • These banks will have implications for investment regime and infrastructure development in India.

Concept of Wholesale and long-term finance (WLTF) banks

  • As the financial sector grows, apart from a number of universal banks, it may be useful to have differentiated banks focusing on different areas and developing competence.

There is a range of specialized services that these banks can offer to Indian businesses:

  1. WLTF banks will focus on lending to the corporate sector, small and medium businesses, and the infrastructure sector.
  2. They can act as market makers in instruments like corporate bonds and credit derivatives.
  3. They may also offer services in the area of foreign exchange and trade finance.
  4. They may also be allowed to accept term deposits above a threshold.

Implications and benefits of WTLF banks

  • One of the reasons for the subdued level of investment in the Indian economy is that the banking system is saddled with non-performing assets (NPAs), and a large portion is concentrated in the infrastructure sector. With specialized banks, such risks could possibly be avoided in the future
  • It’s not easy for companies to get long-term financing because of the underdeveloped corporate bond market and possible asset liability mismatch in the banking system. As specialized institutions, WTLF banks will be in a much better position compared with commercial banks in evaluating and funding long-term projects.
  • Establishment of WLTF banks will also enhance competition, which will lead to more efficient allocation of financial resources.

Concerns with idea of WTLF banks

  • One of the biggest problems facing long-term finance institutions is competing for funds in the marketplace and being able to lend at competitive rates. A working group of the RBI in 2004 also emphasised on this aspect.  Long term financing institutions are, therefore, crucially dependent for their continued existence on government commitment for continued support. However, government support is no guarantee of success, as has been the case with DFIs in the past and public sector banks in present times. 
  • Moreover, on the similar lines, India has tried the development finance institution (DFI) model in the past with limited success. Hence there can be no guarantee that WLTF banks will definitely succeed.

Development finance institutions (DFI)

  • After independence, DFIs were established to increase the level of investment in the economy. Industrial Finance Corp. of India (IFCI) was the first such institution to be established in 1948. This was followed by the establishment of state finance corporations.
  • In later years, other institutions like the Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI) were established.
  • However, DFIs struggled with government interference and changes in the economy, and accumulated high levels of NPAs. ICICI and IDBI have transformed themselves into commercial banks.

Way ahead

As the banking regulator considers over issuing licences for new-age WLTF banks, there are at least three aspects that will need greater attention.

  1. Government participation in setting up WLTF banks should be avoided as it could end up defeating the purpose. Government ownership would lead to the same problems that public sector banks are facing at the moment. Further, these banks will be highly specialized and will need operational freedom, which is not possible with government ownership.
  1. Licences should only be issued to entities that are able to demonstrate the ability to build such a highly specialized bank, and are in a position to bring in capital to both meet regulatory requirements and run the business on a sustainable basis. The central bank may allow industrial houses to participate to the extent that they are not in a position to influence business decisions.
  1. The RBI will need to design a regulatory architecture that will enable growth with adequate safeguards. For example, the regulator may choose to exempt these banks from cash reserve ratio and statutory liquidity ratio requirements. These banks will compete directly with the bond market.

Question: What can be the positive implications of the WTLF banks for the private investment in India?

 

2.The Degree Disease (The Hindu)

 Synoptic line: It throws light on the issue of degree galore but limited opportunities for growth. (GS paper III)

Overview

  • In India the demand for quality higher education has grown in the decades despite high unemployment figures. According to the book “Time pass: Youth, Class and the Politics of Waiting in India”, young men in a small town in northern India find themselves in dilemma, they are being constantly “in wait”. Equipped with double MA degrees, they languish in the university, in search of coveted ‘service’, waiting for something to happen and essentially passing time.
  • In india there is vast expanse of higher education, but in reality there is very much limited opportunities for growth, the recent  University Grants Commission (UGC) decision to curtail Mphil and PhD seats in universities to bringquality in our research programmes, has derive huge public outcry.

UGC guidelines

The UGC’s new regulations, has restricts the number of research scholars a faculty member of a university, central or state, can supervise at a time.

  • According to the UGC, the supervisor is critical to the student’s intellectual life and is called upon if a student seeks a job reference, participation in a conference or workshop, funding, a hostel seat, or action on any form of injustice. In order to be efficient in her interaction with students, so it is impossible for a professorial supervisor to deal with more than six-eight PhD students or one or two MPhil students at any given time.
  • Hence the regulations cap the number of MPhil and PhD students a professor can supervise at a time at three and eight, respectively. Associate professors can supervise two MPhil and six PhD students, and assistant professors one and four respectively. The number of research positions available in a university will therefore be determined by the number of teachers with the required qualifications available.
  • The MPhil degree in itself also does not result in eligibility for a university position. It is passing the ubiquitous National Eligibility Test (NET) administered by the UGC, or State Level Eligibility Test (SLET) at the State-level, or completing a PhD degree that in fact ensures eligibility for a teaching position in the university system.
  • All students who register for the MPhil programme do not necessarily have their eyes set on doctoral research, so it will benefit to those students who are serious about doing research, they need to be nurtured to grow as researchers and scholars.

Critical analysis

  • While questioning the decision to curb seats protesters says, “Do the new regulations signal that on the one hand the state curbs the scope of public university to restrict the access of the downtrodden community candidates from higher education and on the other hand, the state promotes private education?”
  • The admission model has been changed after the UGC notification, to give 100% weightage to viva-voce (earlier universities give some weightage to written exam and rest to viva-voce), protesters believe this will bring in favouritism in the selection process.
  • For the thousands of Dalits, SCs, STs, OBCs and minorities who write the exam each year, this new admission policy is seen as another act of exclusion and discrimination.

Way ahead

  • The pursuit of degrees alone does not necessarily nurture scholarship. It perhaps diminishes higher education far more rapidly. An emphasis on quality in our research programmes in a range of disciplines rather than in the number of seats is need of an hour.
  • Ensure the quality to ensure that students not only receive good education but also capable of having the skills for employment and not necessarily in the university system alone.

Question: What positive interventions can be constituted on the part of HRD ministry to ensure not just degrees but also employability?

 

3.SPARK- an independent science body (The Hindu)

 Synoptic line: It throws light on the issue of need of an independent body for scientific development in India.(GS paper III)

Overview

  • India is lagging far behind in research and development. Various systemic challenges ail the research regime in India and certain overhaul measures are required.
  • Therefore, a proposal is being floated to have an independent science and technology authority to overlook the scientific development in the country.

Vigyaan: 2030

  • Recently, a science report (titled: Vigyan 2030: Science and Technology as the Pivot for Jobs, Opportunities and National Transformation) has noted that stature of Indian science is a shadow of what it used to be, because of decades of misguided interventions.
  • One of its key recommendations is to have an independent science and technology authority that will have two parallel arms.
  1. A ‘discovery arm’ that can organise the expertise of various organisations across states and regions to solve a basic research problem.
  1. A ‘delivery’ arm that will closely work with industry and evolve public private partnerships.
  • Such an authority, the report envisions, will report directly to the Prime Minister. SPARK (Sustainable Progress through Application of Research and Knowledge), as the body is tentatively named, will be overarching yet have “light touch” governance.

Do we need such bodies?

  • India already has bodies that were, in their wisdom, conceived as umbrella organizations that can pool the intellectual and technological resources of organizations and direct them towards specific missions.
  • The Council of Scientific and Industrial Research, a pre-Independence institution, is another body that directly reports to the Prime Minister and has an independently-constituted governing council. It faces its own challenges of effectively translating its know-how.

Dilemmatic problem with scientific bodies

  • Scientific departments in India, from the Department of Atomic Energy to the Department of Science & Technology, have bureaucracies of their own.
  • They battle the dilemma of having to take bold, expensive risks that science by its very nature requires and on the other hand, be accountable to the Finance Ministry. Hence such a dilemma of killing the spirit of scientific temperament in the country.

Way ahead

  • Very often, bold experiments are supported and incubated for a few years and by the exertions of individually-motivated leaders. Hence, any new idea, to rejuvenate the administration of science, must also ensure continuity.
  • A change of government and new leaders has frequently meant ‘new priorities’ and the infant-death syndrome for the bold experiment. Thus, SPARK should have a legal structure that can have continuity and the purpose of its creation.

Question: A new body such as SPARK will just create just another rest house for retired and senior bureaucrats. Critically analyse?

Explained

4.UK Prime Minister’s decision to call snap elections

Context

  • K. Prime Minister Theresa May made a surprise announcement in London that she plans to seek approval from the House of Commons to hold a general election on June 8.

Non-maleficence

  • In an unexpected statement, May announced that the government would seek to hold a general election on June 8.
  • British governments generally last for five years, and the Conservative Party’s administration then led by May’s predecessor David Cameron was elected in 2015.
  • The next election was not due to take place until May 2020. Hence, UK Prime Minister Theresa May’s call has for a snap general election in June has took the country by surprise.
  • Ms May pledged several times after taking office last year not to call an early election, so this is something of a U-turn.

Mandate of British Parliament?

  • Members of the British Parliament have approved Prime Minister Theresa May’s plan to hold an early general election, as required under the Fixed Term Parliament Act, clearing the way for the vote to take place on June 8.

Why Snap election is being announced?

  • May, who took over when Cameron resigned in the wake of Britain’s decision to leave the European Union, wants to seek a stronger mandate in Brexit talks. But her party only has a slim majority in Parliament, and opposition parties have attempted to throw rocks in her path towards Brexit.
  • However, The UK government formally started the process of disassociation process last month, signalling the beginning of the end of a relationship that endured for 44 years.
  • Moreover, Ms. May now feels it is time to erase the perception that she is an unelected Prime Minister.

What could it mean for Brexit?

  • If May wins, it will shore up May’s strategy for Brexit. In voting for the Conservative party, the British people will be giving May a mandate to carry out Brexit the way she sees fit.
  • The main opposition Labour Party has also committed to carrying out the desire of Britons to leave the EU, expressed in last year’s referendum. Only the Liberal Democrats, a minority party, opposes Brexit.
  • In any case, the UK is already bound by Article 50 of the Lisbon Treaty, which May have triggered last month. By invoking Article 50, the British government has set the process of withdrawing from the European Union in motion.

Question: What can the implications of UK’s snap elections on the Indian trade and exports with Britain?

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