Mitras Analysis of News : 23-05-2017

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  1. The problems with recently promulgated Banking ordinance (Live Mint)
  1. An unequal burden (The Hindu)
  1. Explained: Vertical farming: Solutions to mitigate food crisis

 

The problems with recently promulgated Banking ordinance (Live Mint)

 Synoptic line: It throws light on the various inconsistencies involved in Banking ordinance. (GS paper III)

Overview

  • India’s banking crisis has been on a slow burn for the last three years. Experience world over shows that banking crises end up always costing more if strong upfront actions are not taken. The latest banking Ordinance gives the appearance of action.
  • But it will delay the inevitable resolution, ending up in a much bigger bill for the Indian economy.

Banking ordinance

  • The amendments to the Banking Regulation Act introduced through the Ordinance, and the notification issued thereafter by the Central Government empower RBI to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC).
  • It also enables the Reserve Bank to issue directions with respect to stressed assets and specify one or more authorities or committees with such members as the Bank may appoint or approve for appointment to advise banking companies on resolution of stressed assets.
  • Immediately upon the promulgation of the Ordinance, the Reserve Bank issued a directive bringing the following changes to the existing regulations on dealing with stressed assets.
  • It was clarified that a corrective action plan could include flexible restructuring, SDR and S4A.
  • With a view to facilitating decision making in the JLF (joint lenders’ forum) consent required for approval of a proposal was changed to 60 percent by value instead of 75 percent earlier, while keeping that by number at 50 percent.

Critical appraisal of ordinance

  • Resolution of NPAs is a two-stage process. The first stage involves assessing the viability of the debtor’s business. The second stage involves deciding whether the debtor’s company should be restructured or liquidated. Any such resolution, be it restructuring or liquidation, imposes losses on the banks that had lent money to the corporate debtor. The larger the losses, the higher the amount of capital needed by the banks to meet the Reserve Bank of India’s (RBI) guidelines on provisioning requirements. While the government has promulgated the ordinance, it has not made any commitment of additional capital to support the resolution efforts.
  • Second, resolving a bank’s NPAs requires resolving the entity to which money has been lent. The ordinance may instead create perverse outcomes. Under IBC, banks as members of the creditors’ committee are required to vote on a resolution plan. If the RBI directs a bank to initiate IBC action against a corporate debtor, it may also have to direct the bank on the decisions in the creditors’ committee. By empowering the RBI to act, the government has taken away any incentive of the banks to act on their own. In India today, different banks are at different levels of capital adequacy. An IBC resolution plan that works for one bank may be inimical to the interests of another. As the banking regulator, RBI is responsible for the health of all banks.
  • Third, RBI giving directions on the resolution of banks’ NPAs may undermine the IBC process in other ways too. It may thwart the incentives of third parties which would have otherwise been willing to offer their bids or resolution plans in a market-driven process.
  • Fourth, with the ordinance in place, all eyes are now on the RBI to resolve the NPAs of the banking sector. This could be problematic because the range of actions that the banks can take to address the problem is limited by the shortage of capital. The tools available to RBI are limited. If the RBI intervenes on a case-by-case basis, questions about conflict of interest, regulatory capacity and capability will arise.

Way ahead

  • The ordinance was presumably brought about because banks on their own could not trigger IBC proceedings against the stressed companies for fear of investigation and prosecution, or due to lack of capital or because of challenges in negotiating with politically connected promoters.
  • The ordinance gives banks the regulatory cover to take resolution decisions, but it is, by design, limited in its capacity to resolve the crisis. It opens up a Pandora’s box of new problems.

Question: What are the key challenges which are supposed to be fulfilled by Banking ordinance? What are its challenges?

An unequal burden (The Hindu)

 Synoptic line: It throws light on issue of implementation of Paris agreement on Climate change. (GS paper III)

Overview

  • The contribution of countries to climate change and their capacity to prevent and cope with its consequences varies enormously. As part of a global effort, developed country Parties should continue to take the lead in mobilizing climate finance from a wide variety of sources, instruments and channels, noting the significant role of public funds, through a variety of actions, including supporting country-driven strategies, and taking into account the needs and priorities of developing country Parties. 
  • The Conference of the Parties-22 (COP-22) in Marrakesh in November 2016 and Bonn climate talks 2017 had continued discussions on the implementation of the Paris agreement and specific aspects continue to be deliberated upon. But Funding to help developing countries prepare for future climate impacts lags well behind carbon cutting initiatives.

About the Paris climate agreement

  • The Paris Climate Agreement was signed in December 2015 in an attempt to limit the release and the effects from greenhouse gases (GHGs) in the atmosphere.
  • The Paris climate Agreement central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius.
  • Additionally, the agreement aims to strengthen the ability of countries to deal with the impacts of climate change. To reach these ambitious goals, appropriate financial flows, a new technology framework and an enhanced capacity building framework has been put in place, thus supporting action by developing countries and the most vulnerable countries, in line with their own national objectives.
  • The Agreement also provides for enhanced transparency of action and support through a more robust transparency framework.

Nationally determined contributions

  • The Paris Agreement requires all Parties to put forward their best efforts through “Nationally Determined Contributions” (NDCs) and to strengthen these efforts in the years ahead. This includes requirements that all Parties report regularly on their emissions and on their implementation efforts.
  • In 2018, Parties will take stock of the collective efforts in relation to progress towards the goal set in the Paris Agreement and to inform the preparation of NDCs.
  • About three-fourths of countries NDCs, for implementation of pledges require assistance on the finance and technology fronts. These countries depend on help from industrialised economies to build capacity for implementation.
  • There is an analysis, that even if all the NDCs were implemented, estimates show that the planet would warm up by about 3°C from pre-industrial temperatures, that is well above the goal of staying below a 1.5°C or a 2°C rise.
  • This implies that all the NDCs ought to be implemented and the support required should be provided, so that countries can build the trust and confidence needed to further raise the bar for future targets. The process of Paris agreement implementation would collapse without support.
  • There is need of improving energy efficiencies across various sectors and expanding the use of renewables that will enable us to move along low-carbon development pathways. We need to shift to a radically different pattern of living that no longer involves GHG emissions.

The Green Climate Fund

  • The Green Climate Fund (GCF) is an international mechanism set up at the COP-16 held in Cancun (2010). As per the international agreement, advanced economies should provide an annual assistance of $100billion; through public and private sources by 2020 (the deadline is now extended to 2025).
  • Unique in the sense that it’s the only standalone multilateral financing entity with a sole mandate to serve the UN Framework Convention on Climate Change, the fund itself is part and parcel of a global movement to act on climate change.
  • The GCF has the ability to bear risks, support innovation and leverage its own funds for further support, therefore making it a vital agency for poor countries.
  • The fund currently has pledges worth $10 billion from various developed countries and there is a commitment to fund projects that enable the lowering of emissions and help in dealing with the effects from climate change.
  • India, in its NDC statement mentioned that estimated requirement of $2.5 trillion to carry out its climate actions until 2030.
  • Around more than 40 countries including a few developing economies, have made contributions to the GCF, the major contributors being the U.S., Japan and the U.K. US being largest cumulative emitter of GHGs has more obligations, but the United States is the most significant missing name from the list of donor countries, that will prevent even the minimal level of support to deal with climate change.
  • The GCF was expected to disburse $2.5bn by the end of 2016, but is finding it hard to secure good low carbon climate resilient development proposals from developing countries. It has been noted that most of the funding is going to large-scale multilaterals, experienced in developing project pipelines and securing accreditation to access finance. Important though these projects are, clearly there is a need to engage national and local agencies closer to the communities most vulnerable to climate change.

Way ahead

  • There are developing countries and poor countries to bear the burden of emissions from rich countries. All countries have responsibilities that were recognised in the Paris Agreement, but the rich countries, especially the U.S. and European nations, have to do their fair share for the world to set along a new path towards zero emissions. 
  • Without the assistance developing countries like India simply recommitting to implement its NDCs will not accomplish much, there is need of developed countries to be more active to pledge their support towards the climate change agreement.

Question: What are the key challenges in meeting the pledges under Paris agreement? What are the financial mechanisms available under Paris pledge?

Explained

Vertical farming: Solutions to mitigate food crisis (GS paper III)

Introduction

  • By the year 2050, nearly 80% of the earth’s population will reside in urban centres. Applying the most conservative estimates to current demographic trends, the human population will increase by about 3 billion people during the interim.
  • An estimated 109hectares of new land (about 20% more land than is represented by the country of Brazil) will be needed to grow enough food to feed them, if traditional farming practices continue as they are practiced today.
  • At present, throughout the world, over 80% of the land that is suitable for raising crops is in use (sources: FAO and NASA). Historically, some 15% of that has been laid waste by poor management practices. What can be done to avoid this impending disaster?

What is vertical farming

  • It is called as vertical because it involves, growing more crops on a smaller land area and this usually means going upwards into buildings. It normally means that, instead of having a single layer of crops over a large land area, there will be stacks of crops going upwards. It’s also associated with city farming and urban farming.
  • Vertical farmingis the practice of producing food and medicine in vertically stacked layers, vertically inclined surfaces and/or integrated in other structures (such as in a skyscraper, used warehouse, or shipping container). The modern ideas of vertical farming use indoor farming techniques and controlled-environment agriculture (CEA) technology, where all environmental factors can be controlled. These facilities utilize artificial control of light, environmental control (humidity, temperature, gases) and fertigation.
  • Some vertical farms use techniques similar to greenhouses, where natural sunlight can be augmented with artificial lighting and metal reflectors.
  • It is gaining slow and steady acceptance worldwide with the United States showing the way. Aerofarms situated in Newark, US, is the world’s largest vertical farm occupying an area of 70,000 square feet and harvesting up to 2 million pounds of micro greens, herbs, etc. per annum.

How it works? 

  • It is common knowledge that plants get their nutrition from soils and need sunlight for photosynthesis. Without these factors the plant cannot survive, leave aside grow. So, in urban Vertical Farms, where the crops are grown indoors in closed environment how do these plants grow without sunlight and soil?
  • Well, in Vertical Farms crops are raised in tubs kept in vertical racks and they get their nutrition either “hydroponically”, that is, through nutrient-enriched water or “aeroponically”, that is, through nutrient-enriched air.
  • The tubs are kept under specialised LEDs of Blue and Red light, which is the optimal light for photosynthesis in leafy greens, and are also known as grow lights. The vertical farms are bathed in purple due to these blue and red LED lighting spectrums.
  • These specialised LEDs give the greens the exact spectrum, intensity and frequency they need for photosynthesis in the most energy efficient way possible. This engineered lighting allows the size, shape, texture, colour, flavour, and nutrition of the crops to be controlled with razor-sharp precision.
  • The entire farming process is closely monitored and controlled by automated computers that provide the precise amount of light, nutrients, water or mist, temperature and humidity to optimise the crop yield.

 Sustainability of Vertical farming 

  • It is estimated that the crops grown in vertical farms use 95% less water (that too is recyclable) than in a conventional field farm. When grown aeroponically they even use 40% less water than hydroponically, which speaks volumes about the potential of this form of agriculture, especially in view of conservation of water, a dire need today for the entire planet.
  • In vertical farms, you are not dependent on the climate for growing your crops. There is no fear of droughts or floods or infestations either. The weather is perfect every single day and 365 days is your growing season.

 Why do we need it? 

  • The world population is set to increase to 9 billion from the present 7 billion by the year 2050. We need to produce 50% more food than the current level to feed the burgeoning hungry mouths. Feeding so many hungry mouths is turning out to be one of humanity’s greatest challenges since at present 800 million people in the world are undernourished, which means they cannot meet their minimum daily dietary energy requirements.
  • In a vertical farm the micro and macro nutrient requirements are closely monitored and provided, which results in better growth of crops. The data of Aerofarms asserts that they are able to take the exact seed from the field and grow it in half the time as a traditional field farm leading to 75% more productivity per square foot than a commercial field farm. Plant scientists monitor 30,000 data points every harvest for improving the growing system.
  • Going soilless has its advantages since most of the disease- producing microbes come from the soil.
  • Vertical farms work on the principle of grow your food in cities where you live, since it’s estimated that 66% of the planet will soon live in cities. Since the produce of vertical farms is supplied locally, helping reduce spoilage from trucking these perishables, cuts carbon footprint of refrigerated trucks or carriers and saves huge amounts of fossil fuel.

 What’s holding us back?

  • Energy will be the great limiting factor for this. Plants need a lot of light for photosynthesis. There’s a couple of examples in the US of warehouses being converted into stacks of plants. They use LED lights which are cool, efficient lights you can put close to the plants. They are very efficient at making plants grow and you can control plant growth very well, but again you need energy to do that.

Question Discuss the science associated with the vertical farming? What are the prospects of vertical farming for food security?

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