Mitras Analysis of News : 24-04-2017

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1.The line between fiction and fact (The Hindu)

 2.Bioregionalism(Down to Earth)

3.Explained: Roadmap to revive India’s ailing banking sector 

4.Ethics Special: Credo

 

1.The line between fiction and fact(The Hindu)

 Synoptic line: It throws light on issue of Fake news and its rising consequences in shaping mind of the people.(GS paper II)

Overview

  • In today’s world, online social media plays a vital role, especially in crisis events. There are both positive and negative effects of social media coverage of events. It can be used by authorities for effective management or by malicious entities to spread rumours and fake news. The terms “post-truth”, “fake news” and “misinformation” are in debate.
  • Globally the menace of fake news has made consumers and producers to take this phenomenon seriously. The dangers of such Internet media are now beginning to be felt in India, when today we are having over million users. Private opinion is mistaken for public proclamation, propaganda accepted as news. A largely illiterate citizenry is more likely to gain information without a filter. Whom to believe, how much and under what circumstance becomes impossible to verify when the source is a tweet, a private opinion, a like.

What is fake news?

  • Fake news is a sort of Photoshop for words and ideas. Fake news is news or stories on the internet that are not true.

There are two kinds of fake news:

  • False stories that are deliberately published or sent around, in order to make people believe something untrue or to get lots of people to visit a website. These are deliberate lies that are put online, even though the person writing them knows that they are made up.
  • Stories that may have some truth to them, but they are not completely accurate. This is because the people writing them for example, journalists or bloggers don’t check all of the facts before publishing the story, or they might exaggerate some of it.

Propaganda becomes news

  • Whatever the messages people are sharing, are often taken on their word; private opinion is mistaken for public proclamation, propaganda accepted as news.
  • In a world where there is no difference between broadcast journalism, print or social media, anything is capable of becoming news, news may be reported in papers and news channels, but when political parties and business groups promote their ideological agendas and Facebook becomes the primary source for news then fact, opinion and propaganda become one and the same.
  • Obviously it is not a crime to spread opinion, but it certainly is when it masquerades as real news.

For example in US general election people’s chat boxes were filled with ideas about institutions failing, democracy on the decline, rigged polls, fake news, racist rants and so on.

Fake news and its challenges in India

  • In India where population still largely uneducated and entirely unused to a cosmopolitanism co-existence, the urgency to believe in something, anything, is often a need not based on informed opinion.
  • The fake news problem is compounded by the firm causal link that has developed between social media and the news. What happens on social media becomes news because news editors are under pressure to produce ‘trending’ content. Sometimes, even if that social media information, is fake.
  • For example, in the case of the JNU controversy, where several channels ran footage which was not shot by their own reporters, purportedly showing students chanting “anti India” slogans. The videos were later found to be spliced, with an audio from some other clip overlaid on the JNU clips. Channels did not run disclaimers attesting to the non-verification of the content and did not offer any apology after they were called out for it.
  • In India fake news tends to spread through private WhatsApp networks rather than public social media pages, making it harder to track. Such rumours have been blamed for fuelling riots and communal violence.
  • When people look only to private media for factual information and news, chances are that a lie doing the rounds eventually establishes itself as truth. It travels the full course passed on from Facebook, tweeted into shared accounts, across thousands of unsure minds, spreading like wild fire without proof or doubt till opinion becomes fact and belief becomes total.

Solution to stop fake news (Way ahead)

  • Effective and modern legislations are to be brought to tackle fake news in modern platforms of Internet and social media with severe of penalty in case of deliberate publicizing of fake news.
  • Social platforms like Facebook, twitter etc. has a major role to play in society, as they work depending on computer algorithm which is aligned with market interests, they are growing to be ideal platform for propagation of fake news agenda. Thus they should come up with technological solutions and caution mechanisms to handle fake news. More than a Government ordered regulation; self regulated social media can go miles ahead.
  • People should gather news and info from verified news outlets and sources. Awareness campaigns on legal and social consequences of fake news should be encouraged.

Question: Solution to fake news is more news. How can social media be more responsible to curb the phenomena of fake news?

2.Bioregionalism(Down to Earth)

Synoptic line: It throws light on the emergent concept of bioregionalism and how it can lead towards a more meaningful life.(GS paper I and III)

Overview

  • In the next five years, the problems of a globalised world will increase, as will the awareness of people. Consequently, they are going to look for alternatives. Bioregionalism in this regard can provide the solutions.

Idea of bioregionalism

  • Bioregionalism is a movement that was born in Italy in the early 1970s. It is a revolutionary way to reimagine our surroundings.
  • Itis a political, cultural, and ecological system or set of views based on naturally defined areas called bioregions. The concept assumes significance as we are increasingly facing environmental and social problems the world over. Hence, we need to cultivate newer approaches about how we intend to plan and develop our surroundings
  • Bioregions are defined through physical and environmental features including watershed boundaries and soil and terrain characteristics.
  • The bioregionalist perspective opposes a homogeneous economy and consumer culture with its lack of stewardship towards the environment. This perspective seeks to:
  1. Ensure that political boundaries match ecological boundaries.
  2. Highlight the unique ecology of the bioregion.
  3. Encourage consumption of local foods where possible.
  4. Encourage the use of local materials where possible.
  5. Encourage the cultivation of native plants of the region.
  6. Encourage sustainability in harmony with the bioregion.
  • As such, bioregionalism attempts to articulate in contemporary terms a way of life that has been practiced by humans throughout most of their history—that is, the idea that societies should be organized on the basis of local communities, which attempt to provide for their basic needs on the basis of resources available at the local level.

Bioregionalism and Globalisation

  • Many indigenous peoples continue to organize their societies in this way and their cultures are increasingly threatened by attempts to exploit their resources.  There is also an attempt to pull local communities that are relatively self-sufficient at present into the global market by seeing them as a source of cheap labour and markets.
  • While some are no doubt attracted by the idea that they may eventually be able to live the same kind of lifestyles as people in developed countries, there is also a great deal of resistance among those who would prefer to maintain their traditional cultures and lifestyles
  • Take any product, for instance, the smartphone. It is made of different parts manufactured across the world. The smart card inside is made of silica, which will have to be mined. Mining, in turn, will cause harm to the environment and displace indigenous people.
  • We need to find a balance between the local and the global to minimise such da-mages as much as possible. Planning (in making a product) should take care of what are called “negative externalities”, which are mostly environmental and social in nature. So we need to build a globalisation from the bottom by working with local people and nature in such a way that they do not have to suffer the negative impacts of globalisation.

What kind of Bioregionalism for India?

  • India should rejuvenate its ecology. It needs to put in place a renewed Na-tional Reforestation Programme, with special emphasis on native plant life.
  • That’s because climate change is a reality, and it will cause major catastrophes in the next 10-20 years. Unfortunately, neither the government nor its people realise they are sitting on a ticking time bomb.
  • Governments are completely clueless, and people, especially the middle class, are too busy indulging in a consumerist lifestyle.

Way ahead

  • Bioregionalism could become a global movement and its practitioners could help build new institutions and municipalities and find newer ways to live in harmony with nature.
  • Bioregionalism is a new process of thinking. It is a way of making a new social construct through territories with different entrances, where we will have to work with concepts like “consciousness of place” and “global archaeology” and formulate new proposals and test them on the ground. Using these innovative concepts, we can build a corpus of new knowledge which can help develop India in a sustainable fashion.

Question: Bioregionalism can be an answer to sustainable development in India. Should India cultivate or curb this movement?

 

Explained

3. Roadmap to revive India’s ailing banking sector

Introduction

  • Rising corporate debt and higher default rates have led to a continuous increase in distressed loans in the Indian financial system. The situation has worsened in the last five years with the stressed asset ratio rising from 7.6 per cent in March 2012 to 11.5 per cent in March 2016.
  • This accumulation of bad loans in the banking sector is not the doing of corporates alone. Poor credit appraisal, collateral-based lending, lack of corporate governance and accountability and ambitious credit growth targets led to unwarranted lending by banks.
  • The figure is set to increase with the banking regulator recently raising a red flag over the indebtedness of the telecom sector and asking banks to increase standard asset provisioning. This means that even if the account is not a non-performing asset (NPA), banks have to set aside higher capital.

Expected solutions

  • To tackle the mounting bad loan problem, RBI has undertaken several initiatives. These include creating an empowered Joint Lenders’ Forum for identification of incipient stress, introducing restructuring mechanism under the Strategic Debt Restructuring (SDR) scheme, enabling flexible refinancing under 5:25 scheme, easing norms around sustainable structuring of stressed assets (S4A) and revising guidelines for their sale.
  • In addition to resolving bad loans, these measures also seek to reduce the exclusive reliance of Indian businesses on banks for financing requirements by improving liquidity in the corporate bond market.

Idea of Bad Bank

  • A ‘bad bank’, as a solution to the banking sector woes, has been under consideration. A ‘bad bank’ is basically a bank incorporated to take over bad loans from commercial banks and enable the lender community to focus on lending as stretched non-performing loans prolong the healing process in the organisation.
  • Outside India, developed economies like that of the UK and the US have adopted ‘Good Bank Bad Bank’ approach as a successful restructuring and accelerated resolution tool.
  • China set up state-owned asset management companies (AMCs) during the banking crisis in the late 1990s to oversee non-performing loans and the process delivered good results. These AMCs helped rejuvenate China’s economy by turning delinquent borrowings into state-owned enterprises.

PARA

  • The Public Sector Asset Rehabilitation Agency (PARA) also called as “Bad Bank” is a proposed agency to assume the Non-Performing Assets (NPA) of public sector banks in India and to deal with the recovery of the bad loans. This agency has been proposed in Economic Survey 2016-17.
  • The economic survey of 2016-17 pointed out the twin balance sheet problem — stressed companies on one hand and NPA-laden banks on the other — and advocated a centralised Public Sector Asset Rehabilitation Agency (PARA) be established to deal with the bad loans problem.
  • According to economic survey, Private Asset Reconstruction Companies (ARCs) haven’t proved any more successful than banks in resolving bad debts. Hence there is a need for specialised agency.
  • One challenge private sector ARCs face is that of capital. None of the entities till now has been allowed to tap the capital market for raising funds. Some central bank as well as government officials also admitted capital was the biggest challenge in setting up a ‘bad’ bank. “At least ₹25,000 to ₹30,000 crore of capital will be required to set up a bad bank in the initial stages.

Alternative solutions

  • Two models have been suggested to solve the problem of stressed assets:
  1. Private Asset Management Company (PAMC): It is said to be suitable for sectors where the stress is such that assets are likely to have economic value in the short run, with moderate levels of debt forgiveness. Some of the sectors which this model could address metals are telecom and textiles.
  • In this model, each resolution plan would get vetted and rated by at least two credit rating agencies to assess the financial health and in terms of timeline, the banking sector may be asked to resolve and restructure.
  1. National Asset Management Company (NAMC): It would be necessary for sectors where the problem is not just one of excess capacity but possibly also of economically unviable assets in the short- to medium-term. Unlike the first model (PAMC) where asset recovery is likely to be relatively quick, these assets may require a long time to start generating cash flows.
  • Are these supposed to be ‘bad banks’? The answer is ‘No’. A ‘bad bank’ conveys the impression that this entity is to operate as a bank but has bad assets to start with. In fact, the idea is not to operate these entities as banks at all.

KAMCO case study

  • The Korea Asset Management Corporation (KAMCO) played a major role in resolving stress in its banking system.
  • The recovery was characterised by a rapid and drastic reduction in the level of bad loans in the financial system.
  • A study by the International Monetary Fund said KAMCO first purchased distressed assets from banks and other financial institutions, which allowed lending to resume at a time of scarce liquidity. Moreover, this objective was complemented by increased supervision to ensure that banks were operating on sound commercial principles.
  • KAMCO’s resolution of bad loans contributed to the good progress made in Korea in recovering public funds injected by the government for financial sector restructuring.

Some more possible solutions

Joint Lenders Forum (JLF)

  • It is similar to ‘London Approach’ and focuses on identifying and remedying stress in initial stages and avoiding bad loan write-offs later. It works as an out-of-court settlement mechanism for consortium lending and Multiple Banking Arrangements (MBAs) where lenders come together and form a JLF committee to arrive at a corrective action plan and preserve the economic value of the underlying asset. However, in many cases, decision-making within the stipulated time has been a challenge for JLF committees.

 5:25 Scheme 

  • RBI had launched a 5:25 scheme under which the creditors were allowed to increase debt period up to 25 years with interest rates adjusted every five years. But since it is a long duration, the companies find it difficult to endure high interest burden, thus forcing banks to infuse additional grants thus leading to problem of “evergreening of loans”.

 The Strategic Debt Restructuring scheme 

  • It allows lenders to initiate change in management, gain control by converting part of the loan into equity and turn around the ailing company. It was observed in restructuring cases that borrower companies were not able to come out of stress due to operational/managerial inefficiencies. By allowing lenders to change the management and ownership, SDR enabled lenders to remove these operational and management inefficiencies.
  • The success of SDR depends on successful turnaround of the company, which requires a disciplined approach and board oversight function. Even though it has been a popular recourse amongst the lender community, lenders have faced difficulties in its successful implementation due to lack of adequate expertise, time and resources to run the distressed company.

 Scheme for sustainable structuring of stressed assets (S4A) 

  • It was formulated by the RBI to give companies a chance for sustainable revival and ensure adequately deep financial restructuring. The scheme provides lenders an option to bifurcate existing debt of stressed borrowers into sustainable and unsustainable portions.
  • It is one of the first initiatives which acknowledged the need of banks to take haircut on the stressed loan by converting unviable portion of debt into equity.

Question: The problem of NPA can cripple down the entire banking sector if not taken care immediately. What policy intervention are most suited in this regard?

 

Ethics Special

4.Credo

  • Ethics is basically the study of what we ought to do. The question is how we know what we ought to be doing? What are the principles that guide us in deciding right from wrong?
  • There are certain beliefs, for example:
  1. Should we always do what brings the greatest good for the greatest number (utilitarianism)
  2. Or what brings us, personally, the greatest pleasure (hedonism)?
  3. Maybe we should act in accordance with the word of God – in the Bible, the Quran, commandments (divine command theory).
  4. Or maybe what’s right is what will get us into heaven (salvation theory).
  5. Do we have ‘duties’, such as to tell the truth and act justly (deontology),
  6. Or should we act in ways that protect a citizen’s inalienable rights, that is life and liberty (contract theory).
  7. But then again maybe it’s all about survival of the fittest (social Darwinism)
  8. Or maybe there really is no such thing as morality, or maybe ethics is just a political power game (nihilism).
  • Thus, Credo means a set of Fundamental beliefs or guiding principles which guides the action of a human being. A credo is what drives the action of a person (both good as well as well)
  • A civil servant or a person should always strive for a “credo” which hold the potential to emancipate downtrodden from the clutches of poverty, ignorance, disease and hunger.
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