Insights Daily Current Events, 02 September 2015
Paper 2 Topic: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
A.P. Assembly adopts unanimous resolution seeking Special Category Status
The Andhra Pradesh Assembly has unanimously passed a resolution requesting the Government of India to accord Special Category Status to the State and implement all the provisions contained in the A.P. Reorganisation Act, 2014.
The resolution has also urged the Union Government to implement the assurances made by former Prime Minister Manmohan Singh on the floor of Rajya Sabha in February, 2014, which include:
- fiscal measures like tax incentives to promote industrialisation and economic growth
- special development package
- release of balance grant to bridge the revenue deficit
- establishment of all educational institutions and provision of infrastructure facilities provided in schedule XIII
- implementation of Section 8 (Section 8 of AP Reorganisation Act, 2014 empowers the governor to have control over administration of law and order in Hyderabad.)
- early completion of Polavaram irrigation project
- other commitments made in the Act and assurances made in Parliament to enable the State to achieve level-playing field
Controversy surrounding section 8:
First of all, what is section 8 all about?
Section 8 of the AP reorganization act gives the Governor in the common capital area (Hyderabad) the special responsibility for the life, liberty, security and property of all those who reside in the area. This responsibility of governor also extends to matters such as law and order, internal security and security of vital installations, and management and allocation of government buildings in the common capital.
Why this section was included?
This section was incorporated as the people of Andhra Pradesh living in Hyderabad had raised concerns about their own security in the wake of the bifurcation of the state.
The basic question raised by Section 8 is – “ Who polices the police in Hyderabad?”
Is section 8 a unique power?
No. Constitution under Article 163 empowers the governor of any state to step in if there is a violation of law and order in the state.
Is it possible to invoke section 8?
Public order and police has been listed as the state subject under 7th schedule of the constitution. Since, Hyderabad is listed as the District of Telangana, experts believe that it is difficult to invoke section 8. Hence, legal experts believe that it is difficult to invoke section 8 considering that there are overriding provisions( Article 163 and 246) in the constitution.
Special category states in India:
The decision to grant special category status to States lie with the National Development Council.
The bases on the basis of which NDC decides whether a State should be accorded special status or not includes:
- hilly and difficult terrain.
- low population density and or sizeable share of tribal population.
- strategic location along borders with neighboring countries.
- economic and infrastructure backwardness and non-viable nature of state finances.
- In order to achieve the status of a special category state, a state has to project itself as socioeconomically or strategically vulnerable state.
- The Finance Commission is entrusted with the work of distribution of central tax revenues among states. The Finance Commission also recommends the principles governing non-plan grants and loans to states.
- The special category states get 30% of the total assistance for all states while the other states share the remaining 70%.
- The nature of the assistance also varies for special category states. Normal Central Assistance (NCA) is split into 90% grants and 10% loans for special category states, while the ratio between grants and loans is 30:70 for other states.
The main benefits of special category status are:
- a significant concession in excise and customs duties
- concession in income and corporate taxes
- Centre bears 90% cost of all Centrally sponsored schemes
- External aid will also to be devolved in the same ratio as received by the Centre.
Difference between special status and special category status:
Special status is guaranteed by the Constitution of India through an Act passed by the two-third majority in both houses of the Parliament, as in the case of Jammu and Kashmir, whereas Special Category Status is granted by the National Development Council, an administrative body of the government. While Special Status empowers legislative and political rights, Special Category Status deals only with economic, administrative and financial aspects.
At present there are 11 States that enjoy Special Status and Special Category Status: Arunachal Pradesh, Assam, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand.
Sources: The Hindu, prs, IE.
Paper 2 Topic: Statutory, regulatory and various quasi-judicial bodies.
DAC clears projects worth over Rs. 13,000 cr.
The Defence Acquisition Council recently gave the go ahead to further negotiations for purchase of 36 Rafale fighter jets from France.
- The council has also cleared a Rs 6,966 crore deal for the purchase of 48 Mi17-V5 helicopters from Russia.
- Approval was also granted for the purchase of seven additional squadrons of Akash missiles for the air force and eight Chetak helicopters for the navy.
About the Defence Acquisition Council (DAC):
- It was set up in October 2001 following recommendations from Group of Ministers (GoMs) on ‘Reforming the National Security System.’ The need for DAC was felt post-Kargil conflict.
- The council is chaired by the Defence Minister.
- Other members include: Minister of State for Defence, Chief of Army Staff, Chief of Naval Staff, Chief of Air Staff, Defence Secretary, Secretary Defence Research & Development, Secretary Defence Production, Chief of Integrated Staff Committees (HQ IDS), Director General (Acquisition) and Deputy Chief of Integrated Defence Staff.
- The main aim of the DAC is to fast-track procurement process of the armed forces by optimally utilising the available budget.
Sources: The Hindu, PIB, ET.
Paper 1 Topic: Culture.
UNESCO award for Kerala temple
India has won the top UNESCO ‘Award of Excellence’ 2015 for the remarkable conservation efforts of the majestic Sree Vadakkunnathan Temple in Kerala.
- The UNESCO ‘Award of Excellence’ is the top prize in the Asia Pacific Heritage Award for Cultural Heritage Conservation.
- The award recognises the remarkable conservation effort undertaken at the sacred site which employed age-old rituals and conservation techniques drawn from Vastu Sastra focussing on architecture and construction.
About Sree Vadakkunnathan Temple:
- It is an ancient Hindu temple dedicated to Shiva at city of Thrissur, of Kerala state.
- This temple is a classic example of the architectural style of Kerala.
- It has monumental towers on all four sides and also a kuttambalam.
- Mural paintings depicting various episodes from Mahabharata can be seen inside the temple. The shrines and the Kuttambalam display vignettes carved in wood.
- The temple, along with the mural paintings, has been declared as a National Monument the Ancient Monuments and Archaeological Sites and Remains Act (or AMASR Act).
Sources: The Hindu, Wiki.
Paper 3 Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Government Accepts Shah Panel Report
Finance Minister Arun Jaitley has announced that the government has accepted Justice AP Shah Panel’s recommendations on not levying MAT on Foreign Institutional Investors. Now, the government will not impose levy on FIIs prior to 1st April, 2015. This decision has come as a big relief to Foreign Institutional Investors (FIIs).
- Finance Minister has also assured that an amendment to the Income Tax Act to reflect the same will be made possibly in the winter session of Parliament in November/December.
- Justice AP Shah Panel had submitted its final report on the issue of applicability of MAT on capital gain made by FIIs prior to April 1, 2015 to government few weeks ago.
- Foreign investors have invested about USD 20 billion in Indian stocks in the past year and USD 28 billion in bonds.
- MAT has been levied on all companies except those in infrastructure and power sectors, since late 1980s.
- Historically, foreign investors have not paid this tax because it was believed that only Indian companies were subject to it. In 2010, a tax tribunal ruled that MAT was not applicable to companies that don’t have a permanent establishment in India.
- In 2010, Mauritius-based investment firm Castleton Investment approached the Authority for Advance Rulings (AAR) to get confirmation that it was not required to pay MAT on a transaction it wanted to execute. However, AAR in 2012 ruled that even foreign companies are subject to MAT.
- FIIs had argued that MAT is applicable only to domestic companies that had their base in India. By virtue of not being established in India, they should be exempted.
- FIIs also contend that there was inconsistency in the application of MAT as ever since it was introduced, FIIs were always exempted from it and hence, arbitrary application should be avoided.
- After FIIs started getting notices for MAT payments, the stock market had reacted adversely on concerns that foreign investors may pull out in a big way.
- This move will help promote India as a favourable investment destination.
- This will also be viewed very positively by the foreign investor community, which can help boost sentiment and FII investment in the stock market.
- The decision will also help further the government’s position that it discourages tax terrorism and welcomes foreign investment in India.
In Budget 2015-16, the government had provided relief to FPIs prospectively, from this financial year.
Sources: The Hindu, NIE, PIB.
Paper 3 Topic: Awareness in the fields of IT, Space and Disaster management.
New NASA project to help monitor environment
NASA and the US Agency for International Development (USAID) have launched SERVIR-Mekong project to strengthen regional environmental monitoring in five countries in the lower Mekong region of Southeast Asia (The 5 countries are – Myanmar, Thailand, Cambodia, Laos and Vietnam).
- This joint project will provide timely weather, climate and other Earth related data to five countries in Southeast Asia, enabling them to better address issues of natural resource and disaster management.
- The program also helps governments and development stakeholders incorporate Earth observations and geospatial technologies into natural disaster response, improve food security, safeguard human health, and manage water and natural resources.
About the SERVIR-Mekong project:
- Named for a Spanish term meaning ‘to serve,’ the programme was initiated in 2005 by researchers at NASA’s Marshall Space Flight Centre in Alabama, which continues to house the SERVIR Coordination Office.
- The project is housed at the Asian Disaster Preparedness Center in Bangkok, Thailand.
- The SERVIR programme helps governments incorporate Earth observations and geospatial technologies into natural disaster response, improve food security, safeguard human health, and manage water and natural resources.
- SERVIR was developed in coordination with the Group on Earth Observations, an alliance of more than 90 nations and organisations collaborating to build a global Earth-observing system to benefit society’s needs.
- NASA, USAID and their partners operate SERVIR hubs in Nepal, serving the Hindu-Kush-Himalaya region, and in Kenya, serving Eastern and Southern Africa.
- The first SERVIR hub, launched in 2005 in Panama, served the Mesoamerican region and the Dominican Republic.
Sources: CNN, NASA.
Paper 2 Topic: Important International institutions, agencies and fora, their structure, mandate.
Founding members ink agreement on AIIB
India along with 49 Prospective Founding Members (PFMs) recently signed the Articles of Agreement for the formation of the Asian Infrastructure Investment Bank (AIIB).The remaining seven founding members can sign the agreement till December 2015
- The signing ceremony took place in Beijing at the Great Hall of the People.
- The Asian Infrastructure Investment Bank (AIIB) is an international financial institution proposed by China. The purpose of the multilateral development bank is to provide finance to infrastructure projects in the Asia-Pacific region.
- AIIB is regarded by some as a rival for the IMF, the World Bank and the Asian Development Bank (ADB), which the AIIB says are dominated by developed countries like the United States and Japan.
- The AIIB is expected to focus on infrastructure development in Asia, and unlike the existing International Monetary Fund and World Bank, is unlikely to restrict lending on political considerations.
- The authorised capital of AIIB will be $100 billion.
- AIIB’s headquarters is to be located in Beijing.
- Reflecting regional character of the Bank, its regional members will be the majority shareholders, holding approximately 75% of shares. India is the second largest shareholder in the Bank after China. China, India and Russia are the three largest shareholders.
- In March 2015, United Kingdom became the first of G7 nations to join the bank.
- It is being called as a very positive development in the sense that it opens up more borrowing opportunities.
- Voting pattern: The voting shares are based on the size of each member country’s economy and not contribution to the bank’s authorised capital.
Sources: The Hindu, ET.
Paper 3 Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
RBI proposes formula to calculate Base Rate
The Reserve Bank of India (RBI) has proposed that to calculate the minimum lending rate, or base rate, all banks should move to marginal cost of funds based calculation instead of the present practice of picking any kind of cost of funds as a reference.
To bring in uniformity among banks for calculation of base rate and for effective transmission of policy rates.
- RBI has suggested banks to consider marginal cost of funds to calculate individual lending rates. Marginal cost of funds is calculated using the latest interest rate/card rate payable on current and savings deposits and the term deposits of various maturities.
- The components of Base Rate will include cost of funds, negative carry on CRR/SLR, un-allocable overhead costs and average return on networth.
- RBI will implement these proposals with effect from April 1, 2016. RBI has also asked the Banks to submit a road map clearly indicating the time frame for adopting these guidelines two months prior to the final implementation.
At present, banks follow different methodologies for computing their Base Rate. While some use the average cost of funds method, some have adopted the marginal cost of funds while others use the blended cost of funds (liabilities) method.
Base rate system was introduced in 1 July 2010 so that banks cannot lend below a certain benchmark and also to ensure that policy transmission takes place more effectively.
RBI, in April 2015, had said that for monetary transmission to occur, lending rates have to be sensitive to the policy rate.
What is monetary transmission?
Monetary transmission is the process through which changes in a central bank’s monetary policy gets reflected in the real economy. So, for instance, if a central bank reduces interest rates it charges borrowing banks, it would expect that reduction to be passed on to eventual customers as a result of the monetary transmission process.
Usually, there is a lag between the actions of the central bank and those of the commercial banks. The lag is less when central banks raise interest rates.
Sources: The Hindu.
Based on 2015 Prelims experience, we are going to launch a Separate Current Events Quiz of 5-10 Questions aimed at 2016 Prelims. This will be launched from today separately. Thank you.