Insights Daily Current Events, 28 September 2015

G4 leaders seek time-bound U.N. reforms

During the recently held G4 summit, which was hosted by Prime Minister Narendra Modi, leaders of Germany, Brazil, India and Japan called for urgent reforms of the United Nations. This summit is taking place after a decade.

Highlights of the summit:

During the summit, the leaders noted with concern that no substantial progress had been made since the 2005 World Summit where all the Heads of State and Government had unanimously supported the ‘early reform’ of the Security Council as an essential element of the overall effort to reform the United Nations.
The leaders emphasised that the G4 countries are legitimate candidates for permanent membership in an expanded and reformed security Council and supported one another’s candidature.
They pledged to work together with all member-states and to accelerate outreach towards achieving an early and meaningful reform of the Security Council.
The G4 leaders appreciated the fact that the Inter-Governmental Negotiations on UN reforms has come out with a text that will form the basis for further negotiations.

India and the UNSC:

India, since long time, has been demanding expansion of UNSC and its inclusion as permanent member in it.
The U.S. is supporting India’s claim for a permanent UNSC seat, but it has been calling for consensus before reforms can move ahead. Pakistan is opposed to India, while China has been ambiguous in its approach though not openly opposed to reforms.
Russia, France and UK have clarified that they are open to supporting India’s bid for a permanent seat in the United Nations Security Council (UNSC).

Why India should be given a permanent seat in the council?

India was among the founding members of United Nations.
It is the second largest and a one of the largest constant contributor of troops to United Nations Peacekeeping missions.
India has over 8,500 peacekeepers in the field, more than twice as many as the UN’s five big powers combined.
It has been a member of UNSC for 7 terms and a member of G-77 and G-4, so permanent membership is a logical extension.

Trivia: Japan, Germany, India and Brazil are the third, fourth, seventh and eighth biggest economies, respectively. In terms of population, India is the second biggest, Brazil fifth, Japan 10th and Germany 16th biggest in the world.

UNSC: Quick facts

The United Nations Security Council (UNSC) is one of the six principal organs of the United Nations and is charged with the maintenance of international peace and security.
Its powers include the establishment of peacekeeping operations, the establishment of international sanctions, and the authorization of military action through Security Council resolutions; it is the only UN body with the authority to issue binding resolutions to member states.
The Security Council consists of fifteen members. Russia, the United Kingdom, France, China, and the United States—serve as the body’s five permanent members. These permanent members can veto any substantive Security Council resolution, including those on the admission of new member states or candidates for Secretary-General.
The Security Council also has 10 non-permanent members, elected on a regional basis to serve two-year terms. The body’s presidency rotates monthly among its members.

G4:

The G4 nations comprising Brazil, Germany, India, and Japan are four countries which support each other’s bids for permanent seats on the United Nations Security Council.
G4’s primary aim is the permanent member seats on the Security Council. Each of these four countries have figured among the elected non-permanent members of the council since the UN’s establishment. Their economic and political influence has grown significantly in the last decades, reaching a scope comparable to the permanent members (P5). However, the G4’s bids are often opposed by Uniting for Consensus movement, and particularly their economic competitors or political rivals.

Sources: The Hindu, Wiki.

Paper 3 Topic: conservation.

India to announce climate commitments on Gandhi Jayanti

The government has said that it will announce on October 2 its Intended Nationally Determined Contributions (INDCs) in the lead up to the Paris climate summit in December.

October 1 is the deadline for declaring the INDCs, and India will miss it by a day.
The INDCs of countries will form the basis for climate negotiations at the Conference of Parties (CoP) 21 under the U.N. Framework Convention on Climate Change in Paris in December.

What are INDCs?

These are individual country commitments which are expected to indicate through their form and strength what shape any 2015 agreement might take.

Countries across the globe have committed to create a new international climate agreement by the conclusion of the U.N. Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP21) in Paris in December 2015.
In preparation, countries have agreed to publicly outline what post-2020 climate actions they intend to take under a new international agreement, known as their Intended Nationally Determined Contributions (INDCs).

The INDCs combine the top-down system of a United Nations climate agreement with bottom-up system-in elements through which countries put forward their agreements in the context of their own national circumstances, capabilities and priorities, within the ambition to reduce global greenhouse gas emissions enough to keep global temperature rise to 2 degrees Celsius.
The INDCs will not only contain steps taken towards emission reductions, but also aim to address steps taken to adapt to climate change impacts, and what support the country needs-or will provide to address climate change.
In February 2015, Switzerland became the first nation to submit its INDC to reduce greenhouse gas emissions, later followed by the European Union.

Sources: the hindu, un.

Paper 3 Topic: Inclusive growth and issues arising from it.

Mending gender gap could add 60 % to India’s GDP by 2025: McKinsey

According to a new report by McKinsey Global Institute (MGI), India’s gross domestic product (GDP) could see a jump of about 60% by 2025 if the gender inequality issue in society is resolved and more women are allowed to join the workforce.

The report is titled ‘The Power of Parity’.
The report analysed 15 gender equality indicators for 95 countries home to 93% of the world’s women and 97% of the world’s GDP.
This report shows how much the global economy stands to gain from accelerating momentum toward gender parity.

What else the report says?

Closing or even narrowing the global gender gap in work would not only be equitable in the broadest sense but could have far more economic impact than previously estimated.
In a full-potential scenario in which women play an identical role in labour markets as men, India is likely to witness the highest potential boost at 60%.
According to the analysis of 95 countries, female workers currently generate about 37% of the world’s GDP, considerably lower than their 50% share of the global working-age population suggests is possible.
In India, the share of regional GDP generated by women is only 17%.
Globally, if all countries were to match the progress toward gender parity of the country in their region with the most rapid improvement on gender inequality, as much as USD 12 trillion could be added to annual global GDP growth in 2025.
In case of a full-potential scenario in which women play an identical role in labour markets as men, as much as USD 28 trillion, or 26%, could be added to global annual GDP in 2025.

According to McKinsey, the gap in labour force participation partly reflects the unequal sharing of household responsibilities between men and women. Around 75% of the world’s unpaid work is undertaken by women, including the vital tasks that keep households functioning such as child care, caring for the elderly, cooking and cleaning.

Sources: The Hindu.

Paper 3 Topic: Inclusive growth and issues arising from it.

DoP seek Cabinet nod to set up Payments Bank

The Department of Posts (DoP) is expected to seek Cabinet nod within two months for raising Rs.292 crore from public investment board to set-up Payments Bank, for which it has already got the RBI approval.

Government has in-principle agreed to the entry of Postal Department in banking service through payments bank route.
The DoP expects to roll out Payment Bank services by March 2017. There are no major infrastructure issue with the department. Only there is need to set up a data centre and disaster recovery centre which will be done soon.

All about Payment Banks:

Payment Bank is a step towards financial inclusion.

Capital requirement : The minimum paid-up equity capital for payments banks is Rs. 100 crore.
The payments bank should have a leverage ratio of not less than 3%, i.e., its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves).
Promoter’s contribution: The promoter’s minimum initial contribution to the paid-up equity capital of such payments bank shall at least be 40% for the first five years from the commencement of its business.
Foreign shareholding: The foreign shareholding in the payments bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time.
Apart from amounts maintained as Cash Reserve Ratio (CRR) with the Reserve Bank on its outside demand and time liabilities, it will be required to invest minimum 75% of its “demand deposit balances” in Statutory Liquidity Ratio(SLR) eligible Government securities/treasury bills with maturity up to one year and hold maximum 25% in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.

What are the scopes of activities of Payment Banks?

Payments banks will mainly deal in remittance services and accept deposits of up to Rs 1 lakh.
They will not lend to customers and will have to deploy their funds in government papers and bank deposits.
The promoter’s minimum initial contribution to equity capital will have to be at least 40% for the first five years.
They can accept demand deposits.
Payments bank will initially be restricted to holding a maximum balance of Rs. 100,000 per individual customer.
Can issue ATM/debit cards but not credit cards.
Can carry out payments and remittance services through various channels.
Distribution of non-risk sharing simple financial products like mutual fund units and insurance products, etc.

Sources: The Hindu, rbi.

Paper 2 Topic: Statutory, regulatory and various quasi-judicial bodies

Forward Markets Commission to merge with SEBI

In the first ever merger of two regulators, over 60-year-old FMC (Forward Markets Commission) is all set to merge with the younger but much bigger capital markets watchdog the Securities and Exchange Board of India (SEBI) to create a unified regulatory body.

Main aim: FMC’s merger with Sebi is aimed at streamlining the regulations and curb wild speculations in the commodities market, while facilitating further growth there.

What made this merger necessary?

The commodities market has been known to be more prone to speculative activities compared to the better-regulated stock market, while illegal activities like ‘dabba trading’ have also been more frequent in this segment.
Besides, the high-profile NSEL scam has rocked this market in the recent past and the subsequent regulatory and government interventions in this case eventually led to the government announcing FMC’s merger with SEBI.

The merger was announced by Finance Minister Arun Jaitley in his budget speech.

Quick look:

SEBI was set up in 1988 as a non-statutory body for regulating the securities markets, while it became an autonomous body in 1992 with fully independent powers.
FMC, on the other hand, has been regulating commodities markets since 1953, but lack of powers has led to wild fluctuations and alleged irregularities remaining untamed in this market segment.
At present, there are three national and six regional bourses for commodity futures in the country.

This is the first major case of two regulators being merged, against the relatively more frequent practice world wide of creating new regulatory authorities, including by carving out new bodies from the existing entities.

Changes made to handle this merger:

An internal committee was earlier set up at Sebi to evaluate and suggest regulatory changes for merger and prepare a roadmap for the same.Based on the recommendations of the committee, Sebi and the government have notified all enabling regulations including amendments to various existing norms.
Sebi has created a separate Commodity Cell and has set up new departments for regulation of commodities derivatives market.
Sebi has also sought help from the Agriculture Ministry with regard to the data sources for the prices and to improve the methodology for determination of final settlement price.
The manpower requirement will be met with the officers from FMC (both cadre and deputation) and by new hiring.

About FMC:

Forward Markets Commission (FMC) is a regulatory authority for commodity futures market in India. It is a statutory body set up under Forward Contracts (Regulation) Act 1952.

The Commission functions under the administrative control of the Ministry of Finance, Department of Economic Affairs, Government of India.

Composition: The Act provides that the Commission shall consist of not less than two but not exceeding four members appointed by the Central Government, out of them one being nominated by the Central Government to be the Chairman of the Commission.

The functions of the Forward Markets Commission are as follows:

To advise the Central Government in respect of the recognition or the withdrawal of recognition from any association or in respect of any other matter arising out of the administration of the Forward Contracts (Regulation) Act 1952.
To keep forward markets under observation and to take such action in relation to them, as it may consider necessary, in exercise of the powers assigned to it by or under the Act.
To collect and whenever the Commission thinks it necessary, to publish information regarding the trading conditions in respect of goods to which any of the provisions of the Act is made applicable, including information regarding supply, demand and prices, and to submit to the Central Government, periodical reports on the working of forward markets relating to such goods;
To make recommendations generally with a view to improving the organization and working of forward markets;
To undertake the inspection of the accounts and other documents of any recognized association or registered association or any member of such association whenever it considers it necessary.

Sources: The Hindu, fmc.

Insights Daily Current Events, 28 September 2015