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IASbaba’s Daily Current Affairs – 29th December, 2015

  • December 29, 2015
  • 22
IASbaba's Daily Current Affairs Analysis, IASbaba's Daily Current Affairs December 2015, UPSC
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IASbaba’s Daily Current Affairs – 29th December, 2015

 

ECONOMICS

TOPIC: 

General Studies 3:

  • Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment. 
  • Inclusive growth and issues arising from it; Effects of liberalization on the economy
  • Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security

General Studies 2:

  • Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests; Effect of policies and politics of developed and developing countries on India’s interests
  • Important International institutions, agencies and fora- their structure, mandate; Issues relating to poverty and hunger. 

 

Post-Nairobi : WTO- Doha Development Agenda

  • Post-Nairobi- The work programme has very few substantive issues that can meaningfully engage its 162 members
  • Doha Development Agenda (DDA)- Faces the imminent threat of closure

 

The Doha agenda

Adopted in 2001; a collective articulation of the developing countries for working towards a just and equitable trading system, to provide the opportunities to laggards in the global trading system to benefit from engaging in trade.

Redesigned Rules-

  • Agriculture was stripped of all policy distortions with the high levels of subsidies that provide unfair advantage to the large conglomerates controlling global trade in commodities
  • Agreement on Agriculture (AoA) would be amended to address smallholder agriculture and give developing countries new instruments to address concerns regarding-
    • food security,
    • protection of rural livelihoods and
    • rural development
    • India- Flexibility to adopt farmer-friendly policies as well as to operate a public distribution system for implementing the National Food Security Act
  • Agriculture & Industry- Developing countries would be granted flexibility while reducing tariffs in both agriculture and industry, so as to ensure that these enterprises are prevented from facing competitive pressures before they are adequately prepared to do so
    • India- Critical for the pursuit of the ‘Make in India’ programme
  • Services- Most developing countries have been seeking ways to improve their presence in the global services markets, especially through cross-border trade in services and through movement of natural persons

 

Nairobi Declaration—

Lack of unanimous support for DDA’s continuance-

  • Marked a significant departure from the fundamental WTO principle of consensus-based decision making
  • Developed countries, especially the US, are more in favour of new approaches to the unresolved issues as well as for the emerging issues that are to be considered-
    • e-commerce,
    • global value chains,
    • competition laws,
    • labour,
    • environment and
    • investments

Future deliberations in the WTO if DDA weakened-

WTO members have reached agreements in pluri-lateral formats that present the conclusion of Trans-Pacific Partnership (TPP)-

  • TPP is a 12-member arrangement, led by the U.S.
  • Countries of vastly unequal strengths would be treated equally
  • Ignores the presence of large policy distortions, for instance, the granting of high levels of farm subsidies by the U.S. while pushing for opening of markets
  • Ability to earn unacceptably high rents through the exercise of the extraordinary rights they have been promised for their intellectual property and their investments, for example, life-saving drugs
  • Trying cases against host countries before international arbitration panels when the latter have tried to bring domestic regulations to check flagrant violation of norms

At a Glance—

Key political issues:

Equity:

  • In terms of the contributions/ commitments to be made by developed and developing countries
  • Basis for differential treatmentlies in the historical responsibilities of developed countries and the lower capabilities of developing ones; special and differential treatment (S&DT) in the WTO for developed countries
  • The contentiousness in the current negotiations arises from the remarkable changes in the global economy over the last two decades with the substantially enhanced role of emerging economies in global trade.
  • Though, the demand for differentiation between emerging economies and other poorer developing countries remains the same, as few economies may have become competitive in some areas, they continue to struggle with poverty and underdevelopment.

 

India’s View-point 

Farm subsidy regime:

  • India has always stood for its right to provide subsidies to her farmers as 85 per cent of farmers have holdings of less than five acres, and that too given the backdrop of rural distress after successive years of drought
  • Nairobi conference:
    • Members of developed countries have committed to removing export subsidiesimmediately, except for a handful of agricultural products
    • Developing countries will remove the subsidies by 2018, with flexibility to cover marketing and transport costs for agriculture exports until the end of 2023 as well as political feasibility which will have to be taken into account
    • Status quo on some critical issues, including the “peace clause” for food stock holding, has not been disturbed and the arrangement binds other countries to refrain from challenging India’s food-grains procurement operations at minimum support prices and stock holding for the public distribution system, till this issue is finally resolved.

 

Issue of a special safeguard mechanism or SSM:

  • It allows India to raise tariffs to protect the interests of local farmers against surges in imports(meant to curb sudden increases in imports of commodities, which could hurt domestic agricultural interests)
  • Ministerial decision on SSM for developing countries: These countries will have the right to temporarily increase tariffs in the face of import surges while committing members to engage constructively in finding a permanent solution on public stockholding for food security.

 

Key Issues

  • Issues of public stockholding of food crops and special safeguard mechanism in agriculture have not seen major progress
  • Rich nations want new issues to replace Doha Development Agenda
  • The ministerial declaration effectively barricades Doha because the WTO procedures mandate that any new resolution must garner the unanimous support of all member countries
  • WTO has recognised developing members’ rights to have recourse to special safeguard mechanism as envisaged under the Hong Kong ministerial
  • Touted as the “most significant outcome on agriculture” in the WTO’s history, the declaration on export competition will see all countries reducing export subsidies paid to farmer

 

IASbaba’s Views:

  • India’s trade policy is a function of domestic reform and competitiveness and India should make an effort to explore adequately the possibility of restructuring its farm-support programmes to conform to Green Box requirements. The decisions are of the nature of them being politically sensitive, but if successfully pursued, would free India to follow other trade objectives
  • India needs to also pursue the efficiency gains from domestic market integration in various sectors of the economy, particularly agriculture. The GST is a vital instrument and along with other initiatives, the looming danger might just surpass.
  • Market integration is an important aspect that needs capacity building and that which would lead to significant competitive gains, enabling countries in the region to focus on their comparative advantage, thus creating thousands of jobs. The government’s policy emphasis on “Make in India” needs to also be replicated in services, thus generating greater potential for job creation in the economy.
  • Formulation of a forward-looking trade policy based on India’s competitive strengths and a clear vision for the future that India can shape the WTO’s agenda needs to be speeded up.

 

Connecting the Dots:

  • Discuss the relevance of DDA in the present context of the emerging pattern and globalisation
  • Can the ‘principle of equity’ be employed in the economic sphere? Critically examine

 

Related Articles:

Message from Nairobi- WTO Negotiations

WTO and its relevance

 

ECONOMICS

 

TOPIC:   General studies 2

  • Separation of powers between various organs, dispute redressal mechanisms and institutions.
  • Statutory, regulatory and various quasi-judicial bodies. 
  • Government policies and interventions for development in various sectors and issues arising out of their design and implementation.  

 

Working through the bankruptcy maze

  • India’s financial distress resolution mechanism is broken.
  • Companies that fall into hard times spend six or eight years trying to resolve the situation(the case of kingfisher)
  • Banks are burdened with massive amounts of non-performing loans that are a drain on their resources and also affect their willingness to lend to new and deserving projects.
  • Ultimately, the honest and successful companies and individuals that borrow from the banks pay for these inefficiencies in terms of higher interest rates.
  • In light of this, the Insolvency and Bankruptcy Bill, 2015, which has now been referred to a joint committee of Parliament, is a significant step in the right direction.

 

India’s insolvency regime: Historical outlook

  • Over the past 20 years, there have been a number of attempts to reform India’s insolvency regime.
  • Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 were laws made by parliament aimed at helping speed up the bankruptcy resolution process.
  • Corporate debt restructuring is a Reserve Bank of India-sponsored scheme that has tried to sidestep the courts to resolve financial distress.

 

An epic fail:

  • None of the above mentioned mechanisms have been fully effective.
  • While one can find a number of micro reasons for their failure, the one overarching reason (at least in the case of laws) is the lack of legal infrastructure to effectively implement the laws.

 

The case of strong laws and weak implementation:

  • The insolvency laws stated above laid emphasis on the courts to solve insolvency issues.
  • Our courts are overburdened, understaffed and lack basic physical infrastructure.
  • Some of the Debt Recovery Tribunals are known to be operating out of car showrooms.
  • India is a classic case of strong laws diluted by weak implementation.

 

The new bankruptcy bill, 2015

How will a new law resolve this situation?

  1. Privatisation of insolvency resolution process:
  • The current Bill acknowledges the poor legal infrastructure present in India and tries to overcome it by privatising the insolvency resolution process.
  • The Bill proposes a new breed of insolvency professionals who will be responsible for managing the process.
  • The courts will be required to rule on a limited number of issues.
  • This solution will work only if the private sector infrastructure develops and the courts confine themselves to their limited role.

 

  1. Time bound process:
  • The other important aspect of the Bill is the strict, time-bound process that is specified.
  • The Bill mandates that the decision between restructuring and liquidation should be made by the bankruptcy professional within six months of a firm being referred to the bankruptcy process.
  • Under certain limited circumstances, there can be one extension of three months after which the firm will have to be liquidated to settle its claims.

 

Way ahead:

  • Barring few technical limitations (which can be overcome), the Bankruptcy Bill, as introduced in the Lok Sabha in the winter session, is a significant step in the right direction and should be enthusiastically welcomed.

 

Connecting the dots:

  • Critically examine the 4D solution for banking reforms, as envisaged in economic survey 2014-15.
  • Recently Supreme Court declared National Tax Tribunal Act as unconstitutional as it keeps away judiciary from taking up issues that have substantial question of law. In the light of above statement, examine the Bankruptcy Bill 2015.
  • Critically examine the functioning of debt recovery tribunal in India over the years with special reference to increasing NPA’s in banking sector.

 

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