IASbaba's Daily Current Affairs Analysis, IASbaba's Daily Current Affairs Feb 2017, UPSC

IASbaba’s Daily Current Affairs – 15th February 2017

ENVIRONMENT-CONSERVATION AND MANAGEMENT

TOPIC: General Studies 3

Conservation, Environmental pollution and degradation, environmental impact assessment

Government Budgeting – issues

Budget allocation to Ministry of Environment and issues

Introduction

Environmental conservation and biodiversity is always paid lip service in Indian policy making. Especially when it comes to budget allocation and expenditure analysis there is scarce data and subsequently less attention paid to. Further only headline making issues are budgeted and hence real issues loose much needed attention.

Issue:

The Union Budget presented this month has made a allocation of ?2,675.42 crore to the Ministry of Environment, Forest and Climate Change (MoEFCC), an apparent increase by 18.88% from last year.

But, the devil is in the finer details that display indifference shown to specific issues below that demand immediate policy interventions by the state.

wildlife conservation,
pollution abatement
related areas
Prima facie the budgetary approach to environmental protection appears to be as fragmented and flawed as the legal approach.
Even as the issues of
- Forest management
- Resource conservation
- Pollution control
- Wildlife protection

are manifest to be increasingly interconnected, they are treated in isolation with attention paid only at the macro-level.

Often proactive measures for environment are disproportionately counter-balanced by lax regulation in other sectors such as energy and large industries.
- For an illustration – dedicating funds, however large or small, for the Environment Ministry, in the complete absence of corresponding measures to boost alternative energy sources, place curbs on polluting industries and vehicles and adopt sustainable development approaches to economic growth is a farcical exercise.
In the current Budget too, while there has been an increase in allocation to the MoEFCC, funding for renewable energy forms, solar use in rural areas, etc. has been reduced.
The pluses of additional funding have been offset by paltry efforts at consolidating environmental conservation.

Minimal budgetary allocation:

In light of the increasing challenges faced by environment in India, budgetary allocation to the Ministry of Environment under various heads is palpably inadequate.
- There has been superficial renaming of ‘Clean Energy Cess’ levied on coal, lignite and peat as ‘Clean Environment Cess’ with an increase in the rate of levy to ?400 per tonne.
Even as climate change and increasing pollution have been matters of great concern, a measly sum of ?40 crore and ?74.30 crore have been allocated to the Climate Change Action Plan and Central Pollution Control Board (CPCB),
While the national capital reeled under the heavy effects of air pollution, triggering heated debates on spiraling pollution levels in prominent urban pockets, the funding received by the CPCB is visibly unremarkable.
Similarly, heads of environment and ecology, coastal management, environmental monitoring and governance, National Afforestation Management have received funds sketchily with no accompanying rationale for such allocations or a clear framework for their utilisation.
The treatment of wildlife conservation has been no different, with ambitious projects like Project Tiger having the budget slashed by ?30 crore and Project Elephant receiving a marginal boost of ?2.5 crore.

Under-utilisation of funds:

Budgetary flow for the schemes under the Ministry of Environment has been fluctuating in the past and can be best described as insubstantial.
The rise and slump in allocations have been perplexing as they do not appear to have been based on receipts and expenditures of the preceding financial year.
- In 2015, the total budget for the Ministry was reduced by 25% to ?1,681.60 crore, only to be increased to ?2,327 crore the following year.
- Centrally sponsored schemes have also experienced similar ups and downs with Project Tiger witnessing a slash of 15% in 2015.
- This time as well, the National Tiger Conservation Authority (NTCA) has been allotted an arbitrary sum of ?8.15 crore.
- Even as it is difficult to negotiate and coordinate with the State governments to chart an effective framework for conservation projects and streamline budgetary allocation, the funds dedicated to Central bodies such as the NTCA intuitively appear to be insufficient.
A closer breakdown of the actual expenditure shows that out of the ?850.02 crore dedicated to implementing the Centrally sponsored core schemes, the total outlay was only ?566.38 crore.
These Centrally sponsored schemes include Project Tiger, Project Elephant, Integrated Development of Wildlife Habitats and Conservation of Natural Resources and Ecosystems.
- For instance, Project Tiger has barely managed to utilise half the funds allocated to it. The spectre of under-utilisation haunts State projects as well.

Priorities and problems

In the Fiscal Policy Strategy Statement, the envisaged outlook for the financial plan states that the “government will aggressively focus on the objectives of pushing economic growth… (and) has the prime responsibility of providing a safe and stable environment for the private sector to create wealth.”

But there is need to balance the same with ecological and livelihood concerns.

Conclusion

The need to rein in mindless propulsion of industrial growth at the cost of environment is obvious, to address the problems of disappearing wildlife, increasing conflicts, deterioration of ecology and habitat destruction. For this, scientific, sustained and intensive measures of conservation are required. A small step in this regard would be to acknowledge the role of the environment in budgetary allocations and ensure rational dedication of funds.

Connecting the dots

In spite of environmental moments dating back to post independence years India’s progress in environment conservation and management is not noteworthy. Critically discuss the reasons behind the same in respect of budgetary allocations and associated issues.

ECONOMY

TOPIC: General Studies 3

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Bad Bank- A Bankable idea?

Background

Economic Survey 2017 states that the total level of stressed assets (NPA + restructured + unrecognised) in public sector banks can be around 20% of their loan book.
The gross Non-performing assets (NPAs) amount to Rs. 6.75 lakh crores and are mounting. This is 9% of the bank lending or 4.5% of GDP which is huge in numbers and effect.
The crackdown on high-profile defaulter Vijay Mallya may be making headlines but now it is an urgent need to contain the rising NPAs. The rising NPAs have almost stopped the lending by banks and investment by the indebted corporates concerned.
Private investment had actually started to shrink by 2015-16. The Economic Survey 2016 notes that in 2016-17, it may have contracted by more than 7%.
NPAs are “an economic problem, not a morality play” as pointed out by Economic Survey. Hence, RBI governor has said that there is a need for “pragmatism” in dealing with the tensed issue of NPAs.
The Survey has also acknowledged that RBI and government are running out of options and thus mooted a novel idea of a ‘bad bank’. The bad bank will be a Public Sector Asset Rehabilitation Agency (PARA), with 49% government ownership.
This makes the institutions realise that
- 5/25 scheme: It allows banks to extend long-term loans of 20-25 years to match the cash flow of projects, while refinancing them every 5 or 7 years. Until now, banks were typically not lending beyond 10-12 years.
- Strategic debt restructuring: the banks who have given loans to a corporate borrower gets the right to convert the full or part of their loans into equity shares in the loan taken company.
- S4A (or Scheme for Sustainable Structuring of Stressed Assets): the liabilities of struggling company’s debt will be bifurcated into sustainable and unsustainable portions. The banks will convert unsustainable debt into equity and sell it to new owner. The credible resolution plan is carried out be overseeing committee carried out by Indian Banks Association.
- Private Asset Reconstruction Companies: The ARCs take over the NPA’s from banks for fixed cost which is less than the NPA amount. NPA is transferred to ARC along with any security which is pledged while taking loan. Now ARC will issue security receipts for fixed interest rate and will raise money.

= have not helped enough.

Design a bank

The bad bank shall take over the bad loans and administer/sell them into the private markets.
New RBI Deputy Governor has also expressed his views that a bad bank just by itself will not necessarily work. But it has to be ‘designed right’ instead.
The key to the whole concept is getting right the price at which the bank can sell off the assets to private investors. If designed properly, the bad bank idea might work.
Thus, here is an attempt to identify some fundamental principles that should apply to determine the ‘right’ price at which bad assets can be taken off Indian banks’ — particularly public sector banks’ — books.
The reason is that
1. The public debate on such matters too often focuses on the mysterious and sophisticated audience and ignores the bottom line implications.
2. The bottom line implications are critical for well-being of the common man.
3. Highlighting the bottom-line implications for the common man also serves an important purpose – they help form public opinion so that at least in future, the chances of such financial blow-outs are minimised or at least their severity is mitigated.
4. The public needs to know who is responsible for permitting, or not permitting a problem situation to develop.
Public sector banks account for 70% of total banking assets. The total scheduled commercial banks credit at Rs. 74,00,000 crore and out of it, public sector banks’ share is about Rs. 50,00,000 crore.
Out of this, Rs. 10,00,000 crores is the level of stressed assets. This is the quantum of bad assets that have to be taken off their books at a “right” price for all stakeholders — the banks themselves, the buyer and general public.

The principles

Banking regulation is fundamentally founded on the idea that a regulated institution at all times should be “safe” and “sound”.
Safety and soundness in regulation is termed as solvency regulation in the jargon.
Solvency regulation seeks to ensure that at least all small fixed amount creditors (that is, small depositors) do not suffer any loss when a financial institution goes insolvent.
The core idea is that small fixed amount depositors should not suffer any losses when there is a serious deterioration in the value of a bank’s assets vis-à-vis its liabilities.
Thus, solvency regulation should ensure that overall asset values should at all times be higher than liability values.
But currently, as the Economic Survey reports, it seems probable that at the aggregate level for public sector banks, asset values may be perilously close to falling below liabilities. Hence the need for a disaggregated approach to marshalling assets and selling them.
The deposits held by individuals (considered as small fixed creditors) in total public sector banks’ deposits is roughly Rs. 35,00,000 crore.
Other key deposit holders are the government sector and private corporate sector at Rs. 10 lakh crore and Rs. 14 lakh crore respectively.

Role of PARA

PARA is expected to clean up the balance sheets of banks. This will give them freedom to lend without encumbrance, even as they are recapitalised to the extent of the write-downs.
This year’s budget provided only for Rs. 10000 crore for bank recapitalisation, against last year’s Rs. 25000 crore. This is to get a better view of with a view to arriving at greater clarity on the problem before committing the money.
There are over 20 asset reconstruction companies (ARCs) in operation, many of them private players. But private ARCs have not picked up more than 4-5% of the book value of the NPAs.
The reason is that the public sector banks are not willing to write down losses to the extent that the ARCs would like as they fear vigilance repercussions. Against it, the ARCs also cannot offer more when asset “resolution” is difficult.
Hence, it will be crucial to see how PARA works where others have not been able to generate fruitful outcomes.
While PARA as a government-owned entity, may be able to bring various creditors on board to agree on write-downs, it would also have to show urgency in recovering the cash.
Even with the bankruptcy code coming into play, enabling the judiciary to put an end to protracted liquidation proceedings, PARA must be guided by an approach to revive industry wherever possible.
A fine balance between institutional accountability and autonomy is called for.

Ultimately, the objective should be to get credit growth back to double digit rates, with checks and balances to deal with irregularities.