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IASbaba’s Daily Current Affairs – 28th June 2017

INTERNATIONAL

TOPIC: General Studies 2:

India and its International relations.

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, Indian diaspora.

PM Modi’s visit to US

Introduction:

This was PM Modi’s fifth US visit.
PM Modi remarked that when it comes to the development of the world’s two largest democracies, India remains a “driven, determined, and decisive partner”.
Donald J Trump on Twitter remarked- “Important strategic issues to discuss with a true friend.”
For India, which kept expectations muted for the visit, it was clearly a moment of triumph.
It was an effective and efficient meeting between two extraordinarily strong leaders united by a common goal: How to advance his own country’s interests first.

Finding common ground:

In statecraft, a rival’s rival is a friend. China’s geopolitical ambitions from One Belt One Road to dominating the South China Sea, not to mention its failed efforts to contain North Korea, all drove Trump closer to Modi who additionally offered Trump what the latter has been seeking from every world leader: Solid cooperation in fighting terrorism, extremism, and radicalisation. These assurances for Trump have not been forthcoming from traditional American allies in Europe, a region where Trump continues to be unpopular.
The evolution of global geopolitics has led to an unprecedented convergence between the US and India. The commercial imperative for closer ties is clear for American companies seeking to do business in the fastest growing large economy in the world. On the flipside, India’s strength in the services sector provides US companies with a deep competitive edge.

On economic front:

On economic front- Trump’s slogan, “Make America Great Again” is directly at odds with Modi’s vision of “Make in India” because both nationalist leaders are actively attempting to increase manufacturing in their respective countries as a pathway to lift their respective middle classes. Companies such as Infosys have already done the unthinkable and announced massive plans to hire Americans in the US and scale back hiring in India.
On the economic front, India came under increased U.S. pressure on IPRs.
The HIB visa issue remained unaddressed.
Trump duly noted his intent to reduce the US trade deficit with India. He highlighted that the US is trying to get higher prices for a long-term contract to sell natural gas to India. He was glad to note an Indian airline’s recent order of “100 new American planes, one of the largest orders of its kind, which will support thousands and thousands of American jobs”. In the delegation-level talks, Trump also thanked Modi for the Indian government’s decision to purchase 22 unarmed Guardian drones from the US.

Defence relation:

In terms of defence, India got the 22 Guardian drones it’s been keen to add to its arsenal and significantly, it’s the first non-Nato ally to be allowed to buy these hi-tech weapons.
Further defence equipment sales to India could help reduce the US-India trade deficit and improve the US’s defence-industrial manufacturing base.
Background- In August 2016, the Government of India finalised the Logistics Exchange Memorandum of Agreement (LEMOA). For its part, the US government recognised India as “Major Defense Partner”.

On Pakistan:

Hours after Modi’s arrival, the Americans sent out an even stronger signal by declaring Hizbul Mujahidden chief Syed Salahuddin a “Specially Designated Global Terrorist”. This vindicated New Delhi’s position of Kashmiri separatism being fuelled by Pakistan as a part of its sub-conventional warfare against India.
In turn, India pledged to join the United States’ campaign against North Korea’s nuclear weapons.
The language on Pakistan was tougher and more direct than before. In a joint statement, the leaders called on Pakistan to ensure its territory is not used to launch terrorist attacks on other countries. They further called on Pakistan to “expeditiously bring to justice perpetrators” of the 26/11 Mumbai, Pathankot, and other cross-border terrorist attacks by Pakistan-based groups.

On China:

The joint statement released by India and US can be seen as an indicator of change in Washington’s stance, to accede to India’s views on the Chinese Belt and Road Initiative. The statement supports regional economic connectivity projects provided they respect “sovereignty and territorial integrity, the rule of law, and the environment” and employ “responsible debt financing practices”.
The statement recognizes India and the US as two “democratic stalwarts in the Indo-Pacific region”—a clear hint towards building a coalition of democratic countries against non-democratic forces (read China) in the region.
Perhaps significantly, the specific references to the South China Sea dispute and China in last year’s joint statement were replaced with a call on “all nations to resolve territorial and maritime disputes peacefully and in accordance with international law”. This could suggest that the strategic outlook that underpinned the India-US relationship is changing, as President Trump turns away from seeking to contain Chinese power in Asia.

On climate change:

Climate change, the star of the 2016 joint statement, has disappeared from the 2017 joint statement. For Indian farmers, already hard hit by climate change this issue is key.
President Trump’s decision to walk back on the US’s Paris Agreement commitments marks a major blow.

Way ahead:

Many bilateral issues including India’s concerns on the immigration process and H1B visa curbs, and Mr. Trump’s withdrawal from the Paris climate accord, which will leave India’s climate change financing handicapped remains undiscussed.
The two countries need to move past obvious headwinds such as India’s IP standards and the immigration executive orders affecting high-skilled workers in the US.
On the face of it, “America First” and “Make in India” are not natural points of convergence, but they need not be matters of conflict either — only if both countries avoid protectionist measures. Since the Trump administration is keen on bilateral treaties instead of multilateral trade deals, it may be a tangible outcome if the two governments set their goals on negotiating a bilateral investment treaty.
Divisive political sentiments can be overcome as Indian companies make it their mandate to hire locally in the US.
On matters of trade, climate change and high-tech visas, the meeting resulted in few successes. Intellectual property rights and trade regulations could again occupy centre stage in relations between the two countries. Bilateral talks should continue to sort out these issues.

Conclusion:

All things considered, a good beginning appears to have been made during Mr. Modi’s maiden meeting with Mr. Trump. Clearly, the India-U.S. joint statement has exceeded expectations, with an emphasis on the need for Pakistan to stop attacks on India launched from its soil, and for China to forge its Belt and Road Initiative taking into account India’s concerns on territorial and sovereignty issues. Mentioning North Korea, West Asia and Afghanistan, the statement talks of a “growing strategic convergence” between the two countries and a shared vision on world affairs. However, while the two leaders were able to establish a common understanding of global issues, the joint statement indicates that many bilateral issues are yet to be resolved. It is now for them to tackle the more substantive bilateral issues.

Connecting the dots:

Discuss how US –India relations have evolved under President Trump’s era. Also discuss the bilateral issues and challenges between the two nations.

ECONOMICS

TOPIC:

General Studies 3:

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

General Studies 2:

Government policies and interventions for development in various sectors and issues arising out of their design and implementation; Important aspects of governance, transparency and accountability

Resolving the NPA issue: Key Challenges

Introduction:

Many new measures to help resolve India’s problem of large and mounting non-performing loans/assets, or NPAs have been launched by the government. Still India’s war on NPAs seem intractable. Indian regulators have not yet resolved a case that can be showcased as an example of what the recent regulatory measures can achieve.

Recent measures:

The Securities and Exchange Board of India announced that companies that are pursuing acquisitions as part of resolution plans approved under the Insolvency and Bankruptcy Code, 2016 (IBC) would be exempted from open offer obligations typically applied under Indian takeover regulations.
The Reserve Bank of India (RBI) announced its decision to focus on 12 stressed accounts, totalling about 25% of the current gross NPAs and referring them to the IBC immediately.
The government had cleared an ordinance to amend the Banking Regulation Act, giving the RBI more powers to direct banks to resolve bad loans.

A tough task:
These measures do not address some of the underlying characteristics of the Indian economy and the banking sector that make NPA resolution a diificult task in India.

Indian banks need to accept significant haircuts to resolve the NPA cases as several of them are in sectors where market conditions are in a slump, such as steel, power and textiles. In this environment, it is difficult for banks to find suitable buyers of distressed assets at desired valuations.
The government will require immense political will to allow bankers to take the necessary haircuts (which will impact profitability negatively), without bankers fearing that their decisions will be questioned or investigated in the future.
The tight resolution timelines envisaged under the IBC cannot be achieved if bankers do not have the commercial flexibility and the autonomy to sell distressed assets.
Another issue not addressed by the recent regulatory changes is what role promoters play in delaying NPA resolution. Unlike more developed markets, in India, bankers cannot make significant management changes in distressed companies as promoters closely control key aspects of a business such as relationships with suppliers, customers and regulators. It becomes critical that promoters should agree to and be involved in any resolution process. However, the RBI does not regulate promoters and other shareholders, and hence cannot force resolutions on to them.

Institutional framework to handle NPAs:

The framework includes the National Company Law Tribunal (NCLT), the adjudicating authority for corporate insolvency cases under Section 60 of the IBC.
It also includes the network of ‘insolvency professionals’ (IPs), a special class of professionals, who will be appointed by the NCLT and in charge of managing the debtor company, whilst being accountable to the committee of creditors and the NCLT.

Issues:

The severe capacity constraints of the NCLT in handling the present and past backlog of cases is well recognised.
It is also unclear how long it will take the NCLT judges to ramp up their understanding of the complex bankruptcy environment to allow them to handle the cases in an expedient and fair way.

Way ahead:

Regarding IPs, it is critical for the Insolvency and Bankruptcy Board of India to quickly develop a robust way to select the most qualified IPs.
Apart from their technical capabilities, it will be crucial to ensure that the IPs are truly independent and do not allow promoters or other key stakeholders to manipulate the resolution process in any unfair manner.
India has a mixed track record of regulating professional services, and the quality and independence of the IPs is critical to the successful implementation of the IBA.
The success of the bankruptcy law in India will depend on the jurisprudence that develops under the IBC. We have to wait and watch how the various players, including bankers, promoters, the government, IPs, auditors, lawyers, valuers and liquidators, behave in the next few cases.

Conclusion:

The NPA issue can be surely resolved with the hope that institutional capacity will strengthen; there will be greater alignment in the interests of the promoters, creditors and buyers of distressed assets; and, finally, the government and banks will show a strong political will to settle a few cases quickly and transparently.

Connecting the dots:

Insolvency and Bankruptcy Code, 2016 can surely help in resolving the Non-Performing Assets(NPA) issue in the country. However, some more steps needs to be taken. Discuss