IASbaba's Daily Current Affairs Analysis

IASbaba’s Daily Current Affairs (Prelims + Mains Focus)- 1st March 2018

(PRELIMS+MAINS FOCUS)

World’s largest solar park in Karnataka

Part of: Mains GS Paper III- Energy Security

Key pointers:

Has been launched in Pavagada, Karnataka. It has the capacity of generating 2000 MW power.
The mega project was conceptualized, planned & built in just 3 yrs.
Known as Shakti Sthala, the solar park with the capacity of generating 2000 MW power was created by 2300 farmers.
It is spread over 13,000 acres of land across five villages.
No land acquisition happened for building the Shakti Sthala. Instead, farmers will get Rs 21,000 per acre as rental.
The tariff per unit has been fixed at Rs 3.30 per unit.
Pavagada, being the most drought-prone state, witnessed large scale migration over the last decade. The solar park provided employment opportunities and involved people’s participation in power generation.

Article link: Click here

(MAINS FOCUS)

INTERNATIONAL

TOPIC: General Studies 2:

India and its neighbourhood- 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

Evaluating Asian Infrastructure Bank(AIIB)

Background:

The third annual meeting of the board of governors of the Asian Infrastructure Investment Bank (AIIB) is scheduled to be held in Mumbai in June.
India is the AIIB’s second-largest shareholder and is also a major recipient of loans from the bank.
The largest shareholder, China, hosted the first annual meeting in 2016 and the second was hosted by South Korea last year.

About AIIB:

The multilateral development bank (MDB) was established in January 2016 with its headquarters located in Beijing.
At the launch of the AIIB, there were 57 prospective founding members (including India) and 20 from outside the region (including France Germany, Italy and the UK). The membership stands at 84 as of end 2017 (the US and Japan being notably absent).
The AIIB has an authorized capital base of $100 billion earmarked to address Asia-Pacific’s acute infrastructural needs.
Its stated mission is “to improve economic and social development in Asia by investing in high quality, financially viable and environmentally friendly infrastructure projects”.
The bank’s focus is on project financing on commercial terms.
Beyond its own balance sheet, the AIIB aims to mobilize private capital to co-finance projects.

Importance:

The creation of the AIIB is a welcome initiative given Asia’s monumental infrastructural deficit.
A study by the Asian Development Bank (ADB) in 2017 estimated the Asia-Pacific region’s infrastructural needs at around $22.5 trillion over 15 years (to 2030) or about $1.5 trillion annually.

The economic and social benefits of funding infrastructural spending are immense—although lack of financing is not always the main constraint (i.e. there is a dearth of bankable projects mainly due to concerns about project preparation and structuring and an uncertain regulatory environment).

Chinese context: Concerns and suspicions

There were suspicions in some quarters about the long-term aims and intentions of the AIIB.
This was partly to do with the fact that the AIIB project was first announced in October 2013 simultaneously with Chinese President Xi Jinping’s mooting Belt and Road Initiative (BRI).
The initial scepticism was therefore that the AIIB was primarily a vehicle to fund BRI-related projects to promote connectivity in Asia as well as to further China’s strategic goals (diversify energy supplies and establish blue-water capabilities in the Indian Ocean, deploy its vast financial resources, and internationalize the renminbi).
China is the AIIB’s single largest contributor and holds around 28% voting share, giving it veto power over major decisions at the AIIB (as major bank decisions require at least 75% support).
The initial projects approved by the AIIB in 2016 were granted to China’s close allies—mainly in Central Asia and Pakistan, as well as Oman, which was a strategic centre of trade and exchange along the historic maritime Silk Road.

AIIB as a truly collective institution:

Many AIIB-funded projects that have been approved have no obvious connection to the BRI.
Nor are they concentrated among China’s closest allies.

For instance, India was the single-largest borrower from the AIIB in 2017, with part of the Bengaluru Metro line and Gujarat rural roads each being granted around $330 million loans.
As of end 2017, AIIB had granted just over $1 billion worth of loans for various infrastructure projects in India. Besides these, financing for another $1.2 billion worth of projects from India has been proposed.

The fact that India (which has an 8% voting share in AIIB) has become an important recipient of AIIB loans is noteworthy and indicates the degree of independence of the AIIB from the BRI.

Complementing rather competing institution:

AIIB officials have repeated the slogan “our bank is lean, clean, and green”, i.e. an emphasis on rules-based style of governance, transparency in procurement and other policies, and environmental and social safeguards.
Increasingly, the AIIB is looking as though it will complement rather than compete with the work of existing MDBs such as the ADB and World Bank.
In fact, more than half of the AIIB loans to date have been co-financed with other MDBs.

Conclusion:

Overall, rather than being part of a “new world order”, the AIIB appears to be well on its way to becoming a credible institution that promises to make an important contribution in providing regional and global public goods.

Connecting the dots:

Evaluate the performance of AIIB. Also, discuss how the initial skepticism no longer holds true.

GOVERNANCE / WELFARE

TOPIC: General Studies 2:

Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes.

Affordable Housing for All: Providing more than loan subsidies

Introduction:

The Government’s promise of delivering over 22 million houses in the next five years is not without challenges

Affordable housing is defined by property prices ranging from about Rs. 1 to Rs. 2 lakh per dwelling, up to around Rs. 30 lakh.

Critical juncture:

The housing shortage in the country is still pegged at close to 19 million.

The Government has promised to deliver over 22 million houses over the next five years.

The road ahead is not easy.

On the return on investment front, builders find it more attractive to construct high-value projects rather than low-value ones, with smaller margins to work with.
The cost of construction of luxury properties does not increase proportionately with the overall cost of the property.
If a builder does decide to develop a low-cost property, there is uncertainty around the repayment capacity of individuals looking out for such houses.
Any change in the financial condition of the household can relatively easily result in a delinquency situation.
Notwithstanding certain attractive loan-related subsidies (most importantly through the Pradhan Mantri Awas Yojna, PMAY), the cost of repaying a housing loan still remains higher than the rental yield in most cities.

Given these issues, it is more than likely that the country will face both a demand side (for buying rather than renting property in the low-cost housing segment) and supply-side challenge (increasing the pace of building more houses to achieve the Government’s target by 2022).

Way ahead-

Learning from others:
In some countries, there is a growing sense that state-funded rental housing can solve a part of the problem.
In the Czechoslovak Republic, Denmark, the Netherlands and the UK, as much as 30 per cent of housing is ‘socially’ created and rented out.
Another partial solution can be via long-term subsidies for purchase of property. In the Netherlands, the so-called ‘Koopgarant’ programmes allow people to purchase property at a lower cost, thereby reducing the loan burden.
A slightly different version of the subsidised owner-occupancy housing was formulated in Spain, which allows individuals to purchase property for a highly subsidised rate, and which can further be sold for the prevailing market rate only after a period of 30 years.
We need to recognise that affordable housing issues cannot be solved only through making loans cheaper but through long-term financial support to the industry.

Conclusion:

The construction of affordable housing has one of the highest multiplier effects on the economy and given the Government’s recent announcement to construct an additional 1 crore homes in rural areas, the Government needs to take additional steps over and above tax breaks and loan subsidies to address these issues.

Connecting the dots: