IASbaba's Daily Current Affairs Analysis

IAS UPSC Prelims and Mains Exam – 14th March 2020

(PRELIMS + MAINS FOCUS)

Essential Commodities Act

Part of: GS Prelims and GS-II- Governance

In News:

Government puts masks and hand sanitisers under Essential Commodities Act.
ECA enacted by Parliament in 1955 provides for the regulation and control of production, distribution and pricing of commodities which are declared as essential.
Aim: Maintaining/increasing supplies/securing equitable distribution and availability of these commodities at fair prices.
The Centre can include new commodities as and when the need arises, and can take them off the list once the situation improves (in view of public interest).
Once a notification is issued, anybody trading or dealing in a commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity
States are the implementing agencies to EC Act, 1955

Circuit breaker

Part of: GS Prelims and GS-III- Economy & Science & Technology

In News:

It was introduced by SEBI in 2001 to prevent crashes in Stock Exchange Market
Circuit breakers are triggered to prevent markets from crashing, which happens when market participants start to panic induced by fears that their stocks are overvalued and decide to sell their stocks.
This index-based market-wide circuit breaker system applies at three stages of the index movement, at 10, 15 and 20%
When triggered, these circuit breakers bring about a coordinated trading halt in all equity and equity derivative markets nationwide.

Vivad se Viswas Bill

Part of: GS Prelims and GS-II- Governance

In News:

The Parliament has given its nod to Direct Tax Vivad se Vishwas Bill, 2020.
The Bill intends to provide a one-time opportunity to end disputes related to personal income tax and corporate tax.
Under this scheme, taxpayers whose tax demands are locked in dispute in multiple forums, can pay due taxes by March 31, 2020, and get a complete waiver of interest and penalty.
For payments made after March 31 and till June 30, a 10% penalty would be charged.
However, cases above ₹5 crore have been excluded — large evasion-related and fraud cases — and they cannot take advantage of this scheme.
The scheme aims to resolve 483,000 direct tax-related disputes pending in various appellate forums.
As on the November 30, 2019, the disputed direct tax arrears amount to ₹9.32-lakh crore.

PM calls for SAARC videoconference on COVID-19

Part of: GS Prelims and GS-II- International Affairs

In News:

The aim of the conference to discuss a common strategy to tackle COVID-19.
SAARC has had no summit level meeting since 2014, and has been shelved since then due to India-Pakistan tensions
Set up in 1985, SAARC was the first such grouping for the South Asian region.
SAARC members include: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka
While SAARC member-states occupy just 3% of the world’s landmass, they account for 21% of its population.
SAARC secretariat is based in Kathmandu

Common eligibility test (CET)

Part of: GS Prelims and GS-II- Governance

In News:

Government will have common test – CET- for railway, bank, Central government jobs from 2021
The CET will replace the first level tests conducted by the Staff Selection Commission (SSC), the Railway Recruitment Board (RRB) and the Institute of Banking Personnel Selection (IBPS).
To streamline the hiring process, Centre will set up an autonomous National Recruitment Agency to conduct the online test.
There will be Common Portal for registration, single entrance fee and Common Curriculum
Merits of having Common test are:
- Level playing field for all candidates by removing the obstacles involved in appearing for multiple examinations
- Reduced Chances of Paper Leak: A standardised question bank with multiple questions of similar difficulty levels will be created in a central server.
- An algorithm will be used to jumble and dole out different questions, so that each candidate receives a different question paper, reducing the chances of cheating and paper leakage.
- Quick Process: Scores will be generated quickly, delivered online and be valid for a three-year period. Presently these exam cycle process takes on an average 6-12 months
- Huge Savings: For the recruiting agencies, the savings in terms of logistics will be huge.
- For more specialised positions, the CET will act as the preliminary elimination level, which can be followed by further testing by the separate agencies.
One of the big concerns is language but the Centre has planned to make the test available in multiple languages including all those notified under Schedule 8 of the Constitution

(MAINS FOCUS)

Governance & Economy

Topic: General Studies 3:

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

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

Insolvency Code: Debtors now resolve defaults in early stages

About Insolvency & Bankruptcy

Insolvency is the situation where the debtor is not in a position to pay back the creditor.
For a corporate firm, the signs of this could be a slow-down in sales, missing of payment deadlines etc.
Bankruptcy is the legal declaration of Insolvency.

Need of Insolvency & Bankruptcy Code (IBC)

A unified code is essential because earlier the issue was handled under at least 13 different laws.
Earlier, if a company defaults, there were at least four different legal routes available to the debtors and creditors – the high courts, the Company Law Board, the Board for Industrial and Financial Reconstruction (BIFR), and the Debt Recovery Tribunals (DRTs)
This could lead to multiple negotiations, multiple penalties etc. for the debtor, compounding his plight.
The present morass of laws doesn’t help in easing the exit of trouble-prone entities, which made Chief Economic Adviser to GoI to compare the situation to Chakravyuh (where companies can easily enter but difficult to exit)
In the background of rising NPAs, the easing of liquidation process can help the banks recover a lot of bad debts

Salient features of the Insolvency and Bankruptcy Code:

IBC was thus enacted in 2016 for reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of the value of assets of such persons
IBC Code 2016 covers all individuals, companies, Limited Liability Partnerships (LLPs) and partnership firms.
The adjudicating authority is National Company Law Tribunal (NCLT) for companies and LLPs and Debt Recovery Tribunal (DRT) for individuals and partnership firms.
Insolvency Professionals: A specialised cadre of licensed professionals is proposed to be created. These professionals will administer the resolution process, manage the assets of the debtor, and provide information for creditors to assist them in decision making.
Insolvency and Bankruptcy Board: The Board will regulate insolvency professionals, insolvency professional agencies and information utilities set up under the Code. The Board will consist of representatives of Reserve Bank of India, and the Ministries of Finance, Corporate Affairs and Law.

Working of IBC

200 companies who cumulatively owed Rs 4 lakh crore to creditors, had been rescued till December 2019 through resolution plans.
However, the realisable value of the assets available with them, when they entered the IBC process, was only Rs 0.8 lakh crore
The IBC maximises the value of the existing assets, not of the assets which do not exist.
Under the IBC, the creditors recovered Rs 1.6 lakh crore, about 200 per cent of the realisable value of these companies
Despite the recovery of 200% of the realisable value, the financial creditors had to take a haircut of 57 per cent as compared to their claims.
As compared to other options, bank are recovering much better through IBC

Criticism of IBC

Although the IBC process has rescued 200 companies, it has sent 800 companies for liquidation.

The number of companies getting into liquidation is thus four times that of the companies being rescued.

Counter Arguments:

Recovery is incidental under the IBC. Its primary objective is rescuing companies in distress
The companies rescued had assets valued at Rs 0.8 lakh crore, while the companies referred for liquidation had assets valued at Rs 0.2 lakh crore when they entered the IBC process.
Thus, in value terms, assets that have been rescued are four times those sent for liquidation.
It is important to note that of the companies rescued, one-third were either defunct or under BIFR, and of the companies sent for liquidation, three-fourths were either defunct or under BIFR.

Real success of IBC

The credible threat of the IBC process, that a company may change hands, has changed the behaviour of debtors.
Thousands of debtors are settling defaults at the early stages of the life cycle of a distressed asset.
They are settling when default is imminent, on receipt of a notice for repayment
Only a few companies, who fail to address the distress in any of these stages, reach the liquidation stage
At this stage, the value of the company is substantially eroded, and hence some of them would be rescued, while others are liquidated.

Conclusion

The 25,000 applications filed so far under IBC indicate the value and trust that stakeholders place on the law — the ultimate test of its efficacy.

(TEST YOUR KNOWLEDGE)

Model questions: (You can now post your answers in comment section)

Note:

Correct answers of today’s questions will be provided in next day’s DNA section. Kindly refer to it and update your answers.

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Q 1. Consider the following statements about Essential Commodities Act, 1955

It protects consumers against irrational spikes in prices of essential commodities.
States are the implementing agencies to EC Act, 1955