IAS UPSC Prelims and Mains Exam – 7th May 2020

Archives

(PRELIMS + MAINS FOCUS)

Excise duty on alcohol: a major contribution to States’ revenue

Part of: GS Prelims and GS-III – Economy 

In News:

• Recently, the Delhi government announced a 70% hike in the price of liquor. 
• Delhi’s “special corona fee” on alcohol underlines the importance of liquor to the economy of the states.

Important value additions:

• Liquor contributes a considerable amount to the exchequers of all states and Union Territories. 
• It is the 2nd or 3rd largest contributor to the State’s revenue; GST is the largest.
• However, in Gujarat and Bihar, liquor sale is prohibited.
• Kind of charges/tax/fees States may levy on liquor:
  • Excise duty on manufacture and sale of liquor
  • Value added tax (Tamil Nadu)
  • Special fees on imported foreign liquor
  • Transport fee
  • Label & brand registration charges.
  • Special duty on liquor to collect funds for special purposes, such as maintenance of stray cattle (UP) 
• According to a report published by the RBI in September 2019, state excise duty on alcohol accounts for around 10-15% of a majority of states. 

Value added tax

It is a tax on the amount by which the value of an article has been increased at each stage of its production or distribution.

States with most Swine Flu cases now victims of majority of COVID-19 cases as well

Part of: GS Prelims and GS-II – Health 

In News:

• Data from the Health Ministry’s National Centre for Disease Control (NCDC), show that the five States/UTs – Maharashtra, Gujarat, Rajasthan, Delhi and Tamil Nadu accounted for the highest number of swine flu cases (H1N1) since 2015.
• These states are hotspots for people infected with COVID-19 as well. 

Important value additions:

Swine Flu

• H1N1 Flu Virus (Swine Flu) is an infection caused by type A influenza viruses.
• It is usually found amongst pigs. 
• Human infections may take place as well.
• It is contagious and spreads from human to human.
• Symptoms: Fever, cough, sore throat, body aches, headache, chills and fatigue.
• Both H1N1 and COVID-19 belong to different virus families.
• Both infiltrate the lungs and cause respiratory infections with varying fatality.
• Swine flu has a higher fatality rate (deaths per confirmed cases). 
• It also causes significant deaths in children as well as those less than 60.
• COVID-19 is relatively more dangerous to those above 60 and almost harmless in children. 

SC brings Co-operative Banks within the ambit of Sarfaesi Act

Part of: GS Prelims and GS-III – Banking Sector 

In News:

• Recently, the Supreme Court held that Co-operative banks and co-operative societies shall come within the ambit of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act of 2002.

Key takeaways from the verdict:

• Co-operative banks come within the definition of “Banks” under the Banking Regulation Act, 1949 for the purposes of the Sarfaesi Act.
• The recovery procedure under the Sarfaesi Act is also applicable to co-operative banks. 
• The Parliament has legislative competence to provide procedures for recovery of loans under the Sarfaesi Act with respect to cooperative banks.

Important value additions:

Sarfaesi Act

• It allows banks and other financial institutions to auction residential or commercial properties to recover loans.
• The first asset reconstruction company of India, ARCIL, was set up under this act.
• Banks utilize Sarfaesi Act as an effective tool for bad loans (Non-Performing Asset) recovery.
• It is effective only against secured loans.
• It promotes the setting up of asset reconstruction companies (ARCs) and asset securitization companies (SCs) to deal with NPAs. 
• Objectives of the Act are:
  • To provide the legal framework for securitization activities in India.
  • To give the procedures for the transfer of NPAs to asset reconstruction companies. 
  • To give powers to banks and financial institutions to take over the immovable property that is pledged to enforce the recovery of debt.
• NPAs can be recovered through:
  • Securitisation: Practice of pooling together various types of debt instruments (assets) and selling them as bonds. 
  • Asset Reconstruction: Activity of converting NPA into performing assets. 
  • Enforcement of Security without the intervention of the Court.

Miscellaneous 

Arktika-M

• Russia announced that it will launch first Arktika-M satellite for monitoring Arctic climate by the end of the year 2020.

Pulitzer Prize

• 5 Indian photojournalists have recently won the 2020 Pulitzer Prize for feature photography.
• It is awarded for outstanding public service and achievement in American journalism, letters, and music.
• It is awarded in the name of Joseph Pulitzer. 
• Each winner receives a certificate and a US$15,000 cash award. 
• The winner in the public service category is awarded a gold medal.

Silent hypoxia

• It is observed in COVID-19 patients. 
• They have extremely low blood oxygen levels, yet they do not show signs of breathlessness.
• It is a form of oxygen deprivation that is harder to detect because patients appear to be less in distress.
• Medical device called a pulse oximeter can be used in the early detection of silent hypoxia

Toman: Iran’s new currency

• Iran’s parliament has passed a bill allowing the government to slash four zeros from the rial and 
• Iran’s national currency will be changed from the Rial to the Toman, which is equal to 10,000 rials.
• The move came after a sharp fall in the value of the currency as a result of crippling US sanctions.
• The currency has been devalued 3,500 times since 1971.

(MAINS FOCUS)

ECONOMY/ GOVERNANCE 

Topic: General Studies 2 & 3:

• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 
• Government policies and interventions for development in various sectors 

CONSOL BOND

Context: As COVID-19 curve stretches further, there is a call for a large stimulus to pull the economy back from recession.

What were the concerns with India’s fiscal situation in pre-COVID time period?

• In the Budget before the pandemic, India projected a deficit of ₹7.96-lakh crore
• There were concerns about off-balance sheet borrowings of 1% of GDP 
• Excessive target of ₹2.1 lakh crore through disinvestments
• In recent times, both Union government and RBI have tried several times to nudge banks into lending to below investment grade MSMEs, but have not been successful.

What will be the challenges with India’s fiscal situation in post-COVID time period?

• In addition to the expenditure that was planned, the government has to spend between ₹5-lakh crore and ₹6-lakh crore as stimulus.
• The financial deficit number is set to grow by a wide margin due to revenue shortage caused due to lockdown
• There is lack of appetite for disinvestment.
• Even though RBI has increased the limit on ways and means for States by 60%, many of them have asked to double the limits. This is due to the shortages faced by States in indirect taxation collections from GST, fuel and liquor. 

What are the avenues for government to raise finances in post-COVID times?

• Firstly, there is a traditional option of monetising the deficit by having the RBI buy government bonds
• Relaxing FDI norm to attract foreign investment. However, this is not promising given the rise in Nationalistic sentiment during COVID crisis
• The other alternative suggested is Consol Bonds 

Consol Bond- A Brief History 

• This has been used as early as the First World War (WWI)
• The bonds, which paid out an interest of 5%, were issued in 1917 by UK government to raise more money to finance the ongoing cost of war 
• Citizens were asked to invest in these bonds with a message that their investment will help fight the country, akin to a soldier’s fight but with no risk to their lives.
• As a result, most of the Consol bonds in the UK were owned by small investors, with over 70% holding less than £1,000 
• In 2014, the British government, a century after the start of the WWI, paid out 10% of the total outstanding Consol bond debt

Why Consol Bond is a better option?

• An attractive coupon rate for the bond or tax rebates could also be an incentive for investors, who are looking for avenues to invest.
• Participative: It makes citizens active participants in the fight against slowdown caused by pandemic
• Attractive: With the fall of real estate and given the lack of profitable alternatives, the bond would offer a dual benefit as a risk free investment for retail investors.
• Guaranteed: It would be issued by the central government on a perpetual basis with a right to call it back when it seems fit
• Flexibility: The government can consider a phased redemption of these bonds after the economy is put back on a path of high growth
• Welfare Oriented: Unlike PM-CARES, the proceeds of the bonds could be used for everything — from Personal Protective Equipment for doctors to a stimulus for MSMEs

Conclusion

• With the pandemic’s shadow over the economy, a Consol Bond issue seems like a compelling solution for the government

Connecting the dots:

• Impact of WWI on global economy
• Measures adopted in the wake of 2008 financial crisis

(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. 
• Comments Up-voted by IASbaba are also the “correct answers”.

Q.1 Swine flu is caused by which of the following virus?

1. H1N1
2. Coronavirus
3. Kobuvirus
4. Alphavirus

Q.2 Consider the following statements regarding Sarfaesi Act:

1. It allows banks and other financial institutions to auction residential or commercial properties to recover loans.
2. The first asset reconstruction company of India, ARCIL, was set up under this act.

Which of the above is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Q.3 Arktika-M satellite, recently seen in news, will be launched by which of the following country?

1. Russia
2. China
3. Australia
4. USA

Q.4 Pulitzer Prize is awarded for which of the following?

1. Wildlife Conservation
2. Water conservation
3. Photography in journalism
4. Fight against nuclear weapons

ANSWERS FOR 6th May 2020 TEST YOUR KNOWLEDGE (TYK)

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