BYJU’s IAS

Weekly CA (24th Dec- 30th Dec)

1. Privatisation of Public Sector

 There seem to be broadly three positions with respect to the privatisation of public sector
undertakings (PSUs).
o The left position is “PSU is family silver and should not be sold irrespective of its
performance”.
o The divergent stand is that “business is not the business of government”, which
found resonance in the United Kingdom, and, of late, in India.
o There is also the third position: Why privatise profit-making PSUs? Why do you sell
the family silver? Bharat Petroleum Corporation Limited (BPCL) which is making
handsome profits, comes under this category.
Case of loss-making units
 Loss-making PSUs certainly merit privatisation — but no one would buy them with their
huge debt and employee liabilities.
 The government may even have to pay the buyer, as it happened in the case of the Delhi
Discom privatisation. Even then it may be worth it, since privatisation will stop fiscal flows to
these PSUs.
 Alternatively, there is the exit route through the new Insolvency and Bankruptcy Code.
 Some of the major loss-making PSUs, Bharat Sanchar Nigam Limited, Mahanagar Telephone
Nigam Limited and Air India should go under the block as their losses are greater than their
revenue. The Economist has a term for such entities — value subtracting enterprises.
 Restructuring them and even ensuring an additional infusion of funds and other resources
have not produced results. Their chairmen cum managing directors are bureaucrats who
may not have domain knowledge or technical service people bereft of business acumen.
 Privatisation is not a default option; rather, it is resorted to only out of extreme necessity.

Meeting fiscal targets

 But why privatise a profit-making PSU?
 The Finance Minister’s disinvestment target of a little over a lakh of crores for the current
fiscal has to be met. It is this fiscal requirement that now drives privatisation.
 It is good to remember what former Prime Minister Manmohan Singh once said on the issue.
He made the assurance that the government would not “privatise profit making PSUs
working in competitive environments”. That is, if the output price is a competitive price and
you still make a profit, then you are efficient and the need to privatise does not arise.
 But if the output price is set in a monopoly background — the case now being the monopoly
cartel of the oil majors, BPCL, Indian Oil Corporation Limited and Hindustan Petroleum
Corporation Limited — with the autonomy given being used for monopoly pricing, then your
profit is no longer an index of your efficiency.
 In that case, privatisation will still bring in benefits of the efficient operation of private sector
through reduced costs. Examples of PSUs that made monopoly profits and still inefficient
were Coal India and Indian Airlines (IA). For IA, there was poor punctuality, high staff-to-
plane ratio, high operating costs and overall customer indifference.
  The BPCL is not inefficient but its privatisation still offers scope for improvement. When a
company such as this has never faced any serious competition, it is impossible to even
discuss the issue of efficiency or inefficiency. There is no comparable firm in the private
sector to benchmark it with.
 However if one looks at just about any public sector company in India, it is impossible to
argue that the BPCL can be an exception. Over the years, the financial performance of oil
marketing companies has undergone a bureaucratic process called “administrative price
mechanism”.
 All one can say is that the oil PSUs have been allowed to make profit; if one can use The
Economist’s phrase again, they can be called “allotted millionaires”. On the non-financial
performance side, it would be difficult for the BPCL to show what innovations it has
implemented over the years either in marketing or refinery operations.

Accompanied by competition
 There is no point in converting a public monopoly to a private monopoly; it will only result in
inefficiency being replaced by private profits. Privatisation must be accompanied by
competition in the post-privatised scenario.
 However, the government will face a dilemma. If you want a high price, you must allow a
monopoly situation post-privatisation, and if you want competition and low price for
consumers, you must be content with a modest sale price, as the post-privatisation
valuation of the firm critically depends on the market structure post-privatisation.
 If that is to be competitive, other PSU national oil companies such as the IOC and HPCL
should also be privatised.
 There is also no issue of national security for downstream oil firms. Oil marketing
companies, even if they are not in the public sector, can be made to own strategic
petroleum reserves as in most of Europe and by the government itself as in the U.S. Thus
privatising the BPCL does not compromise India’s national security.
 Similarly, LPG and kerosene subsidies can be handled by direct benefit transfer, which is
already in vogue in the case of LPG.
 Finally, there is an argument advanced in the case of the BPCL: that the government paid
about ₹622 crore in today’s money to acquire it, while it now has a market value of around
₹85,000- 1,15,000 crore. How did ₹622 crore balloon into this amount even after the time
value of money adjustment? Is it a bargain one cannot refuse? Not quite.
 After all, in the interim period of many years, the firm would have invested, out of retained
profits, and also generated further monopoly profits for dividends which explains its
increased value. This is not by its virtue of being a PSU. The BPCL is not a golden goose. It
may be an ATM.

2. Chief of the Defence Staff can serve till 65, says govt.
Context:

 The creation of the post of Chief of Defence Staff (CDS) in India.

Details:
  The government has issued a gazette modifying the Service Rules of the Army, Navy
and Air Force to enable the appointment of the Chief of the Defence Staff (CDS) and
fixing the upper age limit at 65.
 The service regulations have been amended and not the Acts. The Centre amended
the Army Rules 1954, Naval (Discipline and Miscellaneous Provisions) Regulations, 1965,
Naval Ceremonial, Conditions of Service and Miscellaneous Regulations, 1963 and Air
Force Regulations, 1964.
 The service chiefs have a tenure of three years or 62 years of age, whichever is earlier,
and it remains unchanged. Notably, however, the tenure of the CDS has not been fixed.
Background:

 The creation of the post of CDS has been a long pending demand and forms part of
higher-level military reforms.
 The Prime Minister in his Independence Day address of 2019 had announced the
appointment of a CDS. Thereafter, an implementation committee was constituted to
finalize the exact responsibilities and an enabling framework for the post of CDS.
 The Cabinet Committee on Security (CCS) had approved the recommendations of
the committee, headed by the National Security Adviser, on the role and charter of the
CDS.
Details:

 The Union Cabinet, chaired by the Prime Minister, has approved the creation of the post
of CDS in the rank of a four-star General, with salary and perquisites equivalent to a
service chief.
 The government has previously informed the Parliament that the CDS would come in
the ambit of ‘Right to Information Act’, in accordance with the provisions of the RTI Act,
2005.
Responsibilities of CDS:

 The Chief of Defence Staff (CDS), will function as the Principal Military Adviser to the
Defence Minister and also as the Permanent Chairman, Chiefs of Staff Committee
(COSC).
 In his capacity as the Permanent Chairman, COSC, the CDS would administer tri-
Services organisations, agencies and commands related to Cyber and Space.
 In the strategic domain, the CDS would function as the “Military Adviser to the Nuclear
Command Authority” chaired by the Prime Minister.
Department of Military Affairs:

 The CDS will also head the Department of Military Affairs (DMA), to be created in the
Ministry of Defence, and function as its Secretary.
 The armed forces will be brought under the ambit of the DMA and will deal with works
relating to the three Services and procurement exclusive to the Services, except capital
acquisitions, as per prevalent rules and procedures.
Acquisition:

 The CDS will also be a member of the Defence Acquisition Council chaired by the
Defence Minister.
Long term Planning:

 The CDS will be a member of the Defence Planning Committee chaired by the NSA.
Hierarchy:
  The CDS will be above the three service chiefs in the hierarchy structure.
 The CDS will act as the Principal Military Adviser to Defence Minister on all tri-Services
matters. However, the three Chiefs will continue to advise the Minister on matters
exclusively concerning their respective Services. The CDS would not exercise any
military command, including over the Service Chiefs.
Significance:
Integrating operations:

 The broad mandate of the CDS includes bringing about jointness in “operations,
logistics, transport, training, support services, communications, repairs and
maintenance of the three Services, within three years of the first CDS assuming office.”
Optimisation of resources:

 A major task of the CDS is to bring about synergy and optimise procurements, training
and logistics.
 Apart from implementing the long-term capital acquisition plans, the functions of the CDS
include assigning “Inter-Services prioritization to capital acquisition proposals based on the
anticipated budget.”
 CDS will facilitate a restructuring of military commands for optimal utilisation of
resources by bringing about jointness in operations, including through the
establishment of joint/theatre commands.
Disaster relief operations:

 Interestingly, the CDS would also evaluate plans “for ‘Out of Area Contingencies’, as
well as other contingencies such as Humanitarian Assistance and Disaster Relief
(HADR).

3. Modi launches Atal scheme on groundwater

Context:
Prime Minister Narendra Modi launched the Atal Bhujal Yojana to strengthen the institutional
framework for participatory groundwater management and bringing about behavioural changes at
the community level for sustainable groundwater resource management in seven States.
Background:

 Over-exploitation of groundwater resources in India has been of great concern due to its
impact on water availability and as well as on the environment.
 A recent report of NITI Aayog on groundwater level says 21 Indian cities including Delhi,
Bengaluru, Chennai, and Hyderabad – will run out of groundwater by 2020.
 It also says that 40 percent of India’s population will have no access to drinking water by
2030.
 So in order to promote conservation of groundwater resources and their sustainable usage,
the government has been working on various strategies.
Details:

 The scheme will be implemented in about 8,350 gram panchayats in 78 districts of Gujarat,
Haryana, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh.
 Of the total outlay of ₹6,000 crore to be provided from 2020-21 to 2024-25, 50% will be in
the form of World Bank loan to be repaid by the Central government.
  The remaining part will be made available via Central assistance from regular budgetary
support.
 The entire World Bank’s loan component and the Central assistance will be passed on to
the States as grants.
 The Prime Minister said the scheme, or the guidelines related to the Jal Jeevan Mission,
were big steps in proving the resolve to deliver water to every household in the country by
2024.
 He said the country had to prepare itself for dealing with every situation of water crisis, for
which the government had been working at five levels.
 Modi said a comprehensive and holistic approach had been adopted with the setting up of
the Jal Shakti Ministry, which this monsoon made extensive efforts for water conservation.
 The Jal Jeevan Mission would work towards delivering piped water supply to every house
and Atal Bhujal scheme would pay special attention to those areas where the groundwater
was very low.
 To incentivise gram panchayats, the Prime Minister said those with better performance
would be given more allocation under the scheme.
 He said both the Central and State governments would spend ₹3.5 lakh crore on water-
related schemes in the next five years.

4. 3 years on, a mere 30% of Poshan Abhiyaan funds used

Context:
Report on fund utilization in the POSHAN Abhiyaan program.
Background:

 The Prime Minister’s Overarching Scheme for Holistic Nutrition or POSHAN

Abhiyaan (National Nutrition Mission), is the Government of India’s flagship programme
which is aimed at improving nutritional outcomes among pregnant women, lactating
mothers and children. It would benefit an estimated 10 crore people.
 It aims at reducing the level of stunting, underweight, anaemia and low birth weight
by 2022.
 POSHAN Abhiyaan is a multi-ministerial convergence mission with the vision to ensure
the attainment of malnutrition-free India by 2022. It will create synergy, ensure better
monitoring, issue alerts for timely action, and encourage States/UTs to perform, guide and
supervise the line Ministries and States/UTs to achieve the targeted goals.
 The Ministry of Women and Child Development (MWCD) is implementing POSHAN
Abhiyaan in 315 Districts in the first year, 235 Districts in the second year; and remaining
districts will be covered in the third year.
 For the implementation of POSHAN Abhiyaan, the four-point strategy/pillars of the mission
are:
 Inter-sectoral convergence for better service delivery
 Use of technology (ICT) for real-time growth monitoring and tracking of women
and children
 Intensified health and nutrition services for the first 1000 days
 Jan Andolan
Funding Pattern:

 The POSHAN Abhiyaan was launched with a total budget of ₹9,046.17 crores for three
years.
  50% of the sanctioned amount would be through budgetary support of the
governments. The remaining 50% is from the World Bank or other multilateral
development banks.
 The budgetary support amount is further divided into 60:40 between the Centre and the
States, 90:10 for the north-eastern region and the Himalayan States, and 100% for the
Union Territories without legislature.
Details:

 An analysis of the funds utilised under the scheme paints a grim picture.
 The State governments and the Union Territories have utilised only 30% of the funds
released under the POSHAN Abhiyaan, since 2017.
 Except for Mizoram, Lakshadweep, Himachal Pradesh and Bihar, none of the governments
has used even 50% of the sum granted.
 During the financial year of 2019-20, funds under the scheme were released for 19 States
even though 12 of these states had used less than a third of the funds released in the
previous two years.
Reasons:

 The POSHAN Abhiyaan programme has been conceptualised to be implemented in

phases. The fund utilisation is generally slow in the initial phase of such incremental
schemes.
 A number of activities which have been planned under the scheme like the Integrated
Child Development Services-Common Application Software meant to monitor
anganwadis have had a slow start.
 Lack of political will and action to tackle the issue of malnutrition is the major reason
why the governments have failed to utilise the available funds under the scheme.
Concerns:

 The Comprehensive National Nutrition Survey (CNNS), released by the Ministry of

Health and Welfare in October 2019, showed that 35% of the children under the age of 5
are stunted and in this age group, 17% are wasted (low weight for height) and 33%
underweight (low weight for age).
 In spite of the alarming level of malnutrition in India and the subsequent problems
associated with it, there has been underutilisation of the sanctioned amounts by almost
all states.

5. Governance Index
Context:
Good Governance Index (GGI) released by the Government of India.
Details:

 The Good Governance Index (GGI) involves a nation-wide comparative study of

States on governance.
 The GGI involved grouping the Indian states into groups considering the different
developmental stages of the state or the topographical and geographical features.
 The findings of the GGI’s inaugural edition are significant in many respects.
Impressive show by the southern states:
  The southern states of Karnataka, Kerala, Tamil Nadu and Andhra Pradesh have put up
an impressive performance. Traditionally, the south has been ahead of others in
several parameters of development.
 Tamil Nadu has been ranked first under the GGI. Its strength has been the ability to ensure
stable and smooth delivery of services.
Considerable progress by the “BIMARU’ states:

 The dubiously-labelled “BIMARU” states seem to be catching up with the other

states in development.
 Rajasthan, Madhya Pradesh and Uttar Pradesh have performed well in terms of ranking in
the nine sectors considered for the GGI. In spite of their lower developmental states, they
have featured in the top 10 rankings of a few sectors.
 In the agriculture and allied sectors, almost all the “BIMARU” states are within the top 10
categories.
 In the composite ranking, Chhattisgarh and Madhya Pradesh are ranked fourth and
ninth, respectively.
Concerns:

 Any index is bound to have some shortcomings, at least in the first round. The GGI also
has certain shortcomings with respect to the indicators considered.
 Important indicators like farmers’ income, the prevalence of micro-irrigation or water
conservation systems and inflow of industrial investment have been left out.
 The “ease of doing business” indicator, has been given disproportionate weight in
the sector of commerce and industries, to the virtual exclusion of growth rate of major and
micro, small and medium enterprises.
 The question of whether process-based or outcome-based indicator should get more
importance in the design of such a study has not been satisfactorily addressed.
Significance:

 Notwithstanding the shortcomings in GGI, the Centre’s attempt to address the problem of
the absence of a credible and uniform index for an objective evaluation of the States and
Union Territories is a welcome move, keeping in mind India’s size and complexity.
 The move of the central government to institute the GGI will incentivise States to
competitively deliver on public services to the citizens.
 The significant observation regarding the “BIMARU” states’ impressive performance in the
index brings forth the key message that these northern States can catch up with others in
due course of time if the political leadership shows the will to stay focused on development.
Way forward:

 The GGI requires fine-tuning and improvement in its subsequent editions.

 The GGI must serve as a guiding tool for the states for better policymaking and
implementation.

6. UDAY covers 97% of discom debt: Centre

In News:

 About 97% of the total outstanding debt of all state power distribution companies
(discoms) has been covered under the Ujwal DISCOM Assurance Yojana (UDAY), the
government announced
  86% of the restructurable debt has been revamped under the scheme
What was the debt amount?

 As on September 30, 2015, the total debt of all state-owned discoms was Rs. 3.95 lakh
crore
 The total liability opted for restructuring by the states through the issuance of bonds was
Rs. 2.69 lakh crore
National average:

 The national average of aggregate technical and commercial (AT&C) losses (from all
UDAY states) stood at 20.2% in FY17
The difference between the average cost of supply (ACS) and the average revenue realised
(ARR) had come down in the last year

7. Gross NPAs may rise to 9.9% by next Sept., says RBI report
Context:
Reserve Bank of India’s Financial Stability Report.
Details:
Gross Non-Performing Asset (GNPA):

 The gross non-performing asset (GNPA) ratio of banks may increase to 9.9% by
September 2020 from 9.3% in September 2019, according to the RBI report.
 The report said state-run banks’ GNPA ratios may observe higher increases compared to
private banks.
 The reasons for the current increase include the change in the macroeconomic
scenario, marginal increase in slippages and the denominator effect of declining
credit growth.
Capital to Risk-weighted Assets Ratio (CRAR):

 The report notes the fact that the aggregate provision coverage ratio (PCR) of all banks
rose to 61.5% in September 2019 from 60.5% in March 2019.
 Following the recapitalization of state-run banks by the government, banks’ capital to
risk-weighted assets ratio (CRAR) improved to 15.1% in September 2019 from 14.3%
in March 2019. The state-run banks’ CRAR improved to 13.5% from 12.2% during the
same period.
Sector-wise performance:

 The asset quality of agriculture and services sectors, as measured by their GNPA
ratios, deteriorated to 10.1% in September 2019 from about 8% in March 2019. For
industry, slippages during the period declined to 3.79% from about 5% in March 2019.
 The report showed that the share of large borrowers in banks’ total loan portfolios and
their share in GNPAs was at 51.8% and 79.3%, respectively, in September
2019, lower compared to the 53% and 82.2%, respectively in March 2019. The top 100
large borrowers accounted for 16.4% of banks’ gross advances and 16.3% of GNPAs.
Way forward:
  Amid rising macroeconomic worries reflected in falling growth numbers across the
spectrum, RBI Governor Shaktikanta Das flagged corporate governance concerns
across India, including banks, to lift the efficiency of the economy to its full potential.
 Reviving the twin engines of consumption and investment remains the key challenge
even while remaining vigilant about spillovers from global financial markets.

8. Massive locust invasion in Gujarat

Context:
Crops in Gujarat are under attack from grasshoppers known as locusts that have flown in from
Pakistan.
Background:

 Locusts are a collection of certain species of short-horned grasshoppers in the

family Acrididae that have a swarming phase.
 Under suitable conditions, they start to breed abundantly, and become nomadic (loosely
described as migratory) when their populations become dense enough.
 Swarms of these pests move around and rapidly strip fields and cause damage to crops.
 The adults are powerful fliers; they can travel great distances, consuming most of the green
vegetation wherever the swarm settles.
 The UN Food and Agriculture Organisation (FAO) had earlier warned of a massive
locust attack in South Asia, covering Pakistan and India.
 Also, the Locust Warning Organization (LWO) in Jodhpur had noticed the swarms and
predicted their trajectory across the international border.
 However, preventive measures were not taken by the authorities in Gujarat and they have
been caught napping.
 According to the Agriculture Ministry’s Locust Warning Organisation (LWO), locusts are
flying in from Pakistan’s Sindh province and spreading in villages in Rajasthan and Gujarat
where south-western monsoon was prolonged in 2019.
 Originally, the locusts emerged in February 2019 from Sudan and Eritrea on Africa’s Red
Sea Coast and travelled through Saudi Arabia and Iran to enter Pakistan, where they
invaded the Sindh province and from there they moved into Rajasthan and Gujarat.

Details:

 As the swarms mature, they have ravaged farms in north Gujarat, devastating farms in the
three border districts — Banaskantha, Patan and Kutch.
 The locusts, known as tiddis locally, have wreaked havoc on standing crops including
castor, cumin, jatropha and cotton, and fodder grass in around 20 talukas. Gujarat has not
witnessed such an invasion of locusts since 1993-94.
 The insects fly in during the day and settle on the farms at night, making it difficult to ward
them off.
 The farmers under siege are hiring workers and using age-old techniques like beating
drums and vessels to scare the locusts away without much success.
 The State administration, along with the central teams, has launched a huge pesticide
spraying operation to kill the insects.
 The government has now assured farmers that the administration will carry out a survey to
assess the damages and will accordingly compensate farmers.
9. Typhoon Phanfone batters Philippines

 Typhoon Phanfone has made landfall in the Philippines and brought widespread
devastation to property, crops and human life.
 Phanfone was tracking a similar path to Super Typhoon Haiyan, the country’s deadliest
cyclone on record which left more than 7,300 people dead or missing in 2013.