Daily Current Affairs for UPSC IAS | 17th September 2021

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1.  AUKUS – Trilateral Security Partnership

UPSC Syllabus: Prelims: International Relations | Mains – GS Paper II – International Relations
Sub Theme: Trilateral Security Partnership | South China Sea | Indo-Pacific | UPSC

Context: 

  • US had been focus on the Indo – Pacific years in the past few years.
  • In the Pacific, the U.S. and others have been concerned about China’s actions in the South China Sea and its antipathy toward Japan, Taiwan and Australia.
  • US has already created Quad framework.
  • After Brexit UK has been reasserting its global position. Part of this strategy has been its focus on the Indo Pacific.
  • The nuclear submarines will allow Australia to conduct longer patrols and give the alliance a stronger military presence in the region.

Objective – It aims to ensure that there will be enduring freedom and openness in the Indo-Pacific region.

Key features 

  • It complements several pre-existing similar arrangements for the region, including the Five Eyes intelligence cooperation initiative, ASEAN and the Quad.
  • It proposes to transfer technology to build a fleet of nuclear-powered submarines for Australia within 18 months.
  • Australia will become only the second nation, after the U.K., that the U.S. has ever shared its nuclear submarine technology with.

How far will it be able to counter China? 

  • Will it be able to cooperate with other nations of the region who share the concern of China’s hegemony? • Will it lead to closer coordination among the nations concerned in terms of joint military presence, war games? • Undersea capabilities including the ability to patrol may be vital to deterring Chinese military coercion in the region
  • The transfer of nuclear propulsion technology to an ally in this context was intended to “send a message of reassurance to countries in Asia”.
  • It will be more effective in achieving the stated goals if it expands strategic cooperation to include other powers that are deeply invested in the region, including India, Japan, and South Korea.

Why is it important to India? 

  • It aims at improving defence capabilities of Australia which is a strategic partner of India. • India and Australia recently held their first round of 2+2 dialogue in an effort to deepen their defence and strategic ties.
  • In 2020, India and Australia had signed a defence pact — the Mutual Logistics Support Agreement. • Besides, India is going to participate in Australia’s biggest wargame, Talisman Sabre, in 2023. The US is already part of it.
  • It will augment the capacity of the Quad of which both the US and Australia are members. • This is a first of its kind defence initiative of the US in the Indo – Pacific, since Quad has not clearly outlined its defence motives clearly.
  • So presently the Quad and AUKUS are likely to move parallelly with possibility of future merger. • However the cancellation of submarine deal between France and Australia might impact the India-France Australia trilateral dialogue.

 

2.  Govt. sets up ‘bad bank’ to clear the NPA mess

UPSC Syllabus: Prelims: Economy | Mains – GS Paper III – Economy
Sub Theme: Idea of Bad Bank | National Asset Reconstruction Company Limited | Difference between ARC and AMC |  UPSC

The Union Budget 2021-22 had proposed to set up a Bad Bank in the form of Asset Reconstruction company (ARC) and  Asset management Company (AMC) to solve the twin balance sheet problem of the Indian banks and kick start the  credit creation in the Indian Economy. Recently, the Government has announced the formation of “National Asset  Reconstruction Company Limited (NARCL)” and “India Debt Resolution Company Ltd. (IDRCL)” to deal with the problem  of NPAs.  

Understanding the Twin Balance Sheet problem (TBS) and its impact 

The Twin Balance sheet problem highlights that the balance sheets of the banks as well as companies are in bad shape.  While, the balance sheet of the Banks is dominated by the higher NPAs, on the other hand, the balance sheet of the  companies is dominated by higher debt levels and their inability to repay back loans. Such a TBS problem puts the  economy into vicious economic cycle as seen below.

What is a Bad Bank? 

The Bad Bank is a bank which takes over the NPAs of the other banks and hence leads to improvement in their financial  position. For example, let’s say a Bank XYZ has total NPAs of around Rs 1000 crores. In accordance with RBI’s norms, the  Bank here would be required to set aside certain percentage of its profits to cover the loss arising from such NPAs. This is  referred to as Provisioning norms. Hence, the increase in the NPAs accompanied by higher provisioning requirements  would severely constraint ability of the Bank to lend loans and hence affects its overall financial position. That is where, a  Bad Bank comes into picture.

In this case, the Bad bank can take over NPAs worth Rs 1000 crores from Bank XYZ at say Rs 800 crores. Now, the Bad  Bank can undertake restructuring of such loans or undertake any other mechanism to recover the NPA amount. As far as  Bank XYZ is concerned, it is at least able to get Rs 800 crores. (In the absence of Bad Bank, the Bank XYZ would not even  recovered that much amount).

Idea of Bad Bank

The Economic Survey 2016-17 had proposed to set up Bad Bank, which should be called as Public Asset Rehabilitation  Agency (PARA). The PARA should be funded and owned by the Government of India. Such a proposal was also put  forward by the Indian Banks Association (IBA) recently in June 2020.

Difference between Bad Bank and National Asset Reconstruction Company Limited (NARCL): The Bad Bank, initially proposed by the Economic Survey 2016-17 was to be set and owned by the Government. However,  NARCL has been set up by banks themselves. So, one major difference is in nature of ownership. However, since the  nature of role performed by them is same, the terms “Bad Bank” and “ARC” can be used interchangeably.

Note: The Asset Reconstruction Companies are registered with the RBI under the provisions of SARFAESI Act. The NARCL  has been incorporated under the Companies Act and has applied to Reserve Bank of India for license as an Asset  Reconstruction Company (ARC). Apart from NARCL, India Debt Resolution Company Ltd. (IDRCL) has been set up as Asset  Management Company (AMC) to deal with NPAs.

Difference between ARC and AMC: 

The ARC buys the Bad loans from the Banks and then transfers them to the AMC. The AMC would then carry out  restructuring to recover the bad loans. The AMC would be manned by professionals who have necessary expertise in  recovering the Bad loans. For example, they may have requisite capability to take over the management of the company  (which has defaulted), revive the company, make it profitable and then sell it off to recover the NPAs.

In case of India, India Debt Resolution Company Ltd. (IDRCL) has been set up as AMC which will manage the asset and  engage market professionals and turnaround experts.

How Bad Loans will be resolved through Asset Reconstruction Companies? 

Step 1: The ARC would buy NPAs from the Banks. The Money is paid to the Banks in the form of Cash and Security  Receipts. 15% of money is paid in form of Cash and 85% in form of Security Receipts (SR). The SARFAESI Act provides for  the issuance of Security Receipts.

Step 2: Decrease in NPAs on Banks’ Balance Sheets–> Lower Provisioning–> Capital gets unlocked–> Increase in Credit  Creation–> Economic growth.

Step 3: The ARC recovers the NPA either through Debt restructuring or sale of mortgaged assets. Step 4: The ARC makes the payment for the security receipts after deducting its management fee.

Role of the Government

The Government has decided to give guarantee worth Rs 30,000 crores on the payment of security receipts by the  NARCL. If the NARCL is unable to sell the bad loan, or sold it at a loss, then the government guarantee will be invoked and  the difference between what the bank was supposed to get and what the NARCL was able to raise will be paid from the  Rs 30,000 crore that has been provided by the government.

Why a new ARC has been proposed to be established? 

Presently, there are around 10-15 ARCs, out of which only 3-4 ARCs are well capitalised to take over NPAs worth Rs 500  crores. However, the total NPAs concentrated in 70 large accounts is high as 2-2.5 lakh crores. Obviously, we could have  strengthened the existing ARCs to solve this. But, the Government believes that a new ARC without any legacy issues  would be well equipped to handle this.

Pros and Cons of Bad Bank 

Way Forward 

The Economic Survey 2016-17 emphasized that addressing the stressed assets problem would require 4 R’s: Reform,  Recognition, Recapitalization, and Resolution. The setting up of Bad Bank without focussing on these 4 R’s would mean  that the fundamental problems that led to NPAs in first place continue to remain. Hence, the setting up of ARC-AMC  model to resolve the stressed assets should be accompanied by 4 R’s.

 

3.  eSHRAM Portal

UPSC Syllabus: Prelims: Economy | Mains – GS Paper III – Economy

Sub Theme: e-SHRAM Portal | Universal Account Number | Unorganised Workers |UPSC

The Ministry of Labour & Employment has developed eSHRAM portal for the benefit of Unorganised workers. Details: The eSHRAM portal is the first-ever National Database of Unorganized Workers (NDUW). The database will have  details of name, Aadhaar ID, occupation, address, educational qualification, skill types and family details etc. Who can register on the portal?: Unorganized sector comprises establishment/ units which are engaged in the  production/ sale of goods/ services and employs less than 10 workers. So, the unorganised workers would include  migrant workers, construction workers, gig and platform workers, etc.

Universal Account Number (UAN): It is a 12 digits number uniquely assigned to each unorganized worker after  registration on eSHRAM portal. UAN number will be a permanent number i.e. once assigned, it will remain unchanged for  the worker’s lifetime.

Benefits: After registering, the unorganised will get an Accidental Insurance cover of 2 Lacs under Pradhan Mantri  Suraksha Bima Yojana (PMSBY). In future, all the social security benefits of unorganized workers will be delivered through  this portal. In emergency and national pandemic like situations, this database may be utilized to provide necessary  assistance to the eligible unorganized workers.

Note: Pradhan Mantri Suraksha Bima Yojana is an Accidental Insurance scheme of Government of India eligible to the  people between 18- 70 years of age group. It provides benefit of Rs. 2 Lacs at the time of accidental death and  permanent disability & Rs. 1 Lac in case of partial disability.

 

UPSC Current Affairs: India-china nuclear dynamics and UNSCR-1172 | Page 9

UPSC Syllabus: Prelims: International Relations | Mains – GS Paper II – International Relations  Sub Theme: UNSC resolution 1172 | UPSC

Context: Chinese foreign secretary on Thursday cited a United Nations Security Council (UNSC) resolution issued after the  1998 nuclear tests to question India’s missile programme amid reports of an upcoming test for the Agni-V inter continental ballistic missile

UNSC resolution 1172: The UNSC resolution 1172, which has adopted in June 1998aftermath of the 1998 nuclear  tests(Pokhran), calls upon India and Pakistan

⮚ to stop their nuclear weapon development programmes,

⮚ to cease development of ballistic missiles capable of delivering nuclear weapons

⮚ not to export equipment, materials or technology that could contribute to weapons of mass destruction

China cited this resolution at a time when India is planning to test its Agni-V ICBM soon.

Chinese support to Pakistan: 

On the other hand, China has been aiding the development of Pakistan’s nuclear and missile programmes for decades,  from providing enriched uranium to technology for nuclear-capable missiles (shaheen missile) Shift in China’s nuclear strategy: 

Recently multiple evidences emerged to suggest that China is expanding its capacity to store and launch nuclear missiles  indicating a shift in its nuclear strategy.

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