Current Affairs 7th February

NITI Aayog seeks to track impact of green verdicts #GS3 #Economy

The NITI Aayog — the government’s apex think tank — has commissioned a study that seeks to examine the “unintended economic consequences” of judicial decisions that have hindered and stalled big-ticket projects on environmental grounds.

A perusal of the document appears to suggest that judgements that negatively impact major infrastructure projects don’t adequately consider the economic fallout — in terms of loss of jobs, revenue.

Doing so, it reckons, would contribute to public discourse among policymakers for promoting an “economically responsible approach by judiciary” in its decisions.

Focus on five projects

The project brief, says that it intends to examine five major projects that have been “impacted” by judicial decisions of the Supreme Court or the National Green Tribunal.

It plans to do this by interviewing people who have been affected by the closure of the projects, environmental campaigners, experts and assessing the business impact of closure.

Projects to be analysed include the construction of an airport in Mopa, Goa; cessation of iron ore mining in Goa and, the shutting down of the Sterlite copper plant in Thoothukudi, Tamil Nadu. The others are decisions by the NGT involving sand mining and construction activities in the National Capital Region.

The judiciary needs to take into account environment, equity and economic considerations while deciding cases, and needs to institutionalise a mechanism for it.

‘Judicial activism’

Vikrant Tongad, Uttar Pradesh-based environmentalist and Founder, SAFE (Social Action for Forest and Environment) was among those whom CUTS reached out to, as an expert, because of his involvement in campaigns against sandmining operations.

Benefit of the news- About NITI Aayog to point stalled projects.

FSSAI caps trans fats in food products #GS3 #SnT

The Food Safety and Standards Authority of India (FSSAI) has amended its rules to put a cap on trans-fatty acids (TFAs) in food products, just weeks after it tightened the norms for oils and fats.

Food products in which edible oils and fats are used as an ingredient shall not contain industrial trans-fatty acids more than 2% by mass of the total oils/fats present in the product, on and from 1st January, 2022.

In December, the FSSAI had capped TFAs in oils and fats to 3% by 2021, and 2% by 2022 from the current levels of 5%. “The 2% cap is considered to be elimination of trans-fatty acids, which we will achieve by 2022. 

Trans-fatty acids are created in an industrial process that adds hydrogen to liquid vegetable oils to make them more solid, increase shelf life of food items and for use as an adulterant as they are cheap. They are present in baked, fried and processed foods as well as adulterated ghee, which becomes solid at room temperature.

They are the most harmful form of fats as they clog arteries and cause hypertension, heart attacks and other cardiovascular diseases. As per the World Health Organization (WHO), approximately 5.4 lakh deaths take place each year globally because of intake of industrially produced trans-fatty acids.

The WHO has called for the elimination of industrially produced trans-fatty acids from the global food supply by 2023. “The latest amendments to FSSAI rules signal the completion of the process of regulating trans fats in India. The move will make a big difference to the health harm caused by this unwanted ingredient.

Benefit of the news– About ill effects of Trans fats

India now pharmacy of world #GS2 #IR #GS3 #SnT

External Affairs Minister S. Jaishankar has said the Indian economy is poised to grow by about 11% despite the COVID-19 crisis. It is not only the pent-up demand that is set to rebound but there is also the prospect of new growth in the post-COVID-19 era as per the Reserve Bank of India’s monetary policy for FY 2021-22.

On the stand-off in Eastern Ladakh, Mr. Jaishankar said military commanders of India and China had held nine rounds of negotiations to ease tensions following an agreement on the disengagement of troops.

‘Progress made’

While according priority to the infrastructure, manufacturing and healthcare sectors, efforts are on to increase investments in the agriculture sector and giving the much-needed push to liquidity, productivity, and credit flow where needed.

Bad banks would take care of the non-performing assets that pushed some banks into an existential crisis, he said.

By converting the crisis into an opportunity, he said, India became the “pharmacy of the world” by supplying medicines such as paracetamol and hydroxychloroquine to countries across the globe. Besides, the number of manufacturers of ventilators had increased to 25 and there were 16,000 COVID treatment centres.

It was then resolved to disengage in some areas but since it is a complicated process, it might take some more time for things to fructify, he suggested.

Benefit of the news– India Pharmacy Country

Second dose of vaccines to be administered from Feb. 13 #GS3 #SnT

India will begin to administer the second dose of COVID-19 vaccines — Covishield and Covaxin — from February 13 for people who were vaccinated on January 16. The statement quoting Health Secretary Rajesh Bhushan asked the States to schedule all healthcare workers for vaccination at least once before February 20 and all frontline workers at least once before March 6. 

A total of 12 States and Union Territories have achieved 60% or more vaccination coverage of healthcare workers. Both vaccines approved in India are to be given 28 days apart, according to the rules governing their dosage.

In the U.S., the two doses of the Pfizer-BioNTech COVID-19 vaccine are recommended to be given 21 days apart. And for the Moderna vaccine, the interval is 28 days.

In the U.K., the AstraZeneca and Pfizer vaccines are allowed to be given 12 weeks apart (though 21 days is the recommended interval) to ensure more people get at least one shot.

India has inoculated 5.6 million, which includes 5.2 million healthcare workers and 3,70,693 frontline workers, for whom vaccination began this week. There have been 22 deaths reported so far following vaccination. However, none of the deaths have been ruled as being due to the jabs.

Scope for improvement

States and Union Territories to “exponentially increase” the pace of vaccination and that there remained “substantial scope for improvement” in the number of average vaccinations per session.

Benefit of the news– Vaccine situation

Delhi opts to wait, watch U.S. foreign policy shift #GS2 #IR

U.S. President Joseph Biden’s 20-minute speech at the State Department last week contained many themes for the new administration’s foreign policy agenda, including a return to traditional alliances, a push back to what he called “advancing authoritarianism” and a harsh spotlight on Russia and China on the issues of human rights violations and other challenges they pose to the United States.

Conspicuous silence

“It is noteworthy that Mr. Biden did not refer to India, Indo-Pacific, South China Sea or the Quad, also making the point that the U.S. President had dealt with China while giving primacy to “economic, IPR and human right aspects, instead of the security concerns resulting from the aggressive Chinese posture”.

India and South Asia are not a priority for the Biden administration, given the need to address stark domestic challenges and the urgent requirement, to first, reassure United States’ allies in Europe and northeast Asia.

The other guessing game in Delhi is over whether the Biden administration will slap sanctions on India when it takes delivery of the Russian S-400 missile system, under its Countering American Adversaries Through Sanctions Act (CAATSA).

This week, U.S. Charge d’Affaires Don Heflin had said that there was no waiver for India from the sanctions at present.

For the moment, New Delhi appears to be playing down any concerns over U.S. foreign policy agenda, with officials prepared to “wait and watch”, and not ruffle any feathers while the Biden administration deals with other preoccupations first.

Benefit of the news– India- USA relations

Ka-226T to be 33% indigenous: HAL #GS3 #Defence

The total indigenous content of the Ka-226T utility helicopters, to be jointly manufactured locally by India and Russia with Transfer of Technology (ToT), is between 27%-33%. The final deal is held up as the Russian proposal of 62% indigenous content in assembled helicopters falls short of the tender requirement of 70%,

In Ka-226T when we talk of 70% indigenous content, it is not the same as the Light Combat Aircraft (LCA) 52%. The 70% is of the Russian content. Engine from Safran and avionics from other countries are not accounted for in this. Balance is what we are looking and from there 70% is taken. Taking the whole helicopter, the indigenous content is about 27-33%.

Russians were unable to offer 70% of this and they offered up to 62%; that too only in Phase-4 of production, he stated.

The Ka-226T is meant to replace the ageing and obsolete Cheetah and Chetak fleet of the Army and Air Force and the total technical life of these will start finishing from 2023 onwards.

As per the Russian proposal, the localisation plan would be spread over four phases, beginning with 3.3% indigenisation for 35 helicopters, going up to 15% for next 25 helicopters, 35% for 30 helicopters in Phase 3 and eventually to 62.4% indigenisation in Phase 4 for the last 50 helicopters. The helicopters would be manufactured by India Russia Helicopters Limited (IRHL) — a joint venture between HAL and Russian Helicopters.

In 2015, India and Russia had concluded an Inter-Governmental Agreement (IGA) for at least 200 Ka-226T twin engine utility helicopters estimated to cost over $1 billion with 60 helicopters to be directly imported and remaining 140 manufactured locally. The first helicopter would be delivered within 36 months from the signing of the contract.

Benefit of the newsAbout Ka-226T

Sri Lanka settles $400 mn currency swap with India #GS2 #IR

The Central Bank of Sri Lanka (CBSL) settled a $400 million currency swap facility from the Reserve Bank (RBI) of India last week, meeting the terms that the two countries had agreed upon.

The update sparked speculation in local media that India may have “abruptly terminated” the agreement, following Colombo’s decision to pull out of a 2019 agreement to develop a Colombo Port terminal jointly with India and Japan.

However, both countries clarified that the developments were not linked. “The CBSL settled its swap facility with [the] Reserve Bank of India as scheduled. There was no special request from India for a premature settlement as erroneously reported by certain media outlets. Discussions on future collaboration continue.

The two countries had agreed on the date earlier, this scheduled repayment has nothing to do with the ECT decision.

Pandemic impact

The CBSL obtained the swap facility on July 31, 2020, for an initial period of three months, to cope with the severe economic impact of the pandemic. Subsequently, the RBI provided a three-month rollover at CBSL’s request, until February 1, 2021

Further extension would require Sri Lanka having a successfully negotiated staff level agreement for an IMF programme, which Sri Lanka does not have at present,” a spokesman of the Indian High Commission said.

“It is reiterated that India abides by all of its international and bilateral commitments in letter and spirit,” he added, days after India urged the Sri Lankan leadership to adhere to Colombo’s commitments on the ECT.

Foreign reserves

COVID-19 struck Sri Lanka in March 2020, putting its foreign reserves under strain since, as tourism, worker remittances and exports were badly hit. Sri Lanka’s looming foreign debt obligations — $6.8 billion this year — and fall in gross official reserves to $5.6 billion as of December 31, 2020, according to Central Bank Data, foretell another challenging year.

However, the Rajapaksa administration has said it will not seek an IMF bailout. Colombo has instead sought further loans from China, among others, and additional currency swap facilities from both India and China. Neither China nor India has responded to Colombo’s debt freeze request. Sri Lanka owes over $5 billion to China and $960 million to India in debt repayment.

The currency swap is only one of at least three requests Colombo has made to Beijing since the pandemic. Following approval of a $500 million loan from China in March 2020, the Sri Lankan government has sought an additional $700 million loan, in addition to applying for another ‘COVID-19 Emergency and Crisis Response Facility’, to the tune of $180 million, from the Beijing-backed Asian Infrastructure Investment Bank (AIIB). “The negotiations are proceeding well.

Meanwhile, amid questions over whether New Delhi would clear Colombo’s $1 billion swap line request, in the wake of the ECT deal falling through, an Indian official source said, “the request is under consideration”. State Minister Cabraal said: “Negotiations are going on, but even if India decides not to offer it, we will understand. 

Benefit of the newsAbout India- Sri Lanka relations

Risk of sharp deterioration in private banks’ asset quality has receded: Moody’s #GS3 #Economy

The Indian government’s policy measures to support bank borrowers have softened growth in non-performing loans (NPLs), thus averting the risk of a sharp deterioration in asset quality. It added that the risk of a sharp deterioration in private banks’ asset quality had also receded.

Ample domestic liquidity, loose monetary policy, moratoriums on loan repayments and government-guaranteed loans to small businesses have supported Indian banks’ asset quality. As a result, restructured loans have not increased as much as we expected at the onset of the pandemic.

Moody’s said the asset performance at India’s largest private sector banks — HDFC Bank, ICICI Bank, Axis Bank, IndusInd Bank and IDBI Bank — was better than its expectations in the nine months ended December. The NPL ratios of IndusInd and HDFC Bank rose 48 basis points (bps) and 12 bps to 2.9% and 1.4% at the end of December, respectively, from March.

Those of Axis Bank and ICICI Bank declined 31 bps and 11 bps, respectively, to 4.6% and 5.4%. IDBI’s NPL ratio also fell, although it remained well above 20%, the highest among the six banks. The banks’ NPL ratios include loans that have become delinquent since the end of August 2020 but are not classified as NPLs because of a pending case in the Supreme Court.

Overall, a recovery in India’s economy in 2021 would support borrowers’ debt-servicing capability after the support measures expire. “As a result, a sharp deterioration in asset quality is now less likely than Moody’s previously anticipated,” the credit rating agency added

Benefit of the newsPrivate banks asset issue

Water scarcity likely in the Himalayan catchment if warming continues #GS3 #Environment

The coldly white snowpacks and glaciers of the Himalayas that make for a picturesque panorama are also important sources of water for about a billion people who live in the basins of the Indus, Ganges and Brahmaputra rivers. But with rising global temperatures, these snowpacks and glaciers, which are highly sensitive, are affected.

This, in turn, affects the Himalayan hydrology. India, Nepal, Pakistan and China hugely depend on these Himalayan rivers for their daily needs and energy production.

Himalayan rivers

A new paper published last month studied how these Himalayan rivers are affected by the different components – rainfall-runoff, snow-melt and glacier-melt – and notes that if drier and warmer scenarios continue in the near future (2031–2050), we are more likely to face water stress in these catchment areas. 

The team studied five basins in the central Himalaya – Sutlej, Thulo Bheri, Kali Gandaki, Dudh Kosi and Arun. They analysed the daily precipitation, maximum and minimum daily temperatures, wind speeds, land cover, elevation and soil properties. 

We developed a new glacier melt model and integrated it to the currently used land surface model. The currently used land surface model – used even by the Ministry of Earth Sciences – does not take into account glacier melt. This could lead to serious errors in the study of north-Indian rivers. 

Wetter scenario

The results show that the glacier-melt increases about 15% to 70% in a warmer environment with its present volume, but then decreases to 3%–38% substantially when the glacier volumes shrink. However, such a decrease can be compensated if there is increased rainfall and if a wetter scenario persists.

Snowpacks and glaciers are two important water storage units in the Himalaya. Though snow is lower density and will melt easily in a warming climate, the reduced snowfall will in turn reduce the amount of snow-melt. Though glacier melt will increase initially, they will shrink in size quickly and the amount of glacier melt will also decline in the latter end of the century. The future study will focus on understanding the predictability of the land-atmospheric processes.

The team notes that proper water-management and governance are urgently required. “Changing patterns of precipitation systems — Indian Summer Monsoon and Western Disturbances — are important for the future situation of water resources in Himalayan catchments.

Benefit of the newsHimalayan glacier issue

Tool to ease SARS-CoV-2 genome mutation analysis #GS3 #SnT

An automated computational tool – Infectious Pathogen Detector (IPD) – developed earlier by researchers at the Mumbai-based ACTREC, Tata Memorial Centre, to identify the presence of 1,060 different pathogens in any genome sequence sample and perform mutation and phylogenetic analysis has become even more useful with the addition of a module for SARS-CoV-2 virus.

The IPD tool has been already designed to perform analysis of diverse genomic datasets, which came handy while analysing diverse data sets of SARS-CoV-2 genome that have been uploaded to the GISAID database from across the globe

The diversity of SARS-CoV-2 genome sequence data in the GISAID database arises because of different sequencing platforms being located across the world. Different sequencing platforms being used generate either high-density but shorter read-length or low-density but higher read-length.

Unique tool

Explaining the uniqueness of the IPD tool, Dr. Dutt says that it can automatically determine the abundance of SARS-CoV-2 genome sequences, carry out mutation analysis with respect to the Wuhan sequence and finally, based on the mutations seen in each sample, assign it to the respective phylogenetic clade. Assigning a sample to a phylogenetic clade is based on the complete profile of mutations seen in the sample.

“Researchers can either upload sequence data to the IPD server which then automatically analyses the data for mutations and then assign the sample to the respective phylogenetic clade or download the tool before using it for bulk analysis. 

Using the tool, the researchers analysed over 2,00,000 SARS-CoV-2 genome sequences available in the GISAID database. Only those with high-quality sequence data were included for analysis as the tool automatically rejects those with inferior quality. 

In over 2,00,000 sequences analysed, they found 2.58 million mutations in all with 6.6 nonsynonymous mutations (that do not alter the amino acid sequence) and five synonymous mutations (that alter the amino acid sequence) per sample. The results are posted on bioRxiv preprint server. Preprints are yet to be peer-reviewed.

Hotspot residues

Our analysis revealed 13 hotspot residues across the SARS-CoV-2 genome that occur at least in 40,000 or more samples. This includes the D614G, one of the first mutations described in the spike protein. “Interestingly, none of the more recent spike glycoprotein mutations — N439K, S477Y, E484K, and N501Y — were found to be significantly abundant in the current variants in Britain, Brazil and South Africa.”

The 13 hotspot mutations are occurring at a high frequency as seen in their presence in at least 40,000 samples. “So there is some kind of repetitive convergent evolution taking place. The 13 hotspot mutations which have been selected for are occurring independently. “Besides hotspot mutations, we also see mutations in specific sub-clades. So there is adaptive and convergent evolution.”

They found that the mutation rate of both non-synonymous and synonymous mutations in 3,361 Indian COVID-19 sequence samples was comparable with the global rate. They also found 4,422 unique mutations that have not been reported outside India. 

The hotspot mutations were seen in the Indian samples as well, including the D614G spike protein mutation. However, no significant occurrence of N439K, E484K, or N501Y mutations were found, except in two samples that harboured the S477Y spike protein mutation.

Chances of the rise of dangerous mutations that render the virus greater fitness are high due to persistence of the pandemic in some countries. With just over 5,100 sequences from India, of which only 4,041 are complete and high-coverage, there is no way of knowing if new variants first reported in Britain, Brazil and South Africa are already present in India and whether new mutations so far unreported elsewhere that render better fitness to the virus have already emerged here.

Far from target

Despite the COVID-19 task force mandating 5% of positive samples to be sequenced from all the States and Union Territories, the Indian SARS-CoV-2 Genomics Consortium (INSACOG) is far from reaching the target percentage.

With the SARS-CoV-2 genome being just about 30 kb in size, it is possible to pool up to 1,000 samples into one and carry out the sequencing at high coverage of 1,000x in one go and still be far less than 15 Gb sequencing capacity of platforms routinely used in Indian labs. High throughput will also help cut down the sequencing cost per sample and help have the data after analysis in about 10 days.

Government regulations and tech platforms #GS3 #SnT

The story so far: The Centre has issued notice to Twitter after the micro-blogging site restored more than 250 accounts that had been suspended earlier on the government’s ‘legal demand’. The government wants the platform to comply with its earlier order of January 31 by which it was asked to block accounts and a controversial hashtag that spoke of an impending ‘genocide’ of farmers for allegedly promoting misinformation about the protests, adversely affecting public order. Twitter reinstated the accounts and tweets on its own and later refused to go back on the decision, contending that it found no violation of its policy.

Are platforms required to comply with government requests?

Cooperation between technology services companies and law enforcement agencies is now deemed a vital part of fighting cybercrime, and various other crimes that are committed using computer resources. These cover hacking, digital impersonation and theft of data. The potential of the Internet and its offshoots such as mail and messaging services and social media networks to disseminate potentially harmful content such as hate speech, rumours, inflammatory and provocative messages and child pornography, has led to law enforcement officials constantly seeking to curb the ill-effects of using the medium. Therefore, most nations have framed laws mandating cooperation by Internet service providers or web hosting service providers and other intermediaries to cooperate with law and order authorities in certain circumstances.

What does the law in India cover?

In India, the Information Technology Act, 2000, as amended from time to time, governs all activities related to the use of computer resources. It covers all ‘intermediaries’ who play a role in the use of computer resources and electronic records. The term ‘intermediaries’ includes providers of telecom service, network service, Internet service and web hosting, besides search engines, online payment and auction sites, online marketplaces and cyber cafes. It includes any person who, on behalf of another, “receives, stores or transmits” any electronic record. Social media platforms would fall under this definition.

What are the Centre’s powers vis-à-vis intermediaries?

Section 69 of the Act confers on the Central and State governments the power to issue directions “to intercept, monitor or decrypt…any information generated, transmitted, received or stored in any computer resource”. The grounds on which these powers may be exercised are: in the interest of the sovereignty or integrity of India, defence of India, security of the state, friendly relations with foreign states, public order, or for preventing incitement to the commission of any cognisable offence relating to these, or for investigating any offence.

How does the government block websites and networks?

Section 69A, for similar reasons and grounds on which it can intercept or monitor information, enables the Centre to ask any agency of the government, or any intermediary, to block access to the public of any information generated, transmitted, received or stored or hosted on any computer resource. Any such request for blocking access must be based on reasons given in writing.

Procedures and safeguards have been incorporated in the rules framed for the purpose.

What are the obligations of intermediaries under Indian law?

Intermediaries are required to preserve and retain specified information in a manner and format prescribed by the Centre for a specified duration. Contravention of this provision may attract a prison term that may go up to three years, besides a fine.

When a direction is given for monitoring, interception or decryption, the intermediary, and any person in charge of a computer resource, should extend technical assistance in the form of giving access or securing access to the resource involved, and must comply with the request to intercept or monitor or decrypt the information concerned. Failure to extend such assistance may entail a prison term of up to seven years, besides a fine. Failure to comply with a direction to block access to the public on a government’s written request also attracts a prison term of up to seven years, besides a fine.

The Act also empowers the government to collect and monitor data on traffic. When an authorised agency asks for technical assistance in this regard, the intermediary must comply with the request. Non-compliance may lead to a prison term of up to three years, besides a fine.

Is the liability of the intermediary absolute?

No. Section 79 of the Act makes it clear that “an intermediary shall not be liable for any third-party information, data, or communication link made available or hosted by him”. This protects intermediaries such as Internet and data service providers and those hosting websites from being made liable for content that users may post or generate.

However, the exemption from liability does not apply if there is evidence that the intermediary abetted or induced the commission of the unlawful act involved. Also, the provision casts a responsibility on intermediaries to remove the offensive content or block access to it upon getting “actual knowledge” of an unlawful act being committed using their resources, or as soon as it is brought to their notice.

In Shreya Singhal vs U.O.I (2015), the Supreme Court read down the provision to mean that the intermediaries ought to act only “upon receiving actual knowledge that a court order has been passed, asking [them] to expeditiously remove or disable access to certain material”. This was because the court felt that intermediaries such as Google or Facebook may receive millions of requests, and it may not be possible for them to judge which of these were legitimate.

The role of the intermediaries has been spelt out in separate rules framed for the purpose in 2011. In 2018, the Centre favoured coming up with fresh updates to the existing rules on intermediaries’ responsibilities, but the draft courted controversy. This was because one of the proposed changes was that intermediaries should help identify originators of offensive content. This led to misgivings that this could aid privacy violations and online surveillance. Also, tech companies that use end-to-end encryption argued that they could not open a backdoor for identifying originators, as it would be a breach of promise to their subscribers.

Other proposed changes, which have not been acted upon, include rules that intermediaries should deploy automated tools for proactively removing or disabling public access to unlawful information, and to have a 24×7 mechanism to deal with requisitions of law enforcement.

Push for entrepreneurs #GS3 #Economy

The story so far: In her Budget speech, Union Finance Minister Nirmala Sitharaman announced measures to ease norms on setting up one-person companies (OPCs). Ms. Sitharaman said the step — allowing OPCs to grow without any restrictions on paid-up capital and turnover — would directly benefit start-ups and innovators.

What is a one-person company?

As the name suggests, a one-person company is a company that can be formed by just one person as a shareholder. These companies can be contrasted with private companies, which require a minimum of two members to get going. However, for all practical purposes, these are like private companies.

It is not as if there was no scope for an individual with aspirations in business prior to the introduction of OPC as a concept. As an individual, a person could get into business through a sole proprietorship mode, and this is a path that is still available.

Why do we need such companies?

A single-person company and sole proprietorship differ significantly in how they are perceived in the eyes of law. For the former, the person and the company are considered separate legal entities. In sole proprietorship, the owner and the business are considered the same.

This has an important implication when it comes to the liability of the individual member or owner. In a one-person company, the sole owner’s liability is limited to that person’s investment. In a sole proprietorship set-up, however, the owner has unlimited liability as they are not considered different legal entities. Some see Ms. Sitharaman’s proposal as a move to encourage corporatisation of small businesses. It is useful for entrepreneurs to have this option while deciding to start a business.

Is this a new idea?

No. Such a concept already exists in many countries. In India, the concept was introduced in the Companies Act of 2013. Its introduction was based on the suggestions of the J.J. Irani Committee Report on Company Law, which submitted its recommendations in 2005. Pointing out that there was a need for a framework for small enterprises, it said small companies would contribute significantly to the Indian economy, but because of their size, they could not be burdened with the same level of compliance requirements as large public-listed companies.

The report, while talking about giving entrepreneurial instincts of the people an outlet in the age of information technology, said, “It would not be reasonable to expect that every entrepreneur who is capable of developing his ideas and participating in the marketplace should do it through an association of persons.”

While making a case for one-person companies, the committee also said, “Such an entity may be provided with a simpler regime through exemptions so that the single entrepreneur is not compelled to fritter away his time, energy and resources on procedural matters.”

The law on one-person companies that took shape, as a result, exempted such companies from many procedural requirements, and, in some cases, provided relaxations. For instance, such a company does not need to conduct an annual general meeting, which is a requirement for other companies. A one-person company also does not require signatures of both its company secretary and director on its annual returns. One is enough.

There was, however, criticism that some rules governing a one-person company were restrictive in nature. This year’s Union Budget has dealt with some of these concerns.

What has changed for these companies with the new measures in this year’s Budget?

One of the measures that the Finance Minister has announced in the Budget pertains to the removal of restrictions on paid-up capital and turnover. The 2014 rule, which stated that a one-person company would cease to have that status once its paid-up share capital exceeds Rs. 50 lakh or its average turnover for the preceding three years exceeds Rs. 2 crore, has been lifted.

The proposals, the Minister said, also include, “reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allow non-resident Indians (NRIs) to incorporate OPCs in India.” Earlier, only an Indian citizen and an Indian resident could start a single-person company.

These changes come alongside a proposal to increase the capital base and turnover threshold for companies that can be classified as ‘small’, which means they can enjoy easy compliance requirements a bit longer. The capital base limit has been increased from Rs. 50 lakh to Rs. 2crore, and the turnover limit has been increased from Rs. 2crore to Rs. 20 crore.

How many OPCsdoesIndia have?

According to data compiled by the Monthly Information Bulletin on Corporate Sector, there were 34,235 one-person companies out of a total number of about 1.3 million active companies in India, as on December 31, 2020. The number of OPCs was 2,238 (out of a total of about 1 million companies) as on March 31, 2015. Data also show that more than half of the OPCs are in business services.

Can a ‘bad bank’ solve the growing NPA crisis? #GS3 #Economy

The story so far: Finance Minister Nirmala Sitharaman in her Budget speech on Monday revived the idea of a ‘bad bank’ by stating that the Centre proposes to set up an asset reconstruction company to acquire bad loans from banks. While the problem of bad loans has been a perennial one in the Indian banking sector, the COVID-19 pandemic-triggered lockdown last year and the moratorium subsequently extended to borrowers by the Reserve Bank of India (RBI) have worsened the crisis. With banks expected to report even more bad loans this year, the idea of a ‘bad bank’ has gained particular significance.

What is a ‘bad bank’?

A bad bank is a financial entity set up to buy non-performing assets (NPAs), or bad loans, from banks. The aim of setting up a bad bank is to help ease the burden on banks by taking bad loans off their balance sheets and get them to lend again to customers without constraints. After the purchase of a bad loan from a bank, the bad bank may later try to restructure and sell the NPA to investors who might be interested in purchasing it.

A bad bank makes a profit in its operations if it manages to sell the loan at a price higher than what it paid to acquire the loan from a commercial bank. However, generating profits is usually not the primary purpose of a bad bank — the objective is to ease the burden on banks, holding a large pile of stressed assets, and to get them to lend more actively.

What is the extent of the crisis faced by banks?

According to the latest figures released by the RBI, the total size of bad loans in the balance sheets of Indian banks at a gross level was just around Rs. 9 lakh crore as of March 31, 2020, down significantly from over Rs. 10 lakh crore two years ago.

While the size of total bad loans held by banks has decreased over the last few years, analysts point out that it is mostly the result of larger write-offs rather than due to improved recovery of bad loans or a slowdown in the accumulation of fresh bad loans.

The size of bad loan write-offs by banks has steadily increased since the RBI launched its asset quality review procedure in 2015, from around Rs. 70,000 crore in 2015-16 to nearly Rs. 2.4 lakh crore in 2019-20, while the size of fresh bad loans accumulated by banks increased last year to over Rs. 2 lakh crore from about Rs. 1.3 lakh crore in the previous year. So, the Indian banking sector’s woes seem to be far from over.

Further, due to the lockdown imposed last year, the proportion of banks’ gross non-performing assets is expected to rise sharply from 7.5% of gross advances in September 2020 to at least 13.5% of gross advances in September 2021.

What are the pros and cons of setting up a bad bank?

A supposed advantage in setting up a bad bank, it is argued, is that it can help consolidate all bad loans of banks under a single exclusive entity. The idea of a bad bank has been tried out in countries such as the United States, Germany, Japan and others in the past.

The troubled asset relief program, also known as TARP, implemented by the U.S. Treasury in the aftermath of the 2008 financial crisis, was modelled around the idea of a bad bank. 

Under the program, the U.S. Treasury bought troubled assets, such as mortgage-backed securities, from U.S. banks at the peak of the crisis, and later resold them when market conditions improved. According to reports, it is estimated that the Treasury through its operations earned nominal profits.

Many critics, however, have pointed to several problems with the idea of a bad bank to deal with bad loans. Former RBI governor Raghuram Rajan has been one of the critics, arguing that a bad bank backed by the government will merely shift bad assets from the hands of public sector banks, which are owned by the government, to the hands of a bad bank, which is again owned by the government. 

There is little reason to believe that a mere transfer of assets from one pocket of the government to another will lead to a successful resolution of these bad debts, when the set of incentives facing these entities is essentially the same.

Other analysts believe that unlike a bad bank set up by the private sector, a bad bank backed by the government is likely to pay too much for stressed assets. While this may be good news for public sector banks, which have been reluctant to incur losses by selling off their bad loans at cheap prices, it is bad news for taxpayers, who will once again have to foot the bill for bailing out troubled banks.

Will a ‘bad bank’ help ease the bad loan crisis?

A key reason behind the bad loan crisis in public sector banks, some critics point out, is the nature of their ownership. Unlike private banks, which are owned by individuals who have strong financial incentives to manage them well, public sector banks are managed by bureaucrats who may often not have the same commitment to ensuring these lenders’ profitability. To that extent, bailing out banks through a bad bank does not really address the root problem of the bad loan crisis.

Further, there is a huge risk of moral hazard. Commercial banks that are bailed out by a bad bank are likely to have little reason to mend their ways. After all, the safety net provided by a bad bank gives these banks more reason to lend recklessly, and thus, further exacerbate the bad loan crisis.

Will it help revive credit flow in the economy?

Some experts believe that by taking bad loans off the books of troubled banks, a bad bank can help free capital of over Rs. 5 lakh crore that is locked in by banks as provisions against these bad loans. This, they say, will give banks the freedom to use the freed-up capital to extend more loans to their customers. 

This gives the impression that banks have unused funds lying in their balance sheets that they could use if only they could get rid of their bad loans. It is, however, important not to mistake banks’ reserve requirements for their capital position. This is because what may be stopping banks from lending more aggressively may not be the lack of sufficient reserves, which banks need to maintain against their loans.

Instead, it may simply be the precarious capital position that many public sector banks find themselves in at the moment. In fact, many public sector banks may be considered to be technically insolvent as an accurate recognition of the true scale of their bad loans would show their liabilities as far exceeding their assets. So, a bad bank, in reality, could help improve bank lending not by shoring up bank reserves, but by improving banks’ capital buffers.

To the extent that a new bad bank set up by the government can improve banks’ capital buffers by freeing up capital, it could help banks feel more confident to start lending again.