Daily Current Affairs : 3rd April

Daily Current Affairs for UPSC CSE

Topics Covered

1. RBI Circular
2. Whatsup Tipline
3. Financial Action Task Force Blacklist
4. Purchase Manager’s Index
5. Global Report on Food Crisis
6. Govt wants to probe complaints against present and former CICs & ICs through a committee
7. Facts for Prelims – AFSPA

1 . RBI Circular

Syllabus : – Indian economy – growth and development

Context : The Supreme Court on Tuesday struck down a February 2018 Reserve Bank of India (RBI) circular giving lender banks six months to resolve their stressed assets or move under the Insolvency Code against private entities who have defaulted in loans worth over Rs. 2000 crore.

About the Notification

• In February 2018, RBI laid down a revised framework for the resolution of stressed assets, which replaced all its earlier instructions on the subject.
• The circular introduced a new one-day default norm — “As soon as there is a default in the borrower entity’s account with any lender, all lenders — singly or jointly — shall initiate steps to cure the default
• Banks were required to immediately start working on a resolution plan for accounts over Rs 2,000 crore, which was to be finalised within 180 days. In case of non-implementation, lenders were required to file an insolvency application.
• The RBI said that “in view of the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC)” — under which a resolution plan is supposed to be finalised within 180 days, with a grace period of 90 days — it was necessary “to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets”.

What the Court said?

• Around 50 petitions by power, shipping and sugar companies were filed challenging the RBI circular. The companies argued that the circular was arbitrary and discriminatory, and therefore, violative of Article 14 of the Constitution.
• Several companies from the power and shipping sectors had challenged the circular, arguing that the time given by the RBI was not enough to tackle bad debt. Power producers, for instance, had argued that the RBI’s ‘one-size-fits-all’ approach was impractical since the sector was having to confront external factors that were beyond its control, and which made an early revival difficult for them. These factors included the unavailability of coal and gas, and problems arising out of the failure of state governments to honour power purchase agreements.
• The court found favour with the arguments made by the companies that a general direction by the RBI, applying the 180-day limit to all sectors, without going into the special problems faced by each sector, would “treat unequals equally”.
  SC through its judgement provided relief across sectors by making all insolvency proceedings initiated against debtors under the circular non est .

What did the “Resolution of Stressed Assets — Revised Framework” replace?

• The circular went into effect on the same day that it was issued, and all existing schemes for stressed asset resolution were withdrawn with immediate effect.
• These included the Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A).
• All these schemes allowed more lenient terms of resolution than the February 12 circular, which specifically said that the resolution process must begin from day one of the default.
• The circular was ostensibly intended to stop the “evergreening” of bad loans — the practice of banks providing fresh loans to enable timely repayment by borrowers on existing loans.
• The RBI warned banks that not adhering to the timelines laid down in the circular, or attempting to evergreen stressed accounts, would attract stringent supervisory and enforcement actions. The government had earlier asked the RBI to make sector-specific relaxations in the timeline for the implementation of the circular.

Impact of the Judgement

• The order provides immediate relief to companies that have defaulted in repayments, especially those in the power, shipping and sugar sectors.
• However, many financial sector experts argued that the verdict could delay the process of stressed assets resolution, which had of late picked up pace. Since banks will have the choice of devising resolution plans or going to the National Company Law Tribunal under the IBC, the urgency that the RBI’s rules had introduced in the system could be impacted.
• Voiding of the February 12 circular is credit negative for Indian banks. The circular had significantly tightened stressed loan recognition and resolution for large borrowers. But with the voiding, this may now have to be watered down. The resolution of stressed loans impacted by the circular will be further delayed as the process may have to be started afresh
• The judgment is also a big set back for the central bank, which was planning to extend these norms to non-banking finance companies (NBFCs) as well.

2 . Whatsup Tipline

Syllabus : – General Studies 3 – Role of media and social networking sites in internal security challenges

Context : WhatsApp on Tuesday launched an India-focused fact-checking feature to combat fake news and rumours starting with the run-up to the Lok Sabha elections.

About Tipline

• Indian users, numbering more than 200 million, can now report uncertain information or rumours they have received to a WhatsApp number (+91-9643-000-888) and check its authenticity.
• The response will indicate if information is classified as ‘true’, ‘false’, ‘misleading’, ‘disputed’ or ‘out of scope’, and include any other related information.
• WhatsApp will review pictures, video links or texts in Hindi, Telugu, Bengali, Malayalam and English.
• It is developed in collaboration with India-based media skilling startup PROTO, the tip line feature will help create a database of rumours to study misinformation during elections as part of a research project commissioned and assisted by WhatsApp.

3 . FATF Blacklist

Syllabus :- Important International institutions, agencies and fora- their structure, mandate.

Context : Pakistan could be blacklisted by the Financial Action Task Force (FATF) due to “lobbying by India”, Foreign Minister Shah Mahmood Qureshi said, as he estimated that the country could suffer a loss of $10 billion annually if it remains in the watchdog’s grey list.

Background

• In June last year, the Paris-based FATF had placed Pakistan on the ‘grey list’ of countries whose domestic laws are considered weak to tackle the challenges of money laundering and terrorism financing.
• A group of experts from the FATF recently visited Pakistan to review whether Islamabad had made enough progress on global standards against financial crimes to warrant its exclusion from the ‘grey list’.
  

About FATF

• The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions.
• The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. 
• The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
• The FATF has developed a series of Recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction.
• They form the basis for a co-ordinated response to these threats to the integrity of the financial system and help ensure a level playing field. 
• The FATF’s decision making body, the FATF Plenary, meets three times per year.  
• The FATF currently comprises 36 member jurisdictions and 2 regional organisations ( GCC, European Commission) representing most major financial centres in all parts of the globe.
  
• India is a member of FATF while Pakistan is not a member

What is the FATF black list?

• The FATF black list is shorthand for “Non-Cooperative Countries or Territories” (NCCTs).
• It has been issued since 2000 and lists countries that have been openly hostile and non-cooperative in the fight against money laundering and terror funding.
• Although the list did initially include offshore financial centres, the set of recommendations were soon amended to make tax havens compliant with all of the FATF’s criteria.
• As of now, the FATF black list comprises Iran and North Korea.

How is the FATF grey list different from the black list?

• The grey list includes countries that are deemed to be lax in combating terror financing and money laundering. Pakistan was on this list previously between 2012 and 2015.
• But inaction over terror attacks on Indian targets by Lashkar-e-Taiba (LeT) and  Jaish-e-Mohammed has prompted Pakistan’s return to the grey list.
• While the black list represents countries which are hostile to external regulation of its economy, the grey list includes countries which continue to shield certain banned groups from greater institutional scrutiny and regulation.
• The countries which are presently on the grey list are Syria, Sri Lanka,Tunisia, Serbia, Yemen, Ethiopia and Iraq.

What are the restrictions placed on listed nations?

• In addition to the negative picture painted of a country’s national institutions, laxity in dealing with groups banned by multilateral organisations reflects the government’s covert engagement with such entities. The most adverse impact will be on the economy, especially for countries reliant on foreign aid and development loans.
• Apart from loans solicited from international lenders like the International Monetary Fund (IMF) or the Asian Development Bank (ADB), figuring on the FATF’s “Non-Cooperative Countries or Territories” list could see the migration of foreign capital and privately-owned foreign companies from those countries.
• Loans for infrastructure development could also be jeopardized if lenders are not confident of the security of their investments, and also a potential misappropriation of sanctioned funds for terrorism-related activities. Foreign banks with footprints spanning the globe, such as Citibank or Standard Chartered, could pull out, affecting the financial services sector in the country.

4 . Purchase Manager’s Index

Syllabus :- Prelims

Context : Manufacturing activity slowed to a six-month low of 52.6 in March due to lower levels of new orders and production, according to a private sector survey. The Nikkei India Manufacturing Purchasing Managers’ Index came in at a lower reading of 52.6 in March from 54.3 in February. A reading over 50 implies expansion while one below that denotes a contraction in activity.

What is a PMI?

• PMI or a Purchasing Managers’ Index (PMI) is an indicator of business activity — both in the manufacturing and services sectors. It is a survey-based measures that asks the respondents about changes in their perception of some key business variables from the month before. It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.

What are its implications for the economy? 

• The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available. It is, therefore, considered a good leading indicator of economic activity. Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later. Central banks of many countries also use the index to help make decisions on interest rates 

PMI for India

• For India, the PMI Data is published by Japanese firm Nikkei but compiled and constructed by Markit Economics (for the US, it is the ISM).

PMI for Manufacturing Sector

• The variables used to construct India’s PMI for manufacturing sector are: Output, New Orders, Employment, Input Costs, Output Prices, Backlogs of Work, Export Orders, Quantity of Purchases, Suppliers‟ Delivery Times, Stocks of Purchases and Stocks of Finished Goods. Similar variables are used for the construction of services PMI. A manufacturing PMI and a services PMI are prepared and published by the two.
• The Nikkei and Markit economics websites says that PMI data are based on monthly surveys of carefully selected companies.

5 . Global Report on Food Crisis

Syllabus : General Studies 2 – Issues Related to Poverty and Hunger

Context : Food crises will affect tens of millions of people across the world this year, researchers warned on Tuesday, after war, extreme weather and economic woes in 2018 left more than 113 million in dire need of help. Conflict and insecurity were responsible for the desperate situation faced by 74 million people, or two-thirds of those affected, in 2018, said the the Global Network against Food Crises in its annual report.

About Global Network against Food Crisis

• The Global Network against Food Crises was established to combat food crises from humanitarian and development perspectives and tackle its root causes. This partnership aims to promote an enhanced coordination among stakeholders through consensus on analyses and coherent projects implementation.
• Partners include the European Union, the Food and Agriculture Organization of the United Nations (FAO) and the United Nations World Food Programme (WFP), among others.
  

Details of the Report

• Report uses a five-phase scale with the third level classified as crisis, fourth as emergency and fifth as famine/catastrophe.
• Around 113 million people in 53 countries experienced acute food insecurity in 2018, compared to 124 million in 2017.
• Of countries that suffered food crises in 2018, the worst affected was Yemen, where nearly 16 million people needed urgent food aid after four years of war, followed by the Democratic Republic of Congo at 13 million and Afghanistan at 10.6 million.
• However, the number of people in the world facing food crises has remained well over 100 million in the last three years, and the number of countries affected has risen. Moreover, an additional 143 million people in another 42 countries are just one step away from facing acute hunger.
• Nearly two-thirds of those facing acute hunger are in just 8 countries: Afghanistan, the Democratic Republic of the Congo, Ethiopia, Nigeria, South Sudan, Sudan, Syria and Yemen. In 17 countries, acute hunger either remained the same or increased. 
• Climate and natural disasters pushed another 29 million people into acute food insecurity in 2018.

6 . Govt wants to probe complaints against present and former CICs & ICs through a committee

Syllabus : General Studies 2 RTI Act

Context : Not just complaints against the sitting Chief Information Commissioner (CIC) and Information Commissioners (ICs) that the government proposes to scrutinise by setting up committees dominated by bureaucrats but also complaints against former CICs and ICs.

About the Proposal

• The government has proposed setting up bureaucrat-led committees that would sit and decide on complaints against the Chief Information Commissioner (CIC) and Information Commissioners (ICs).
• For CIC the committee is proposed to include the Cabinet Secretary; Secretary, DoPT; and a retired CIC. For ICs, the committee will include Secretary (Coordination) in the Cabinet Secretariat; Secretary, DoPT; and a retired IC.
• If on preliminary scrutiny, the concerned committee considers it necessary to investigate into the allegation, it shall devise its own procedure and method of investigation which may include recording of evidence of the complainant and collection of material relevant to the inquiry which may thereafter be conducted by a judge of the Supreme Court.
• The findings of the committee would be submitted to the President. If he is of the opinion there are reasonable grounds for inquiry, he would refer it to the Chief Justice of India, who may nominate a Supreme Court judge to conduct an inquiry
• Clearly, in both the committees, government officers will be in a majority & Right To Information Act did not allow for such scrutiny
  

What RTI Act states regarding removal of CIC or IC

• The Information Commissioners, including the CIC, carry the same status as judges of the Supreme Court and are appointed by the President of India based on recommendations of a committee chaired by the Prime Minister and including the Leader of Opposition in the Lok Sabha and a Union Cabinet Minister nominated by the PM.
• Section 14 (1) of the RTI Act states that Commissioners can be removed only by the President on the ground of proved misbehaviour or incapacity after the Supreme Court, on a reference made to it by the President, has, on inquiry, reported that the CIC or any IC ought on such ground be removed.
• Section 14 (3) states the President may remove a Commissioner if he/she is adjudged an insolvent, has been convicted of an offence which involves moral turpitude, engages during his/her term of office in any paid employment outside, is unfit to continue in office by reason of infirmity of mind or body; or has acquired such financial or other interest as is likely to affect prejudicially his functions as the CIC or an IC

7 . Facts for Prelims

AFSPA

• The controversial Armed Forces Special Powers Act (AFSPA) was partially removed from Arunachal Pradesh, 32 years after it was imposed, a Ministry of Home Affairs (MHA) order said on Tuesday.
• The Act, which gives sweeping powers to security forces, was partially withdrawn from three of the state’s nine districts, but would remain in force in the areas bordering Myanmar
• About AFSPA covered under Daily Current Affairs 1st January