28th April – Editorials/Opinions Analyses

Contents

1. The script of disruption and a new order
2. Virtual, yet Open: Improving judicial processes
3. A policy road map to tackle COVID-19
4. Ten Steps while restarting the Economic Engine
5. What RBI’s Rs 50,000 crore boost means for Mutual Funds?

THE SCRIPT OF DISRUPTION AND A NEW ORDER

Focus: GS-II Governance

Introduction: The Disruption

The COVID-19 pandemic is unprecedented, involving as it does far too many variables. Pandemics have often changed the world and reshaped human society. Empires have collapsed. There is already concern that a diminution in human values could occur, and with this, the concept of an international community might well cease to exist.

Institutions under fire

Existing international institutions such as the United Nations, the United Nations Security Council and the World Health Organization (WHO) are being criticized as failing to measure up to the grave challenge posed by the pandemic.

Economic shock

• World Bank has already predicted negative growth for most nations.
• India’s growth forecast for the current fiscal year has been put at 1.5% to 2.8%.
• Contraction of the economy and the loss of millions of jobs across all segments will further complicate this situation.
• The role of the state as an enforcer of public good will almost certainly become greatly enhanced.
• Some pieces of legislation such as the Disaster Management Act are already getting a new lease of life, previously perceived to be anachronistic in a modern democratic set-up.
• For example- Europe has shown a willingness to sacrifice personal liberties in favour of greater state control.
• Post COVID-19, the world may have to pay a heavy price in terms of loss of liberty.

China in the spotlight

• Far-reaching changes can also be anticipated in the realm of geo-economics and geopolitics.
• One nation, viz. China, is presently seeking to take advantage of and benefit from the problems faced by the rest of the world in the wake of the epidemic.
• More importantly, it is seeking to convert its ‘failure’ into a significant opportunity. This is Sino-centrism at its best, or possibly its worst.
• China now seeks to benefit from the fact of its ‘early recovery’ to take advantage of the travails of the rest of the world, by using its manufacturing capability to its geo-economic advantage.
• Simultaneously, it seeks to shift from being a Black Swan (responsible for the pandemic), to masquerade as a White one, by offering medical aid and other palliatives to several Asian and African countries to meet their current pandemic threat. It can be seen as seeking to gain a geopolitical advantage by this action.
• China seems to be ostensibly preparing the way for a China-centric multilateral globalisation framework.

Reacting to China’s actions

• There are enough reports of China’s intentions to acquire financial assets and stakes in banks and companies across the world, taking advantage of the scaled-down value of their assets to support this.
• Several countries apart from India, such as Australia and Germany, have begun to restrict Chinese foreign direct investment in companies and financial institutions in their countries, recognising the inherent danger of a possible Chinese hostile takeover of their critical assets.
• India seems to have woken up only recently to this threat, after the Peoples’ Bank of China acquired a 1% stake in India’s HDFC, taking advantage of the sharp decline in the price of HDFC stocks.

A faltering West

• Weakened economically and politically after COVID-19 has ravaged the nation, the U.S.’s capacity to play a critical role in world affairs is certain to diminish.
• The main beneficiary of this geopolitical turnaround is likely to be China, a country that does not quite believe in playing by the rules of international conduct.
• Germany, which may still retain some of its present strength, is already turning insular, while both France and a post-Brexit United Kingdom will be out of the reckoning as of now.

West Asia and India

• The oil price meltdown will aggravate an already difficult situation across the region.
• Israel may be one country that is in a position to exploit this situation to its advantage.
• The economic downturn greatly reduces India’s room for manoeuvre. In South Asia, it faces the prospect of being isolated, with the Chinese juggernaut winning Beijing new friends and contacts across a region deeply impacted by the economic consequences of the COVID-19 pandemic.
• India’s leverage in West Asia — already greatly diminished — will suffer further, with oil prices going down and the Indian expatriate community out on a limb.
• Many of the latter may seek repatriation back to the host country, substantially reducing the inflow of foreign funds to India from the region.

-Source: The Hindu

VIRTUAL, YET OPEN: IMPROVING JUDICIAL PROCESSES

Focus: GS-II Governance

Why in news?

Amidst the national lockdown, the Supreme Court and several other courts have been holding virtual proceedings.

A question of concern to the Bar is whether virtual courts have become the “new normal” and whether it means a move away from the idea of open courts towards technology-based administration of justice without the physical presence of lawyers and litigants.

Clarification regarding Virtual Proceedings

Chief Justice of India emphasises that virtual courts are open courts too; and that one cannot describe them as closed or in camera proceedings.

Two aspects are not in dispute:

1. The vital necessity to keep the courts open even during a national lockdown so that access to justice is not denied to anyone
2. The need to maintain physical distancing.

Views of the SCBA

• The Supreme Court Bar Association has written to the CJI and other judges that open court hearings should be restored at the earliest, subject of course to the lockdown ending.
• The SCBA has requested that the use of video conferencing should be limited to the duration of the current crisis, and not become the “new normal” or go on to replace open court hearings.
• The SCBA also has a specific request: that proceedings held virtually may also be streamed live so that access is not limited to the lawyers concerned, but is also available to the litigants and the public.

Way Forward

• While it is theoretically possible for the parties to join their lawyers during the hearing, in practice they may be unable to travel to their offices. Media access is also limited.
• These issues can be resolved through live-streaming. And in the longer term, it should become the general practice.
• As the use of technology is stepped up, courts should consider other steps that will speed up the judicial process and reduce courtroom crowding.
• Despite the possibility of technical and connectivity issues affecting the process, one must recognise that virtual hearings are no different from open court conversations, provided access is not limited. The opportunity now to improve the judicial process must be utilised well.

-Source: The Hindu

A POLICY ROAD MAP TO TACKLE COVID-19

Focus: GS-III Disaster Management

Policy Concerns

Policies to address the worldwide crisis brought about by COVID-19 must satisfy three criteria:

1. They must aim to minimise the loss of life directly resulting from the disease, while recognising that there remain deep uncertainties about its true nature.
2. They must restore the elements of economic and social life as soon as possible, so as to avoid disastrous and lasting consequences, including for other aspects of health, schooling, food security and livelihood.
3. They must aim at a glide path out of the crisis, that can reasonably be projected to end it once and for all — not merely to manage it indefinitely through, for instance, periodic lockdowns.

An effective health system

Three directions for policy are suggested by these three criteria:

1. Infections which do not lead to fatalities or lasting illness must be treated as on balance desirable, when determining the right policies. Widespread testing and contact-tracing can help to manage the flow of infections and reduce the danger to those especially at risk, but would have to be continued indefinitely until a vaccine is developed, and demands adequate public health infrastructure, severely neglected in many countries.
2. Policies must make a link between restoration of economic output and adequate investment in containing, indeed ending, the disease. This means that costs of vaccine development, mass testing and other measures attacking the disease must be viewed as enjoying a healthy societal return.
3. ‘Smart’ design of policies can permit restoration of economic and social life. Such policies should be designed and targeted to allow lower-risk segments of the population to return to daily activities, while protecting higher-risk ones. Systematic collection of test results and other data can be used to manage restrictions so that they are local and temporary. Technology can play an assistive role but is no substitute for public understanding and voluntary choices, fostered by supportive public policies that remove obstacles and enhance benefits of the behaviours being sought. Smart policies can include resumption of contacts across nations, as it is more feasible to bring the disease under control in one’s own society through internal measures than to ensure its control everywhere.

-Source: The Hindu

TEN STEPS WHILE RESTARTING THE ECONOMIC ENGINE

Focus: GS-III Indian Economy

The recommended Ten Steps:

Any calibrated approach to ‘restarting the economy’ should include the following 10 steps:

1. Relax the fiscal deficit target:

Stretching the deficit target to release money which can be used for well-directed income transfers and food support, facilitate business disruption loans by offering guarantee to commercial banks, soften the blow to services, and upgrade health infrastructure.

2. Liquidity support to small businesses:

Provide specific funding lines to improve the liquidity of smaller entities without exposing banks to additional risks.

3. Logistics and price support to farmers for Rabi harvest:

The food supply chain shouldn’t be broken and farmgate prices shouldn’t crash. Improve supply chain logistics and procurement and allow Agricultural produce market committees (APMCs) to operate for pre-defined durations, so that farmers can sell their perishables.

4. Middle-class relief:

A temporary reduction in personal tax rates for low-income brackets is in order.

5. Extend moratorium on bank loans:

Given the expectation of continued cash-flow volatility in various sectors, moratorium on loans may be extended by 90 days.

6. Turn the liquidity spigot towards debt markets:

Ensure the Targeted Long-Term Repo Operations (TLTRO) window of Rs 1lakh crore flows into the larger corporate bond and commercial paper market as intended, and isn’t limited to AAA bonds.

7. Liquidity support to NBFCs:

Liquidity support to NBFCs will enhance market confidence in NBFCs and improve the resilience of the Indian financial system. Consultation with key stakeholders can be considered to finalise specific measures.

8. Back corporates:

Timeline or limited period deferral for payment of advance can be extended; Special Covid-19 loans at concessional rates can be provided; Tax funds can be released quickly while force majeure clause by governments and their agencies are reasonably interpreted.

9. Forbearance on capital market debt repayments:

This will be important to release the liquidity pressure on corporates and NBFCs.

10. Deferral of repayments:

Defer scheduled pass-through certificate (PTC) repayments for a specific period, in line with the moratorium granted to instalment payments of underlying borrowers, as these instruments are structurally pass-through in nature.

Conclusion

Post-Covid, developed economies will move production back home at a faster pace. The overall labour-arbitrage pie in manufacturing will shrink, and competitive economies will gain a larger share. So, it is time to raise, if not change, our game.

-Source: Economic Times

WHAT RBI’S RS 50,000 CRORE BOOST MEANS FOR MUTUAL FUNDS?

Focus: GS-III Indian Economy

Why in news?

The Reserve Bank of India (RBI) on 27^th April, 2020 announced a special liquidity window of Rs 50, 000 crore to bail out mutual funds hit by the turmoil in the debt fund segment that led to the closure of six credit risk funds by Franklin Templeton Mutual Fund.

How will liquidity window Help?

• Under the special liquidity facility for mutual funds (SLF-MF), the RBI will conduct repo operations of 90 days tenor at the fixed repo rate.
• Funds availed under the SLF-MF will be used by banks exclusively for meeting the liquidity requirements of MFs.
• Banks can extend loans to mutual funds and undertake the outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by MFs.

Why has the RBI offered this facility?

• Heightened volatility in capital markets in reaction to Covid-19 has imposed liquidity strains on mutual funds which have intensified in the wake of redemption pressures related to closure of six debt schemes of Franklin Templeton and potential contagious effects.
• The stress is, however, confined to the high-risk debt funds segment at this stage while the larger industry remains liquid.
• The RBI’s liquidity offer is expected to bring some degree of comfort in the debt market which is under huge redemption pressure, especially in the credit risk fund category.

-Source: Indian Express