Chanakya IAS Academy Blog

IAS Blog | Civil Services Preparation | Chanakya IAS Academy Blog
14 June 2016 K2_CATEGORY IAS Blog

Introduction - The article focus upon the various strategies being adopted by different countries to tackle NPA problems and some suggestions for India.

  • Indian banks have accumulated Rs.5.8 trillion in bad loans with the prospect of more to come. This can threaten an early economic recovery by stalling the flow of capital to critical sectors like infrastructure.
  • It is this fear that has the government, the regulator and lenders scrambling to find a way to resolve bad loans.
  • Solutions introduced so far such as the strategic debt restructuring (SDR) scheme have proved to be difficult to implement while court-driven resolution processes remain painfully slow.
  • As India searches for a solution to its bad loan problem, it may be worth looking around the world to see how some other economies are tackling similar problems. Some of these models are being suggested as possible solutions for the Indian bad loan problem as well.

The Italian way

  • The most recent example of a bad loan resolution plan of significant scale and size comes from Italy.
  • There were two parts to the plan.
  • The first part was a 5-6 billion euro bank stabilization fund dubbed ‘Atlas’. The fund was set up as a private alternative investment fund in which a number of Italian banks and financial institutions were investors.
  • The fund is managed by an external agency and is set to invest in share issues by weak Italian banks while also buying non-performing loans from weak banks.
  • The second and more interesting part of the Italian bad loan resolution plan is a proposal to allow banks to securitize bad loans with the government coming in and guaranteeing the most senior tranche of these loans.
  • A senior tranche of a pool of loans is the one deemed least risky. By allowing this, the Italian government hoped that banks will be able to shed some of their bad loans.

China looks to securitization

  • The idea of securitizing bad loans is something that has been used in China in the past as well and is being tried again.
  • China is also experimenting with a debt-to-equity conversion plan, a tool similar to the SDR scheme being used in India. According to a May report from brokerage house CLSA, 15-19% of China’s bank loans are bad, necessitating a solution.

The bad bank experiments

  • Apart from the newer resolution mechanisms being attempted, the classic bad bank approach has been tried in a number of economies ranging from Spain to Ireland.
  • Both countries set up large state-backed asset management companies which bought stressed assets at low valuations from banks and later pushed out these assets to those specializing in stressed asset investing and recovery.
  • Ireland had set up the National Asset Management Agency (NAMA) in 2009 for a period of 10 years. The agency had taken over almost 74 billion euro in bad loans from Irish banks in the aftermath of the crisis. It is expected to make a huge profit by the time of winding up.

Government-led solutions

  • There have also been pure government-led solutions to bad loans which have been used by Japan and the US.
  • Japan went through the exercise of cleaning up bank balance sheets in the late 1990s.
  • The US, after the financial crisis, announced the much-debated Troubled Asset Relief Program (TARP) to purchase assets from financial institutions to strengthen the sector.
  • TARP was set up after the collapse of Lehman Brothers in 2008 and initially allowed the US government to purchase up to $700 billion in troubled assets. By the end of 2014, TARP had been wound down with profits of nearly $15 billion.

What will work in India?

  • A pure government-led solution seems unlikely in India given the constraints on government finances.
  • However, the idea of a fund, which is sponsored together by the government and lenders, is an option that is being considered.
  • Over the past month, government officials including finance minister have said that a government-sponsored fund is being considered. The Reserve Bank of India is cautious and has said that such a fund should not be majority-owned by banks.
  • Meanwhile, the concept of securitization of bad loans is a tough one to implement in India. The securitization market in India has always been thin and there aren’t many sophisticated financial institutional investors who could provide liquidity to this market.

Question:In the past, different countries have adopted different mechanisms to tackle the problem of rising bad loans. Examine. Do you think, any of these solution will work for India. Comment.

Suggested Approach:

  1. Different strategies adopted by different countries to tackle this problem.
  2. Analyse whether these mechanisms will work in Indian context.
  3. Suggestions.


English: Download

Hindi: Download

14 June 2016 K2_CATEGORY IAS Blog
  • The Union Government has taken a number of initiatives in the area of agricultural development and farmers’ welfare to boost the productivity and raise income of the farmers in the country.
  • These initiatives may be seen in the background of low agricultural growth, a fallout of two consecutive drought years. It is also evident from the facts and figure released by Central Statistical Office (CSO) which show that the agricultural growth rate is plummeting, causing much concern among policy makers.
  • The new initiatives taken by the government are aimed at correcting this distortion. Finance Minister in his budget speech stressed that there is a need to think beyond ‘food security’ and give farmers a sense of ‘income security’.
  • A number of programmes have been initiated and re-prioritised during the last two years by the government to augment the farm income.
  • Paramparagat Krishi Vikas Yojana:
    • It aims to develop organic clusters and make available chemical free inputs to farmers, and to improve soil health in the fields. It has opened a new era for organic production system by allocating separate funds for this purpose. The PKVY will be implemented through the State Governments.
    • Under the scheme groups of 50 or more farmers, having 50 acre land, would be motivated to take up organic farming. The government has increased the subsidy amount for the individual farmers to promote the use of bio-fertilizers
    • A special scheme has also been launched in North-Eastern region for promotion of organic farming and export of organic produce.
  • Pradhan Mantri Krishi Sinchai Yojana
    • The scheme has been launched to ensure the water security in the country with the aim of ‘Har Khet Ko Paani.
    • The scheme is based on three pronged strategy-
      • Creating source of assured irrigation.
      • Per drop-more crop.
      • Harnessing rain water at micro level through ‘jal-sanchay’ and ‘jal-sinchai’.
    • In this way, the scheme lays stress on end-to-end solutions in irrigation supply chain which includes water sources, distribution network and farm level application.
  • Deen Dayal Anyodaya Mission:
    • It has been announced for creation of job opportunities and durable assets to boost the rural economy in the country. Every block under drought and rural distress, will be taken up as an intensive block under the Mission. Intensive labour work will be undertaken in such blocks.
  • Soil Health Card Scheme:
    • Under the scheme, farmers will get information about nutrient level of the soil and thus will be able to make judicious use of fertilizers.
  • National Agriculture Market:
    • The agricultural markets are fragmented not only among the states but even at inter-state level into different market areas, each governed by separate Marketing Committee.
    • To overcome problems relating to this, the government has taken the initiative to set up a National Agriculture Market (NAM). For this purpose, the Department of Agriculture and Cooperation (DAC) is constantly in dialogue with states and UTs to carry out reforms in Agri Market Laws.
    • These reforms include, doing away with the concept of market area and enforcing single license which is valid across the state, single point levy of market fee and electronic auction as a mode of price discovery.
    • The DAC has also advise the States on taking fruits and vegetables out of the preview of APMC Act
    • With a view to enable a national market, it is proposed to use the Agri-Tech infrastructure to create a centrally provided common e-platform which will be deployed across the country.
  • National Gokul Mission:
    • It is an initiative under ‘National Programme for Bovine Breeding and Dairy development’ (NPBBDD). It has been launched to conserve and develop indigenous bovine breeds in a focussed and scientific manner.
    • For this purpose, integrated cattle development centres named as ‘Gokul Grams’ will be developed. Gokul Grams will acts as Centre for Development of Indigenous Breeds and a dependable source for supply of high genetic breeding stock.
  • Atal Pension yojana:
    • Under this scheme, farmers who have opened their bank account under the Jan-Dhan Yojana, can get benefits of monthly pension.
    • The scheme is applicable for citizens between the age group of 18 and 40 years.
  • Pradhan Mantri Fasal Bima Yojana:
    • The scheme has been launched from Kharif-2016 season in place of existing National Crop Insurance Scheme, which has some shortcomings like-
      • High premium for the farmers,
      • Reduced claims due to capping in premium,
      • Delay in payment of claims, its complex provisions etc.
    • Main features of PMFBY are:
      • The maximum limit of the farmers’ share of premium as token premium is capped at 2 per cent for Kharif crops, 1.5 per cent for Rabi crops and 5 per cent for annual commercial/horticultural crops. Remaining amount will be borne by the Government
      • Uniform premium for the crop in the country against the earlier different premium in different districts.
      • Claims on full sum insured.
      • Enhanced coverage of risks-coverage of additional risks of inundation risks, risks of post harvest losses.
      • Target to double the agri insurance coverage from 23 per cent to 50 per cent in 2 to 3 years.
      • Localised assessment at individual farm from area approach.
      • Use of technology like mobile, satellite etc in the accurate assessment of loss and early payment
  • Challenges in Implementation
    • The deceleration in the agriculture growth rate is mainly due to three reasons:
      • Inputs intensive farming like water and fertilizers.
      • Lack of infrastructural investment.
      • Lack of unified market.
    • The new initiatives by the government aim to redress above problems but there are some challenges which needs to be tackled:
      • To use the scarce resources optimally so that the dictum ‘per drop, more crop’ could be materialised.
      • Centrally sponsored schemes are to be financed as per the restructured way where, the State governments would be more involved in implementation of the scheme. So, success of a scheme depends on the States’ priority to that particular scheme.
      • The centralised approach adopted in the implementation of the schemes in a heterogeneous country with different agro climatic zones is a big challenge. The decentralised approach is needed for better results.
      • The benefits of various schemes are going to the owners of the landholdings and not to the operators (tenants). So tenancy reforms and modernisation of land records is a big challenge.
      • Low banking penetration in rural areas deprive the farmers of the benefits under various insurance schemes which reduces the risks in undertaking various agricultural activities.
      • Agricultural research is very important for the success of lab-to-land programme in the countryside. But agricultural research has been plagued by severe underinvestment and neglect.
      • Rural press, as community communication medium, has a great role to play in creating awareness among people. Hence, the extension and communication wing of different Agricultural Universities and at ICAR need strengthening.
  • Conclusion:
    • Given the significance of agriculture sector in the economy and society, the government of India has initiated several steps for its sustainable development and to enhance the income of the farmers in the country by way of improving soil fertility, improved access efficiency of irrigation, insurance cover to farmers and unified national agriculture market.
    • Different stakeholders have to be involved to put these initiatives into action in a sustainable mode. The challenges mentioned above may be addressed so that the expectations of the people may be fulfilled.

Question: There is a need to think beyond ‘food security’ and give farmers a sense of ‘income security’. In order to achieve it, government is reorienting its interventions in the farm and nonfarm sectors to augment the farmers’ income. Elucidate.

Source: Kurukshetra, June 2016

14 June 2016 K2_CATEGORY IAS Blog

According to industry leaders, high temperatures, dust and the dearth of water are contributing to a significant increase in the cost of operating solar power plants in the country. Shortage of a skilled labour and the hardness of water are amongst the general problems that plants across the country are facing. All the same, dust is proving to be the most detrimental and marring the efficient operation of solar units.

Too hot

We all are attuned to adverse weather conditions and scorching heat, amusingly it does not only trouble us but also impair the functioning of solar panels. Mr. Ashish Khanna, Tata Power Solar Systems CEO and Executive Director, said that “The solar panels that are used are not designed for such high temperatures”. In remote areas with high temperatures, panels do not yield their optimal usage; consequently people do not get required units of power.

According to CARE Credit Research, India ranks among the highest in the world in terms of solar irradiation with an average reading of 5.1 kilowatt hours (Kwh) per square metre. This is higher than Germany (2.9 KwH), Japan (3.65 KwH), the US (4.7 KwH) and Italy (3.8 KwH), all of which have a larger solar installed capacity than India.

Centre has been employing a slew of measures to foster the growth in solar energy, including subsidies for rooftop solar projects and ensuring grid connectivity. Keeping an eye on 100 GW of solar capacity by 2022, government is determined to weed out problems faced by the industry.

Ketan Mehta, CEO of Rays Power Infra, which has about 1,800 MW of plants across eight states in the country said that dust is a problem, especially in Rajasthan, where the dust conditions are really bad and require frequent cleaning around two times a month which increases the operational cost.

Cleaning costs

Cleaning costs are also marring the growth of solar plants. In some states of the country like Rajasthan and Gujarat, frequent cleaning, almost on fortnightly basis is required which leads to increased costs.

Besides the dust, hardness of water is another issue as hard water is not suitable for cleaning so companies have to incur additional cost on reverse osmosis and other technology. Since many large-scale power plants are situated in the interior regions of Gujarat, Rajasthan, Chhattisgarh, Maharashtra, Madhya Pradesh and parts of South India, getting soft water on sites becomes difficult at times.

Thus distillation plants or reverse osmosis has become an absolute necessity for solar plants in order to provide water which can be used for cleaning modules.

The unavailability of a steady water supply further adds to the woes of solar plant operators. 3-4 litres of water are required to clean each module. Availability of water in remote areas is a problem so plant operators have to bank upon tankers.

Rooftop solar

The government is also eyeing on incorporating the still-dormant rooftop solar sector into its target for 2022, which means individual households will also factor in the operational costs of having solar modules on their roofs. Another crippling issue is dearth of skilled workforce, who is essentially required for cleaning and maintenance. To bring in trained workforce from other areas and train them is a costly affair. According to industry experts, higher operating costs and historically low tariffs for solar power could pose a future risk for the industry.