Daily PT Capsule Mar 7-8

Here is your daily dose of current affairs!

Germany to help with three Smart Cities

State Secretary Gunther Adler of the German Ministry of Environment and Nuclear Safety, announced that Kochi, Bhubaneswar and Coimbatore would be the first three cities to receive Germany’s support under the Smart City project.

Germany’s expertise could be used at smart planning for urban centres. Germany with the help of its companies would provide technology to make life in cities easier.

Analysis

What is a Smart City? –  A city equipped with basic infrastructure to give a decent quality of life, a clean and sustainable environment through application of some smart solutions.

A few of the features of a smart city are assured water and electricity supply, sanitation and solid waste management, efficient urban mobility and public transport, robust IT connectivity, e-governance and citizen participation, safety and security of citizens.

What is the Smart City strategy of India? – The strategic components of area based development in the Smart Cities Mission are of four types.

1) Retrofitting will introduce planning in an existing built up area to achieve smart city objectives, along with other objectives, to make the existing area more efficient and liveable. In retrofitting, an area consisting of more than 500 acres will be identified by the city in consultation with citizens.

2) Redevelopment will effect a replacement of the existing built up environment and enable co-creation of a new layout with enhanced infrastructure using mixed land use and increased density. Redevelopment envisages an area of more than 50 acres, identified by Urban Local Bodies (ULBs) in consultation with citizens.

Eg. East Kidwai Nagar in New Delhi being undertaken by the National Building Construction Corporation.

3) Greenfield development will introduce most of the Smart Solutions in a previously vacant area (more than 250 acres) using innovative planning, plan financing and plan implementation tools (e.g. land pooling/ land reconstitution) with provision for affordable housing, especially for the poor.

One well known example is the GIFT City in Gujarat.

4) Pan-city development envisages application of selected Smart Solutions to the existing city wide infrastructure. Application of Smart Solutions will involve the use of technology, information and data to make infrastructure and services better. For example, applying Smart Solutions in the transport sector (intelligent traffic management system) and reducing average commute time or cost of citizens will have positive effects on productivity and quality of life of citizens.

Source: TheHindu, SmartCities.gov

Case of Money Laundering against Vijay Mallya

The Enforcement Directorate has registered a money-laundering case against Vijay Mallya and the CFO of Kingfisher Airlines A. Raghunathan in connection with the CBI’s probe into the alleged default of a Rs. 900-crore loan in collusion with IDBI officials. The ED is pursuing the case under the Prevention of Money Laundering Act to trace the transactions pertaining to a suspected diversion of funds.

In a case investigated by CBI it has alleged that the loan was sanctioned and disbursed to the company in violation of banking rules.

A preliminary enquiry into the allegations was initiated about four years ago. The agency found that bank officials “colluded” with Kingfisher Airlines’ promoters or directors and the chief financial officer to sanction the loan despite an adverse internal audit report highlighting the risks involved.

In fact, the firm had defaulted on repayment of loans from a consortium of 17 banks, of which IDBI was a part. The company owed about Rs.7,800 crore to the State Bank of India-led consortium.

Analysis

What is ED? – Directorate of Enforcement is a specialized financial investigation agency under the Department of Revenue, Ministry of Finance, Government of India, which enforces the following laws

a) Foreign Exchange Management Act,1999 (FEMA) – A Civil Law, with officers empowered to conduct investigations into suspected contraventions of the Foreign Exchange Laws and Regulations, adjudicate, contraventions, and impose penalties on those adjudged to have contravened the law.

b) Prevention of Money Laundering Act, 2002 (PMLA) – A Criminal Law, with the officers empowered to conduct investigations to trace assets derived out of the proceeds of crime, to provisionally attach/ confiscate the same, and to arrest and prosecute the offenders found to be involved in Money Laundering.

Source: TheHindu, EnforcementDirectorate.gov

Email Inventor Dies at age of 74

Ray Tomlinson, the U.S. programmer credited with inventing e-mail in the 1970s and choosing the “@” symbol for the messaging system, died at the age of 74. Mr. Tomlinson invented direct electronic messages in 1971. Before his invention, users could only write messages to others on a limited network.

Source: TheHindu

Great Indian Bustard spotted

A group of wildlife enthusiasts have spotted Great Indian Bustard on the banks of the Tungabhadra in Karnataka’s Sirguppa taluk. The semi-arid and arid grasslands in the interiors of Sirguppa taluk could potentially be a perfect habitat for the Bustard. However, the expanse of irrigation networks has seen the habitat shrinking through the years.

Analysis

What is the status of Great Indian Bustard? – The Great Indian Bustard is a bustard found in India and the adjoining regions of Pakistan. A large bird with a horizontal body and long bare legs, giving it an ostrich like appearance, this bird is among the heaviest of the flying birds. Once common on the dry plains of the Indian subcontinent, as few as 250 individuals were estimated in 2011 to survive and the species is critically endangered by hunting and loss of its habitat, which consists of large expanses of dry grassland and scrub. These birds are often found associated in the same habitat as blackbuck.

Source: TheHindu, Wikipedia

Rethinking Fiscal Deficit

The Finance Minister in his budget speech made a statement that “There is a suggestion that fiscal expansion or contraction should be aligned with credit contraction or expansion respectively, in the economy.”

In the light of this statement the Finance Minister has proposed to set up a committee to look into the FRBM Act and the fiscal target of 3% set by it.

Analysis

What is the FRBM Act? – Fiscal Responsibility and Budget Management (FRBM) became an Act in 2003. The objective of the Act is to ensure inter-generational equity in fiscal management, long run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operation of the Government.

The Government notified FRBM rules in July 2004 to specify the annual reduction targets for fiscal indicators. The FRBM rule specifies reduction of fiscal deficit to 3% of the GDP by 2008-09. However the global financial crisis led to breach of the target of 3% for fiscal deficit.

The target year has been shifted to 2017-18.

Correlation between credit expansion and fiscal deficit? – The logic of correlation between credit expansion and fiscal deficit has five sequential limbs. One, money is the blood of economic growth. Two, most money that fuels the economy is created by banks, not by government. Three, banks and financial institutions fund business and others, and it is that credit money which drives the economy. Four, if, for whatever reason including lack of business confidence, the bank credit to the economy does not adequately grow, like it did not in the last few years, economic growth will suffer for want of adequate money. Five, that is when the Budget needs to step in, to pump money into the economy by incurring deficit (spending more than the income), and, for the purpose, borrow the money lying with banks or even by printing more money, if that is needed. The fifth limb ensures that growth does not decelerate for want of enough money circulating in the economy. Otherwise, it will. The FRBM law has ignored the fourth and fifth limbs of the logic and fixed the 3 per cent fiscal deficit as inviolable.

How was the 3% limit decided? – The magic number made its debut in the famous Maastricht Treaty to form the European Union (EU) in 1992. The treaty prescribed four criteria which EU members had to comply to be eligible to adopt the Euro as the common currency. One criterion was the 3 per cent fiscal deficit limit — the others being limits on inflation, long-term interest rates and public debt. EU members like Greece and Italy were operating on high fiscal deficits while Germany and France had much lower numbers. In the tussle between prudent and profligate EU members, the limit emerged as a negotiated rate after give and take.

The explanation for coming up with the 3% limit for India was that the time-series household financial savings of India plus external savings was 13 per cent; out of that, 5 per cent would “go” to private sector corporates; of the balance 8 per cent, 2 per cent would “go” to public sector undertakings, “leaving” 6 per cent for Central and State governments to be shared between them (50:50), that is 3 per cent each, to fund their deficits.

Global theories on Deficit financing – The economic debate on the money-growth link dates back to the Great Depression of the 1930s. While the celebrated Nobel laureate, Milton Friedman, talked about inadequate money supply as the cause of the Great Depression, James Tobin pointed to inadequate demand for money (credit) as the cause. That is even if there is money, a lack of business confidence or high interest may reduce the demand for money. There is no doubt that both — lack of money supply as well as lack of demand for credit — weaken growth. From 2012-13 to now, i.e. 2015-16, the Indian economy seems to have been experiencing both the Milton and Tobin effects — shrinking money expansion and credit demand shrinking even faster.

What does it mean for India? – There is a need to Align the monetary and fiscal economies. If bank credit growth falls, fiscal deficit may need to go up. If bank credit growth rises, fiscal deficit should reduce. This is particularly true for a growing economy like India. Had the fiscal deficit not been above the FRBM ideal limit of 3 per cent in the last four years, the growth would have suffered even more.

Source: TheHindu Editorial

Consolidation of Public Sector Banks

At the ‘Gyan Sangam’ a bankers’ meet the idea of bank consolidation was discussed. Top finance ministry officials, bankers and Reserve Bank of India (RBI) officials were present during the discussions.

The Bank Board Bureau headed by former Comptroller and Auditor General (CAG) Vinod Rai, which was recently formed to select chief executives and board members of public sector banks, will also help in the consolidation process.

The financial performance of public sector banks reflected a sharp deterioration after the RBI conducted an Asset Quality Review (AQR). During the review, the central bank’s inspectors found that many accounts, which ideally should have been treated as non-performing, were not classified so by the banks. The RBI then directed the banks to classify those accounts as non-performing and provide accordingly during the October-December and January-March quarters.

Analysis

What are the anchor banks? – The government will identify six to ten public sector banks which will drive the consolidation process among the state-owned banks. These banks will be the anchor banks. Large lenders like State Bank of India (SBI), Bank of Baroda (BoB), Punjab National Bank (PNB) and Canara Bank could become the anchor banks.

There are 22 public sector banks in the country apart from five associate banks of State Bank of India. Merger between the banks will be based on geographical and technological synergies, human resources and business profile, among others.
Source: TheHindu

Take the Quiz below to know your preparation Level!