Current Affairs for UPSC IAS Exam – 11 August 2020

Contents

1. Hong Kong Stopover Leaves MNCs in India Stranded
2. SC Questions Spectrum Sale by Ailing Telcos
3. Naga peace talks hit bump over Governor’s letter
4. ‘Loan recast to aid small firms, retail borrowers’
5. India’s imports from China rise

HONG KONG STOPOVER LEAVES MNCS IN INDIA STRANDED

Focus: GS-III Indian Economy

Why in news?

New government procurement rules (apparently targeted at Chinese companies) is affecting multinationals using regional headquarters in Hong Kong to set up operations in India or do business in India.

How has the government changed the procurement rules?

• The Government of India amended the General Financial Rules 2017 to enable imposition of restrictions on bidders from countries which share a land border with India on grounds of defence of India, or matters directly or indirectly related thereto including national security.
• As per the Order any bidder from such countries sharing a land border with India will be eligible to bid in any procurement whether of goods, services (including consultancy services and non-consultancy services) or works (including turnkey projects) only if the bidder is registered with the Competent Authority.
• The Competent Authority for registration will be the Registration Committee constituted by the Department for Promotion of Industry and Internal Trade (DPIIT).
• Political and security clearance from the Ministries of External and Home Affairs respectively will be mandatory.
• The Order takes into its ambit public sector banks and financial institutions, Autonomous Bodies, Central Public Sector Enterprises (CPSEs)and Public Private Partnership projects receiving financial support from the Government or its undertakings.

Current Situation

• The move was largely seen as targeted against China, coming in the wake of border tensions – and by extension – the rules apply to Hong Kong since China controls the territory.
• India may relax curbs on imports of tyres by excluding top-end ones that are used in high-end luxury cars and bikes and are not produced in the country.
• Industry has sought clarification on whether these provisions applied even to entities that have no investment from either Hong Kong or China, but merely have an office in the territory through which business or investment is routed to India.

-Source: Economic Times

SC QUESTIONS SPECTRUM SALE BY AILING TELCOS

Focus: GS-III Indian Economy

Why in news?

The Supreme Court has questioned the sale of spectrum by bankrupt telcos (Telecommunication Companies) Reliance Communications and Aircel, and sought to know from the government how it plans to recover Rs. 43,000 crores of AGR dues from these companies if all their assets were sold off in the interim. (These AGR dues are over and above other statutory dues.)

Details

• The observations came after the Supreme Court bench pointed out that though the government had filed an appeal against concurrent decisions of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) — allowing some of the ailing telcos to monetise all assets, including spectrum, to pay off creditors — a hearing on the issue was awaited.
• Under the Insolvency & Bankruptcy Code (IBC), financial creditors such as banks get precedence over operational creditors during recovery of dues.
• As an operational creditor, the government will not be able to recover AGR dues in the resolution proceedings.
• No contingency provisions have been made either by the companies or the committee of creditors (of the bankrupt telcos) for AGR dues.

The AGR Issue – Timeline

• The telecom sector was liberalised under the National Telecom Policy, 1994 after which licenses were issued to companies in return for a fixed license fee.
• To provide relief from the steep fixed license fee, the government in 1999 gave an option to the licensees to migrate to the revenue sharing fee model.
• Under this, mobile telephone operators were required to share a percentage of their AGR with the government as annual license fee (LF) and spectrum usage charges (SUC).
• License agreements between the Department of Telecommunications (DoT) and the telecom companies define the gross revenues of the telecom companies.

The Contention on Definition of AGR – 14 years on

• In 2005, Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation.
• However, DoT argued that AGR includes all revenues from both telecom and non-telecom services.
• The companies claimed that AGR should comprise just the revenue accrued from core services and not dividend, interest income or profit on the sale of any investment or fixed assets.
• In 2015, the TDSAT (Telecom Disputes Settlement and Appellate Tribunal) stayed the case in favour of telecom companies and held that AGR includes all receipts except capital receipts and revenue from non-core sources such as rent, profit on the sale of fixed assets, dividend, interest and miscellaneous income.
• However, setting aside the TDSAT’s order, in 2019, the Supreme Court of India upheld the Department of Telecom (DoT)’s interpretation of Adjusted Gross revenue (AGR), due to which telecom service providers had to pay an estimated Rs. 1.4 lakh crore to the government.

Impact of the Current Definition

Impact on Telecom Sector

• 10 of the 15 telecos that existed in 2005 have either closed operations or are undergoing insolvency proceedings in the last 14 years.
• AGR due will seriously hurt financial stability of telecom companies that are doing business in the Indian market.
• Telecom equipment suppliers may also go down as their dues will not be paid.

Impact on Banking Sector and Economy

• Banks will face the consequences of the dues as companies will be going bankrupt (non-performing assets will rise).
• The collapse of the telecom sector may increase unemployment, and reduce investment, adding to our economic and social problems.

Effect on consumers

• The failure of a few large players could lead to one or two players emerging near-monopolies.
• This leaves the Indian consumer vulnerable to high pricing, sub-standard products and lack of options.

Government will be the only winner:

• If companies are ready to pay AGR dues, it will lead to a higher contribution to the public exchequer – Meaning the Government revenue will get a huge boost and help bridge gap in the fiscal deficit and help the government finance the recovery of the economy in the current pandemic affected situation. (Note: This scenario is only possible if the companies are ready to pay the dues)

Way Forward

1. If the AGR Dues can be broken in instalments to be paid over the period, then the telecos would be in a better position to pay the dues back, rather than filing for bankruptcy.
2. Since the Supreme Court recognises that there was no willful defiance of the law that is an essential ingredient to attract the levy of penalty, the government can waive off the penalty or at least interest on penalty to reduce the burden on telecos.
3. Alternative dispute resolution (ADR) mechanisms (a variety of processes that help parties resolve disputes without a trial) van be explored by the government.
4. Facilitating shared infrastructure by the government with policies and legislation will be able to help out the telecos.

-Source: Economic Times

NAGA PEACE TALKS HIT BUMP OVER GOVERNOR’S LETTER

Focus: GS-I Indian Society

Why in news?

• The leadership of National Socialist Council of Nagaland (NSCN-IM) held a detailed meeting with two Intelligence Bureau (IB) officials in New Delhi.
• However, the Naga peace talks have hit rough weather over the Governor’s letters.

Details of what spoilt the situation?

• The Governor’s letter to the Nagaland Chief Minister saying “over half a dozen organized armed gangs were brazenly running their respective ‘so called governments’ challenging the legitimacy of the State government” has caused the situation to worsen.
• There was also an order asking government officials to declare if their family members or relatives are members of any “underground organisation.”
• NSCN-IM signed a ceasefire agreement with the Centre in 2001, hence they took offense with the “organized armed gangs” view.
• And also given that in a tribal set-up most people are related to each other, asking government officials to declare regarding their family members was seen as insensitive.

NSCN-IM

• The Isaak Muivah faction of the National Socialist Council of Nagaland (IM), one of the largest Naga groups fighting for an independent Naga homeland.
• They have been engaged in guerrilla warfare against successive Indian administrations since the 1950s.
• One of the main demands of NSCN-IM has been the creation of a sovereign Naga territory that includes Naga-inhabited parts of neighbouring states like Manipur, Assam and Arunachal Pradesh as well as a portion of Burma across the international border, and leaders from those states have long been wary of any accord that would allow the annexation of parts of their land.
• Lack of infrastructure development in the region is one of the perceived reasons for the decades’ long insurgency.
• In 2015, NSCN-IM had entered into an historic Peace Accord (Framework Agreement) with Union government to bring lasting peace in Nagaland.

What is Naga Issue?

• The key demand of Naga groups has been a Greater Nagalim (sovereign statehood) i.e., redrawing of boundaries to bring all Naga-inhabited areas in the Northeast under one administrative umbrella.
• The Naga inhabited areas include various parts of Arunachal Pradesh, Manipur, Assam and Myanmar.
• The demand also includes the separate Naga Yezabo (Constitution) and Naga national flag.

Who are the Nagas?

• The Nagas are not a single tribe, but an ethnic community, belonging to Indo-Mongoloid Family, that comprises several tribes who live in the state of Nagaland and its neighbourhood.
• There are nineteen major Naga tribes, namely, Aos, Angamis, Changs, Chakesang, Kabuis, Kacharis, Khain-Mangas, Konyaks, Kukis, Lothas (Lothas), Maos, Mikirs, Phoms, Rengmas, Sangtams, Semas, Tankhuls, Yamchumgar and Zeeliang.

-Source: The Hindu

‘LOAN RECAST TO AID SMALL FIRMS, RETAIL BORROWERS’

Focus: GS-III Indian Economy

Why in news?

Crisil ratings said that the Reserve Bank of India’s (RBI’s) decision to allow one-time loan restructuring will help soften the COVID-19 pandemic’s impact on banks’ asset quality

Details of what Crisil Said?

• The loan restructuring scheme by RBI the gross non-performing assets will now likely be considerably below the estimated levels (a two-decade high of 11.5% by the end of this fiscal).
• The RBI’s relaxations under the Prudential Framework on Resolution of Stressed Assets will benefit borrowers in most categories.
• This is the first time the restructuring option has been extended to retail borrowers, given that many of them may face challenges in servicing debt owing to salary cuts and job losses.
• Micro, small and medium enterprises have also got a three-month extension in the existing restructuring scheme.
• The major beneficiaries, though, will be the sub-Rs. 500-crore corporate exposures and retail exposures, which were earlier expected to see the highest increase in NPAs in percentage terms.
• The loans at risk of slipping into NPAs this fiscal unless restructured by banks is Rs. 3 lakh crores.

-Source: The Hindu

INDIA’S IMPORTS FROM CHINA RISE

Focus: GS-III Indian Economy

Why in news?

India’s imports from China have risen to $5.6 billion in July 2020, rising for 2 months in a row.

Details

• Although imports from China are still down by almost 25% from 2019, the imports from China have been rising in the past two months.
• India’s imports from China, its largest trading partner in goods, had fallen to a record low in the months of April and May 2020, coinciding with the lockdown.
• However, now they have risen back in the past to month to the pre-lockdown levels.
• The primary reason for the rise according to experts is Chinese exports of medical supplies.
• Two-way trade continues to be heavily tilted in China’s favour, with India’s exports, which are up 6.7% year-on-year.
• The slump in China’s exports to India contrasts with its recovery overall.
• Much of the recent resilience of exports has been due to shipments of masks, medical products and work-from-home equipment.

-Source: The Hindu