Daily UPSC Mains Question – July 13/2020

GS – 3

Financial sector is the fulcrum of government’s economic revival plan. Explain in detail about the unclogging credit and the fixing it requires.150 Words

In the News:

• The trend of lock down undermines economic recovery. Also, it makes policy making difficult. It’s in this backdrop that we must locate observations on the financial sector as it is the fulcrum of the economic revival package announced by the centre.

Economic impact:

• RBI believes that the economic impact of Covid-19 may result in an increase in bad loans. Overall bad loans of commercial banks were 8.3% of advances at the end of March 2020 against 9.1% a year earlier.
• If there is an increase from this level, government as the primary shareholder in the banking system needs to think of ways to infuse more capital. It’s important for government and RBI to work harmoniously to get the financial system working better.
• The weakness here acted as a drag on the economy even before Covid-19. The fallout of the pandemic comes at a time when it is already shaky. But unless the financial sector weathers the storm, India is unlikely to witness a meaningful economic recovery.

Charting a new course:

• The financial sector today is very risk averse when lending and parts of it are dealing with reputational damage when it comes to mobilising savings. Two reforms are needed to deal with these challenges.
• Governance reforms in financial firms are necessary to both improve the capital allocation process and avoid scandals which undermine the confidence of savers. Government, as the major shareholder in 70% of the banking system, needs to play a proactive role.
• Separately, RBI and government need to transition to a better resolution process of distressed financial intermediaries – although it’s not prudent to experiment now with measures which can spook savers. We are in a situation which has no precedent. It requires government and RBI to chart a new course.

China has cultivated influential friends and they are by no means confined to those who still wave a red flag. Explain in detail about how Indo-China engagement in the present context.250 Words

In the News:

• For the past two decades at least, there has been a debate in India over how to view China: as a competitor or an adversary. The emergence of a national consensus has been marred by internal political calculations.
•  China has set its sights on overtaking the United States as the number one global power and considers India to be at best an Asian irritant. The culture of “expansionism” is tantamount to India punching above its weight.

Daunting challenges before India:

• There is a policy prescription that it is futile for India to resist the emergence of a unipolar Asia, and that it is best to negotiate the terms of honourable subordination with Beijing. Although this is never stated explicitly, this ‘Vichy mentality’ is discernible.
•  It has been craftily masqueraded in the assertion that the Belt and Road doctrine is a meaningful alternative to West-dominated globalisation and promises a ‘community of shared destiny’; that with a hostile Pakistan in the western border, India must avoid a second front at all costs; and that pan-Asian resurgence is a loftier goal than intransigence over fuzzy borders.
• From the Bandung Conference to the 1962 war, Jawaharlal Nehru’s China policy was centred on a misplaced faith in pan-Asian solidarity.

Eye on kickbacks:

• China has cultivated influential friends and they are by no means confined to those who still wave a red flag. It is a testimony to China’s successful global soft power outreach that hegemonic designs have been cast in a benign garb.
• The China lobby is formidable and more varied than anything the Soviet Union was able to build during the Cold War.
• It is prudent to acknowledge that a lone struggle by India against a rampaging China would have made limited headway. Fortunately, in the wake of Covid-19, there is greater global appreciation of the fact that China has gone too far.
• The West may be in decline and the centre of economic power may be shifting eastwards, but it is still resourceful enough to mount a fight back. Now India must shape its diplomacy and economic outreach to align with all those who cherish prosperity with democracy and national independence.