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Prelims Booster

13th June – Prelims Booster

IFLOWS Mumbai

Maharashtra’s Chief Minister Uddhav Thackeray and Union Minister for Health and Family Welfare has launched an Integrated Flood Warning System called ‘INFLOWS-Mumbai’ recently.

What is it?

  • IFLOWS is a monitoring and flood warning system that will be able to relay alerts of possible flood-prone areas anywhere between six to 72 hours in advance.
  • The system can provide all information regarding possible flood-prone areas, likely height the floodwater could attain, location-wise problem areas across all 24 wards and calculate the vulnerability and risk of elements exposed to flood.

How will it work?

  • The primary source for the system is the amount of rainfall, but with Mumbai being a coastal city, the system also factors in tidal waves and storm tides for its flood assessments.
  • In the last two years, researchers have been conducting studies to provide real-time weather information by measuring the city’s rainfall, how much water drained out, topography, land use, infrastructure development, population, lakes, creeks and data on river bathymetry of all rivers namely Mithi, Dahisar, Oshiwara, Poisar and Ulhas.
  • The system has provisions to capture the urban drainage within the city and predict the areas of flooding. The system comprises seven modules- Data Assimilation, Flood, Inundation, Vulnerability, Risk, Dissemination Module and Decision Support System.
  • The system has provisions to capture the urban drainage within the city and predict the areas of flooding.

How will it be beneficial for Mumbai?

  • Based on the amount of rain recorded, time, location, topography and forecast, the system is designed to generate flood warnings for specific geographical areas of the city. All this information will then be routed to authorities.
  • The early warning forecast would include alerts on rainfall information, tide levels, storm surge for low-lying areas anticipated to be affected, thereby minimising the damage from cyclones and heavy rain events in Mumbai by evacuating people to safe areas.
  • The system, initially only to be accessed by the civic body will enable them to issue alerts for citizens who can then avoid such zones.

How it came into being?

  • In a bid to aid in the mitigation of the flood prone city, Disaster Management Department of Municipal Corporation of Greater Mumbai (MCGM) approached the Ministry of Earth Sciences (MoES) to develop an Integrated Flood Warning System for Mumbai, on the lines of a similar system developed for Chennai earlier.
  • MoES initiated the development of the flood warning system in July 2019 using the expertise of Indian Meteorological Department (IMD), National Centre for Medium Range Weather Forecasting (NCMRWF), Indian Institute of Tropical Meteorology (IITM) and National Centre for Coastal Research (NCCR), in close coordination with Disaster Management Department of MCGM.

Sahakar Mitra

Sahakar Mitra: Scheme on Internship Programme (SIP) was launched recently by Union Minister for Agriculture and Farmers’ Welfare.

What is Sahakar Mitra scheme?

  • In the series of initiatives by National Cooperative Development Corporation (NCDC), the new scheme called Sahakar Mitra: Scheme on Internship Programme (SIP) will provide the young professionals an opportunity of practical exposure and learning from the working of NCDC and cooperatives as a paid intern.
  • Sahakar Mitra would also provide an opportunity to professionals from academic institutions to develop leadership and entrepreneurial roles through cooperatives as Farmers Producers Organisations (FPO).
  • Sahakar Mitra scheme is expected to assist cooperative institutions access new and innovative ideas of young professionals while the interns gain experience of working in the field giving confidence to be self-reliant. It is expected to be a win-win situation both for cooperatives as well as for the young professionals.
  • Under the scheme, professional graduates in disciplines such as Agriculture and allied areas, IT etc. will be eligible for internship. Professionals who are pursuing or have completed their MBA degrees in Agri-business, Cooperation, Finance, International Trade, Forestry, Rural Development, Project Management etc. will also be eligible.
  • NCDC has earmarked funds for Sahakar Mitra paid internship program under which each intern will get financial support over a 4 months internship period.

About NCDC –

  • The National Cooperative Development Corporation (NCDC) is a statutory Corporation set up under an Act of Indian Parliament on 13 March 1963.
  • The objectives of NCDC are planning and promoting programmes for production, processing, marketing, storage, export and import of agricultural produce, foodstuffs, industrial goods, livestock and certain other notified commodities and services on cooperative principles and for matters concerned therewith or incidental thereto.
  • Functions – Planning, promoting and financing programmes for supply of consumer goods and collection, processing, marketing, storage and export of minor forest produce through cooperatives, besides income generating stream of activities such as poultry, dairy, fishery, sericulture, handloom etc.
  • NCDC will now be able to finance projects in the rural industrial cooperative sectors and for certain notified services in rural areas like water conservation, irrigation and micro irrigation, agri-insurance, agro-credit, rural sanitation, animal health, etc.

Universal Basic Income

In its report on human rights in India, the National Human Rights Commission (NHRC) has informed the United Nations Human Rights Council that the recommended implementation of a universal basic income was “under examination and active consideration” of the Centre.

What is Universal Basic Income (UBI)?

A basic income is an income unconditionally granted to all on an individual basis, without means test or work requirement. It is a form of minimum income guarantee that differs from those that now exist in various European countries in three important ways:

  • It is being paid to individuals rather than households;
  • It is paid irrespective of any income from other sources;
  • It is paid without requiring the performance of any work or the willingness to accept a job if offered.

Main features of UBI –

  • It is Universal and not targeted. In the Indian context, this makes sense because of the less-than-satisfactory experience with targeting welfare services. This would not only be more appropriate; it will also reduce the burden of the bureaucracy in so far as it is engaged in identifying the deserving beneficiaries of any targeted programme.
  • Another important feature is cash transfer in lieu of in-kind transfer. There are standard arguments in favour of cash transfers over in-kind transfers (food stamps or grains provided through the Public Distribution System) as they are supposed to be much less market-distorting than in-kind transfers.
  • UBI is unconditional. Cash transfers are not tied to exhibiting certain behaviour, and the people are free to spend the cash as they want. An example of conditional in-kind transfer in India would be the mid-day meal scheme, where the meal—an in-kind transfer—is conditional upon attending school.

Arguments in favour of UBI –

  • A large proportion of the population in India still lives below the poverty line and a number of government programmes providing subsidies and support to the poor are marred by inefficiencies. There are leakages in the system, and often, people who actually need government support are left out. Therefore, it is argued that Universal Basic Income will overcome these problems by providing a basic income to all citizens.
  • The 2016-17 Economic Survey argued that Universal Basic Income is “…more feasible in a country like India, where it can be pegged at relatively low levels of income but still yield immense welfare gains”.

Arguments against UBI –

  • First, the biggest issue is that India doesn’t have the fiscal capacity to implement Universal Basic Income. For example, the Economic Survey calculations showed that a 75% universality rate with an annual Universal Basic Income of Rs7,620 per year at 2016-17 prices will cost about 5% of the GDP.
  • Second, Universal Basic Income can create distortions in the labour market. A steady, permanent and guaranteed income without any work is likely to affect labour mobility and participation.
  • Third, the nature of Indian politics can create complications. It is highly likely that political parties, in order to improve their chances in elections, would want to increase the amount of Universal Basic Income or try to bring back subsidies in some form or the other, which will have fiscal implications.

Way forward –

  • What India needs is not Universal Basic Income. It needs rationalisation of subsidies, better targeting and operational efficiency. It needs to move to cash transfers at an accelerated pace with the use of Jan-Dhan, Aadhaar and mobile.
  • As history has shown, the best way to pull people out of poverty is sustained higher growth. Therefore, rather than creating permanent doles like Universal Basic Income for the entire population, it is necessary to create conditions for higher growth which will decisively lift people out of poverty.

Bad Bank

Chief Economic Advisor Krishnamurthy Subramanian said recently that unless issues regarding banks taking substantial haircuts on sale of toxic assets were resolved, a bad bank would be of little help in addressing the problems of non-performing assets in the financial system.

What did he say?

There are 28 asset reconstruction companies that are functional. And their job is to take bad loans from banks and act as bad banks. But one key part that needs to be kept in mind is when a bank sells bad loans, it has to take a haircut (i.e. a loss of share). When it takes a haircut, it impacts its balance sheet. And that is one of the key aspects affecting the sale of loans. So, till that is not addressed, creating a new structure may not be as potent in addressing the problem.

What is a ‘bad bank’?

  • A bad bank is a bank set up to buy the bad loans and other illiquid holdings of another financial institution. The entity holding significant nonperforming assets will sell these holdings to the bad bank at market price.
  • When a bank is sitting on mountainous non-performing loans (NPLs), provisions eat into its capital base, slow recoveries hamper its lending and the resulting losses erode depositor confidence — the lifeblood of any bank.
  • When the problem becomes pervasive and too big for individual banks to handle, governments often propose the setting up of a bad bank to buy out all toxic loans from banks.
  • This helps banks get on with business as usual, while the bad bank grapples with recovering the loans or realising cash from selling the underlying assets.

India’s experience –

  • India has toyed repeatedly with the idea of a bad bank to resolve its bad loan mess.
  • In 2017, the Economic Survey suggested Public Sector Asset Rehabilitation Agency or PARA, to buy out the largest NPLs from Indian banks.
  • Recently, in proposing Project Sashakt, a five-point plan to revive Indian banks, the Sunil Mehta panel suggested that a new Asset Management Company (AMC) be set up to tackle mammoth bad loans of over ₹500 crore.
  • The AMC will in turn set up alternative investment funds that will buy up stressed assets in different sectors, from asset reconstruction companies, then try to auction them off to raise cash. However, the global experience with such methods suggest that they often don’t deliver results.

International experience –

  • In 1999, China set up four state-controlled AMCs — Cinda, Huarong, Great Wall and Orient — to mop up bad loans from the country’s ailing banks.
  • In 2012, after teetering on the brink of a payments crisis, Spain set up a bad bank — Sareb — to take over about €50 billion worth of property and loan assets from the country’s ailing banks, with the intention of turning the loans around.
  • But while the bad banks of China and Spain have helped take doubtful assets off the banks’ hands, they themselves haven’t succeeded in fully restructuring these assets or making money off them.
  • China’s AMCs have found restructuring not so lucrative, and have ventured into lending and investing in foreign bonds for profits. Spain’s Sareb has remained a loss-making entity from the word go.

What is the issue here?

When banks offload their non-performing assets to a bad bank, they’ll have to take immediate haircuts on the value they realise from those assets. If they refuse to do so, they’d be stuck with the loans. Also remember that someone has to cough up the capital to fund the AMC. If that someone is domestic banks, we’re back to square one. Hence, the CEA wants the issue of ‘haircuts’ to be resolved first.

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