Important Articles from The Indian Express Newspaper September 2020

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1) Monsoon twist-

GS 3- Important aspects of governance, transparency and accountability

CONTEXT:

  1. The southwest monsoon rainfall has been 6.6% surplus so far, farmers have sown 6.3% more area under kharif crops compared to last year.
  2. Retail fertiliser sales during April-August were up 33.6 per cent over the same period of 2019.
  3. With the desert locusts, too, not wreaking havoc (harming) as was initially feared, a bumper kharif harvest seems in the offing (likely to happen).
  4. Earlier, even Rabi crop helped the farm sector grow by 3.4 per cent during April-June amid the overall economy shrinking 22.8 per cent.
  5. But as a story in this newspaper has shown, it isn’t as simple as that.
  6. Yes, the monsoon has been good at an aggregate level and also spatially well-distributed, with only three out of the country’s 36 meteorological subdivisions registering deficient rains.
  7. The problem, though, has been with the temporal distribution.

DAMAGE CAUSED:

  1. This time, the monsoon arrived well in time, leading to aggressive plantings by farmers.
  2. The rains were 17.6 per cent above normal in June.
  3. However, July not only recorded a 9.7 per cent deficit, the whole of Madhya Pradesh, Rajasthan and mainland Gujarat witnessed a dry spell that extended beyond the first week of August.
  4. As a result, the early sown crop experienced significant moisture stress.
  5. But then the monsoon revived, so much as to cause flooding and waterlogged fields in the very same areas.
  6. The soyabean, urad (black gram), chilli and banana crops in MP have suffered large-scale damage from excess rains through the last week of August.
  7. There are similar reports of massive losses to the standing kharif onions in North Karnataka, which normally arrive in the markets from September.
  8. All hopes now are on the new crop of Maharashtra, which will start coming in only towards October-end.

UNCERTAINITY:

  1. In short, while the current kharif season’s production is definitely going to be better than last year’s (which was impacted by the monsoon’s poor first-half performance), how much better remains to be seen.
  2. It is quite possible that the benefits of the 26.6 per cent surplus August rains, plus forecasts of a wet winter from a developing La Nina weather event, would be felt more in the coming rabi season.
  3. But in the immediate run, one can expect prices of onions and maybe pulses to firm up — aided also by festival season demand and a recovery of sorts underway in global commodity markets.
  4. That could test the NDA government’s resolve to stick to its recent reforms of freeing agricultural markets and imposing stockholding limits only in extraordinary situations.

CONCLUSION:

Temporal distribution of rain may be a problem. But government resolve of freeing agricultural markets must not waver.

2) Crisis & safety net-

GS 3- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

TRIVIA:

An exchange-traded fund is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold throughout the day on stock exchanges.

Gsecs are bonds, both short- and long- term, issued by the government of India to raise funds for their expenditure. The government pays a specified coupon or interest rate on these bonds that may be payable annually or semi-annually or for any other specified frequency.

CONTEXT:

In early March this year, the Employees’ Provident Fund Organisation (EPFO) had lowered the interest rate on provident fund savings for 2019-20 to a seven-year low of 8.5%, down from 8.65% the previous year.

LOSSES ON EQUITY HOLDINGS:

  1. On Wednesday, the central board of trustees of the EPFO recommended paying the 8.5% interest in a staggered manner due to “exceptional circumstances arising out of COVID-19”.
  2. According to the recommendation, which will now have to be approved by the Finance Ministry, EPFO subscribers will get 8.15 per cent interest for 2019-20 immediately, while the balance 0.35 per cent or around Rs 2,700 crore will be credited by the end of December, subject to the redemption of its units in exchange traded funds (ETFs).
  3. While in March, when the 8.5% interest was announced, the estimates showed that it would leave a surplus of Rs 700 crore with the fund, the decision now to stagger the interest payment has been driven by the fund’s losses on its equity holdings.
  4. The collapse of the stock market in March owing to uncertainty over the state of the economy due to the spread of COVID-19 and the imposition of the national lockdown, dragged down the fund’s return on equity investments to (-) 8.3% in 2019-20, from 14.7% in the prior fiscal year.

REDUCTION IN SHORT AND LONG TERM RATES:

  1. EPFO subscribers may have to brace themselves for an even lower interest rate this year.
  2. While any reduction in the interest rate is bound to be unpopular with its over 6 crore subscribers, this will be the right decision.
  3. The monetary policy committee of the RBI has cut the benchmark repo rate sharply over the past few months and it is actively intervening in the bond market in order to stimulate economic activity.
  4. There has been a sharp reduction in both short- and long-term rates in the broader economy.
  5. In fact, the 10-year G-sec yield now stands at 6.05 per cent.
  6. Add to that the possibility of continuing stock market volatility due to lingering uncertainty, and proposing a higher interest rate that is not in sync with the conditions in the broader economy will be unsustainable.
  7. In fact, in the past too, the finance ministry is reported to have raised questions over the organisation recommending a high interest rate.

RETURNS:

  1. The EPFO and its subscribers must be mindful that promises of returns higher than yields on government securities will be met through riskier investments such as corporate debt and equities.
  2. In an uncertain economic environment, for an organisation that provides social security for India’s formal workforce, the risks of such exposures can hardly be emphasised enough.
  3. In the past, too, the EPFO has been questioned over its exposure to risky entities such as the IL&FS.
  4. The organisation thus must seek to minimise the risk for its subscribers, and align itself more closely with the overall interest rate scenario in the economy.

CONCLUSION:

In uncertain environment, EPFO must align itself with interest rates in broader economy, avoid risks.

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