What to Read in Indian Express Editorial( Topic and Syllabus wise)

Editorial 1: Let the Money Flow

Context: The case for easing banking regulations in India.

 

Introduction: India’s GDP is expected to grow from $3.7 trillion in 2023-24 to $7 trillion in 2030-31, which will be fuelled by building on the strong foundation that has already been laid through sound fiscal and monetary policies and world-class physical and digital infrastructure.

 

Requirements: Financing India’s capex will require higher savings. The investment required for a $7-trillion economy will be approximately $2.5 trillion, which translates to an investment-to-GDP ratio of 34 per cent.

 

Savings and Investment Landscape in India

• Key Challenges
  1. Government Deficits: Limits public investment capacity.
  2. Private Sector Surplus: Corporates and households are net savers, but private investment is declining.
     • Investment-to-operating cash flow ratio for listed firms dropped to 56% in 2023-24 from 114% in 2008-09.
  3. Reasons for Low Private Investment:
     • Lack of confidence in future demand.
     • Geopolitical uncertainties.
• Need for Incentives
  1. Personal savings and overseas investments must be encouraged.
  2. Overseas capital flows remain muted.

 

Financial Intermediation and Credit Allocation

• Corporate Sector: Utilizes surplus, equity markets, bond markets, and bank credit.
• MSMEs: Underrepresented in credit allocation.
• Banking Sector Trends
  1. Banks receive only 40% of household savings (down from 50%) as consumers shift to pension funds and mutual funds.
  2. Regulatory preemptions reduce lendable resources.
     • Statutory Liquidity Ratio (SLR): 18% regulatory requirement, but banks hold up to 26%.
     • Cash Reserve Ratio (CRR): 4% of deposits.
     • Liquidity Coverage Ratio (LCR): Banks maintain 115% to avoid breaches.
  3. Impact: Higher lending rates due to reduced lendable resources.

 

Regulatory and Policy Challenges

• LCR and SLR Overlap
  1. Globally, only LCR exists, while India has both LCR and SLR.
  2. Need to examine the necessity of both.
• Priority Sector Lending (PSL)
  1. PSL requirements exceed 60%, but the framework is outdated.
  2. PSL pricing should reflect credit risk, not just target pressures.
• Cash-Flow-Based Lending
  1. Transition to risk-based pricing is essential to include underserved populations.
  2. Supervision using AI and technology can improve efficiency.

 

Liquidity Management and Market Development

• Government Cash Management: Government surpluses parked with RBI reduce systemic liquidity.
• Rupee Defence: Defending the rupee during dollar strength leads to liquidity reduction and an overvalued currency.
• Credit-to-Deposit Ratio: Needs re-evaluation to align with funding requirements.

 

Technology and Social Responsibility Costs

• Technology Spending
  1. Global banks spend 9% on technology, outpacing revenue growth (4%).
  2. Indian banks spend around 5% on technology.
• Social Responsibility Costs
  1. Examples: Free UPI transactions, network cost recovery, and other charges.
  2. Need to align with international practices for reasonable charges.

 

Government Bond Market and Derivatives

• Government Bond Market
  1. India ranks third in emerging markets but has only a 3% share in global indices (compared to Indonesia’s 14.5%).
  2. Easing regulations could boost market development.
• Derivatives Market
  1. Liquidity is adequate in the cash market but insufficient in derivatives.
  2. Regulators (IRDAI, PFRDA, SEBI) should encourage large investors to use derivatives alongside cash instruments.

 

Way Forward: Recommendations for Sustainable Growth

• Improve Financial Intermediation Efficiency
  1. Reduce regulatory preemptions (LCR, SLR, CRR).
  2. Encourage risk-based pricing and cash-flow-based lending.
• Boost Private Investment
  1. Address demand uncertainty and geopolitical risks.
  2. Incentivize savings and overseas investments.
• Modernize PSL Framework: Align PSL requirements with current GDP composition and priorities.
• Enhance Market Liquidity
  1. Lower preemptions for government securities.
  2. Promote derivatives market development.
• Adopt Global Best Practices: Review international practices for technology spending and service charges.

 

Conclusion: India needs significant investment and efficient financial intermediation to become a $7 trillion economy by 2030-31. Addressing regulatory overlaps, incentivizing private investment, and modernizing frameworks like PSL are critical. Additionally, improving liquidity management, promoting market development, and adopting global best practices will be key to sustaining growth and ensuring financial stability.

Editorial 2: Turning Point, Cutting Edge

 Context: A turning point for innovation in India.

 

Background: Historical Context of Science and Technology in India

• Early Focus on State-Led Initiatives
  1. Post-independence, India prioritized science and technology (S&T) through government-led institutions.
  2. Examples: Tata Institute of Fundamental Research (TIFR) and Bhabha Atomic Research Centre (BARC) were brought under government control.
  3. Achievements: Successful nuclear test in 1974.
• Shift in Perspective
  1. Over time, the limitations of centralized, government-driven innovation became apparent.
  2. Need for a more comprehensive, all-of-society approach to S&T policy.

 

The Need for Intellectual Capabilities Across Society

• Current Challenges
  1. Intellectual capabilities are concentrated in government organizations like ISRO, limiting broader societal impact.
  2. Need for knowledge dissemination in private firms and universities to drive innovation and GDP growth.
• Global Examples
  1. France: Defence research is conducted in private firms with government funding.
  2. USA: 80% of NASA’s budget is contracted to private firms and universities (e.g., Jet Propulsion Laboratory at Caltech).
  3. China: Private sector innovation (e.g., DeepSeek) demonstrates the potential of private-led R&D.
• Indian Context
  1. Pride in ISRO’s achievements (e.g., lunar missions) should extend to private sector contributions.
  2. Greater societal gains when knowledge resides in private organizations and feeds into the economy.

 

Foundations of a New Science Policy Paradigm

• Key Recommendations from Recent Research
  1. A December 2024 paper proposed shifting taxpayer resources to private firms and universities for R&D.
  2. Emphasized the importance of public-private partnerships and contracting-out models.
• Advantages of Contracting-Out
  1. Risk Management: Multiple private entities can explore different research pathways, reducing the risk of failure.
  2. Efficiency: Private firms have a vested interest in successful outcomes, leading to better execution and knowledge spillover.
  3. Economic Impact: Publicly funded research in private firms can drive innovation and global competitiveness.

 

Recent Developments in Indian Science Policy

• Anusandhan National Research Foundation (ANRF)
  1. Aims to allocate Rs 2,800 crore annually for early-stage research in private organizations.
  2. Represents a shift towards funding private-led innovation.
• Budget Allocation for Private Sector R&D
  1. Rs 20,000 crore allocated in the 2024 budget for private sector-driven research and innovation.
  2. Marks a significant milestone in India’s science policy.
• ISRO’s New Approach: Plans to purchase launch vehicles from private firms, fostering cutting-edge engineering and civilian applications.
• MEITY’s GPU Initiative
  1. Procured 18,693 GPUs for private IT infrastructure firms.
  2. Researchers in private organizations can access GPUs at $1 per hour, promoting AI knowledge and innovation.

 

Implementation Challenges and Solutions

• Key Challenges
  1. Research funding is inherently risky, with no guaranteed outcomes.
  2. Unlike routine procurement, R&D contracts require flexible and innovative evaluation mechanisms.
• Proposed Solutions
  1. Legal Reforms: Update legal frameworks to support contracting-out models.
  2. Strategic Public Finance: Align funding mechanisms with long-term R&D goals.
  3. Project Planning: Develop robust frameworks for monitoring and evaluating research outcomes.

 

Way Forward and Conclusion

• 2025 will shape up as an important turning point for Indian science policy.
• The Indian state is rising out of the concept of using public money to hire researchers who are civil servants, to the concept of delivering public money into private universities and firms where cutting-edge knowledge is produced. 
• This is greater bang for the taxpayer’s buck, as opposed to vertical government science organisations.