The Hindu Notes – 19th September 2018 – Read Important Issues

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The Hindu Notes for 19th September 2018

Ten years on, in uncharted waters

The crises in emerging economies show how vulnerable they remain to the vagaries of U.S. economic policy

Economists thrive on crises. The East Asian crisis of 1997 caused a rethink on full capital account convertibility and fixed exchange rates. The Internet bubble and bust of the early 2000s led many to question the impact of new technology on long-term productivity growth. The scandals in the corporate world through the 2000s in the U.S. provided grist for a fresh debate on corporate governance.
None of these was any match for the opportunities for cerebration created by the financial crisis of 2007. The crisis, which peaked in early September 2008, occasioned an enormous outpouring of scholarly papers, articles and books on the causes of the crisis and the lessons to be learnt. Have these made the world any safer? Unlikely, as we shall see later.
Centred in regulation failure
The crisis of 2007 had multiple causes. Global macroeconomic imbalances, a loose monetary policy in the U.S., the housing bubble in the U.S. again and elsewhere, a bloated financial sector, a flawed belief in efficient markets, greedy bankers, incompetent rating agencies — these and others have been identified as among the villains of the crisis. All of them undoubtedly contributed their part. But each has happened before without on its own bringing on a global economic crisis.
Most of the blame for the implosion of the financial sector in 2007-08 lies elsewhere — in a failure of regulation. This failure manifested itself in several ways. One, banks were allowed extraordinarily high levels of debt in relation to equity capital. Two, banks in the advanced economies moved away from the business of making loans to investing their funds instead in complex assets called “securitised” assets. The securitised assets consisted of bundles of securities derived from sub-prime loans, that is, housing loans of relatively higher risk.
The switch from loans to securitised assets had enormous implications for banks. With a loan, losses are recognised over time. In contrast, investments are ‘mark to market’, that is, losses or gains on these have to be recorded instantly. As housing prices started falling and the securitised assets lost value, it translated into enormous losses for banks.
These losses eroded bank capital and created panic among those who had lent funds to banks. The lenders to banks, it turned out, were not primarily retail depositors but short-term lenders in the wholesale market. This was the third element in the failure of regulation, allowing banks excess dependence on short-term funds.
There were other failures of regulation. Banks had low standards for making housing loans. Bankers’ pay was designed so that it allowed them to take excessive risk. The boards of banks did not exercise adequate oversight.
These failures were not confined to the U.S. They infected banks in Europe and some in Asia as well. These banks were not merely exposed to American assets. As economic historian Adam Tooze has pointed out in a recent book and in an article in Foreign Affairs (September/October 2018), they had financed these assets through large borrowings in the American wholesale market. The sub-prime problem was thus not just an American problem but a problem for large chunks of the global banking system.
As wholesale markets dried up, the Fed provided dollar funds to central banks in Europe and in Asia. Governments everywhere rushed to save their financial institutions. Central banks provided liquidity support to banks. The failure of banks was sought to be counteracted by fiscal and monetary expansion. The loss of jobs and output has been enormous. Various political consequences have unfolded: the Eurozone crisis, Brexit, the rise of nationalism and anti-immigrant policies, the Trump phenomenon in the U.S. and the return of protectionism.
How did such a colossal failure of regulation occur? The problem was ‘regulatory capture’, the ability of financial institutions to influence polices of governments and regulators. Financial institutions are a big source of political funding. There is also the ‘revolving door’ syndrome. Bankers in the U.S. and Europe hop on to jobs in government and regulation. Government officials and regulators land lucrative jobs and assignments with banks.
No accountability
The ‘revolving door’ plays havoc with regulation. It must also explain the total lack of accountability of bankers for the havoc they created. No top banker has been prosecuted or jailed. Instead, banks have paid up hefty fines for assorted violations, the fines coming from the pockets of shareholders.
India has not suffered much on account of the financial crisis. Growth has slowed down to 7% but that is in line with the trend rate over the past two decades. Several prudent policies have helped. India has not embraced full capital account convertibility. It has kept short-term foreign borrowings within stringent limits. India did not open up to foreign banks despite pressure from the U.S. and the international agencies. Foreign banks retreated from overseas markets following the crisis, causing a severe credit crunch in places such as Eastern Europe. India escaped this fate.
Is the world safer from a financial crisis today? The key reform measures have focussed on getting banks to have more equity capital and to reduce dependence on short-term borrowings. The design of executive pay has been changed so as to reduce incentives for taking excessive short-term risk. Some improvements in governance have been effected. These measures have made banks safer than before the crisis but still not safe enough.
Core issues
That is because three issues remain significantly unaddressed. First, the ‘too big to fail problem’ — some banks being so large that they cannot be allowed to fail. Some of the biggest banks in the world have grown even bigger after the crisis. Concentration in banking has increased.
Second, the size of debt in various forms in the world economy. A crucial aspect of the financial crisis was the build-up of private debt, that is, the debt of households and non-financial firms. Two Chicago economists, Atif Mian and Amir Sufi, argued in a well-received book, House of Debt, that the expression ‘financial crisis’ was something of a misnomer. The key driver of the recession in the U.S. was the rise in household debt and the consequent drop in household consumption. This does not negate the view that regulatory failure was the principal cause. It only means that regulation must address growth in credit as well as the flow of credit into sectors such as real estate.
In the years following the crisis, private debt has fallen but government debt and corporate debt have risen. The former head of the U.K.’s Financial Services Authority, Adair Turner, says that total debt — government, corporate, and household — as a percentage of GDP is higher than ever before (Financial Times, September 11). For the global economy as a whole, the overhang of debt poses serious challenges.
Third, financial globalisation makes the world vulnerable to U.S. monetary and fiscal policy. From time to time, the U.S. unleashes a flood of dollars at low rates. The world laps up the cheap finance. Then, the U.S. raises interest rates. Other economies find themselves staring at huge debt repayments. Further, the dollar remains the reserve currency of the world. The U.S. can borrow to the hilt but the dollar will not depreciate, it may even appreciate!
The present crisis in emerging economies highlights how vulnerable emerging markets are to the vagaries of American economic policy. The world needs to be weaned away from its dependence on the dollar. Alas, an alternative global financial architecture is nowhere in sight. Economists are free to draw their lessons from financial crises but the world is ultimately shaped by political and business interests, not by economists.

The pointlessness of hashtags

Twitter wars over the label ‘urban Naxal’ do nothing to address the deprivation of marginalised groups

One of the main things that the 21st century will be known for is the formation of what Bruns and Burgess call “ad hoc issue publics” or the formation of selective channels centred on a particular topic. For keyboard knights of every ideological persuasion, hashtags have become a popular, swift and efficient way of marshalling and deploying public opinion. Recently, two hashtags became popular in India — UrbanNaxal and MeTooUrbanNaxal.
About a phrase
For the uninitiated, an “urban Naxal” is apparently a member of the bourgeoisie that sympathises with pro-poor and pro-tribal causes and does so from the relative comfort of middle-class and rich homes and offices. A film-maker, Vivek Agnihotri, used the term in a book titled Urban Naxals: The Making of Buddha in a Traffic Jam, and it has since achieved prominence. In the wake of the detention of five prominent activists and rights workers last month, Mr. Agnihotri asked for people on Twitter to identify urban Naxals. Given that the term was used by the Maharashtra police to detain activists, the term has come to assume automatic criminality if one is identified as an urban Naxal. In response to this, many began using a counter-hashtag, “MeTooUrbanNaxal”, to express solidarity with those charged with being Naxal sympathisers.
This hashtag war begs many questions. First, why are people who work to advance the rights of underprivileged persons (tribal and Dalit) now being identified as dissenters, traitors and criminals? Second, how legitimate are these hashtags, i.e., do both hashtags actually map on to reality? Third, if they don’t map on to reality (as I will argue), then what is their applicability to public debate? Fourth, are these merely wars of idle rhetoric?
My point of intervention in this debate is to identify the pointlessness of wars of rhetoric, especially when the wars are spearheaded by people with an inadequate and casual understanding of ground realities. Both tags, “UrbanNaxal” and “MeTooUrbanNaxal”, are dissociated from facts. Not everyone that leans left, or veers towards liberalism, supports the Communist Party of India (Maoist), although they may definitely care about the poor and the underprivileged. Similarly, not everyone who is a tribal person and hails from Chhattisgarh is automatically a member of the CPI (Maoist). Further, it is highly unlikely that most of those who use either of these hashtags really understand the meaning of the term “Naxal”.
The aim
The ultimate goal of the CPI (Maoist) is state takeover. The Maoists are not secessionist in the traditional sense of the term, that they want their own piece of territory independent of the control of the Indian state (like the Kashmiri insurgents do, or the NSCN-IM once did). The Indian Maoists are secessionist in philosophy but their goal is to re-make the existing Indian state as a communist state. A high-ranking Border Security Force officer stationed in Durg Bhilai once told me during an interview that the “final target of the Maoists is the politician”. I strongly doubt whether most of the bourgeois merrily identifying with Naxalism on Twitter would be comfortable with this ultimate goal if they really knew what it was, and that they were precisely one of the targets of the CPI (Maoist). To be a committed Naxal is to have the wherewithal to battle the state not ideologically but also physically. I again strongly doubt whether those tweeting urban Naxal or MeTooUrbanNaxal would survive a week in the forests of Chhattisgarh, where access to Twitter may be deeply problematic.
Sure, the strength of the Naxals and their commitment to poor tribal groups evokes a romantic ideal of bold and brave soldiers fighting for a just cause. And there is no doubt in my mind that the Maoist movement in India is a product of India’s imbalanced development policies that have heightened exploitation and deprivation of the most vulnerable groups by big capital, and sheer political and economic neglect of the marginalised. However, the Maoist insurgency and the state’s counterinsurgent violence in Chhattisgarh have both been bloody and brutal. In short, while one can understand the reasons why the poor take up arms against the state, and, one can rationalise why the state thinks it should respond with disproportionate force, none of this makes either the Maoists’ violence or the state’s violence in the region morally defensible.

Both hashtags promote a useless debate where not everyone is arguing about the same facts or they are not arguing about facts at all. There are repercussions for replacing meaningful debate with a war of inelegant rhetoric. Twitter, like every other social media platform, encourages the extension of one’s personal ego. It is a platform where people think what they say is valuable even though the thought itself may not possess logic and is not undergirded by fact. Yet the thought acquires legitimacy because it is enslaved as a hashtag and deployed in the service of ideologies and counter-ideologies. In doing so, something that is unreasonable and not factual acquires “truthiness” (to borrow from American television host Stephen Colbert) and becomes a new narrative displacing real fact.
Both sides of this facetious debate do grave injustice to a severe and violent issue that has its roots in systemic deprivation of marginalised groups. Mr. Agnihotri’s call to identify urban Naxals is nothing short of a stupid witch-hunt, but the response to him has been equally dull-witted because it has ended up propping up the very term it was meant to destroy.

‘India’s challenge will be fighting non-communicable diseases’

The Apollo Hospitals chairman on the growth of private health care, Jayalalithaa’s illness, and expectations from the Modi government

As Apollo Hospitals celebrates the 35th anniversary of its founding, the group’s chairman, Prathap C. Reddy, is looking ahead to make the most of the global advances in medical technology rather than choosing to rest on past laurels. In this conversation, Dr. Reddy speaks on the need for increased government spending on health, the right pricing strategies for the soon-to-be-launched Central scheme of Ayushmaan Bharat, and the scope for medical tourism in India. Excerpts:
On the private health-care model
Thirty-five years ago, it [private health care] was never considered as a doable model. It was just the charitable and government sectors that were providing health care. However, India, which did have medical institutions on a par with the best in the world, fell back because of lack of upgradation of infrastructure for over 30 years.
In November 1979, I lost a patient who was only 38 years old. I had referred him to Houston for cardiac surgery and he died because he could not raise $50,000 to go abroad for the procedure. That shattered me. I wondered, how can we bring those facilities to our people, so that they don’t have to pay that price, or keep dying.
At that point, hospitals were not allowed funding from banks. However, after a lot of lobbying, the then Finance Minister, R. Venkataraman, on instructions from Prime Minister Indira Gandhi, gave us an order that allowed us to borrow to set up one hospital — 50% from banks, 50% as a foreign exchange loan. It was later, under Rajiv Gandhi’s premiership, that relaxations came in for hospitals to be funded like any other trade. He also granted tax allowances for health insurance. All this helped us and the industry.
Simultaneously, we need to recognise that the doctor is important, continuous training on the job is essential, in order that he gives the highest calibre of skills to the patient. We have parameters and protocols for patient safety, reduction of morbidity and mortality in place.
Apollo was the first to bring to India international hospital accreditation and certification with Joint Commission International (JCI), and we also helped create the Indian version — the National Accreditation Board for Hospitals and Healthcare Providers. Today, there are 32 hospitals in India with JCI accreditation and 480 NABH-accredited hospitals.
In 2017, the size of the Indian health-care sector was estimated at $160 billion, and is projected to grow to $372 billion by 2023. The hospital sector alone was worth $62 billion in 2017, and is expected to grow to $133 billion by 2023, with the private sector accounting for about 74%. There are around 40-45 million admissions per year in private hospitals in India.
As far as the Apollo group is concerned, we are expanding to Tier 2 cities, and we are now in education, training of doctors, nurses and technicians, the pharma industry, and healthcare insurance too.
On non-communicable diseases
The biggest challenge for India is going to be the imminent explosion of non-communicable diseases (NCDs) — they are going to kill. By 2020, diabetes will raise its ugly head; as of now, China has the highest number of diabetics in the world, but at the rate at which we are going, we are bound to catch up in a few years. We are the cancer capital of the world, the stroke capital, heart disease capital of the world… We don’t need these medals. Young people are collapsing and dying of myocardial infarctions, and the protection that we believed young women had against heart disease seems to be eroding too. Data show that by 2020, NCDs will have disastrous implications, and by 2030, it will be just catastrophic.
There is a World Economic Forum study that says the world will spend $30 trillion by that time [2030] and India’s share of that would be $4.8 trillion. Here, we are battling to raise the health allocation to at least 3% of the GDP from about 1.5%.
But the solution to all of this is early detection and prevention. Cancer, for instance, is no longer a death sentence. I wrote to Prime Minister Narendra Modi, suggesting that in four years it is possible to treat all cases of cervical cancer. Use the Accredited Social Health Activists appointed at each village level to do simple identification [to see] if a woman has cervical cancer and refer her to the Primary Health Centres for therapy.
We are also planning to launch a massive prevention effort, which we will roll out soon.
On the Ayushmaan Bharat scheme which envisages providing government-sponsored health coverage for families across the country based on income criteria
It is a wonderful thing to say the government is giving some protection for you. It is the first attempt by the government to get into a public-private partnership, and we see it as that.
However, what they have promised will require more money than what we are told will be sanctioned. We don’t know, they may allot much more money during the launch and we may be happily surprised.
My concern here is the possibility that standards may go down. There is a particular price point below which whatever interventions you provide, the possibility of losing lives is high.
In the U.S., it used to cost $50,000 for a cardiac surgery. We have now brought it down to $4,000, and Narayana Hrudayalaya [Bengaluru] has brought it down to $3,000. One reason for this is that we do a large number of beating heart surgeries (about 98%) which cost less, and where the recovery is much faster for the patient.
I don’t think we can look at the business side of it if they pay only, say, ₹90,000 for a cardiac surgery. Where do I cut costs? Our results [for cardiac surgery] are on a par with the Cleveland Clinic in the U.S. In fact, for two years running, our Hyderabad hospital had a 100% success rate for coronary bypass surgeries.
We will do some of these surgeries, of course [under Ayushmaan Bharat]. We have an obligation to do some in Delhi. Even here, we’ll do a certain percentage for genuinely poor people.
On price control for coronary stents
Last year the government slashed the rates of coronary stents by a huge percentage. This year, it revised marginally the cap rates for some types of stents.
The government should have given patients some options, even as they reduced the price of stents to give more patients access to them. This has removed the choice that the patient and the doctor used to have, in picking what they think is best, particularly when affordability is not a factor. If a patient has a block and wants us to put in the best stent available in the world, then we should give him that choice. Beyond that, with the depreciation of the rupee, importing stents is hardly viable, with this policy.
On medical tourism
Apollo brought the first medical value traveller to India. Today, over 3.5 lakh persons from over 150 countries visit India every year for treatment. [Data presented in the Lok Sabha earlier this year indicated that the Ministry of Tourism’s estimate was 4.27 lakh people in 2017.] People now know that in India they can get the best quality of care at a mere fraction of the cost they have to pay abroad.
But just as things were going wonderfully well, the government hiked the medical visa fee for patients and attenders. Also, while patients could come in on a tourist visa earlier, they need a valid medical visa to seek treatment in India now. On the other hand, countries such as Singapore, Thailand and Malaysia, more recently even Korea, are trying to woo patients with easy entry formalities.
On the Arumugasamy Commission constituted to conduct an inquiry into former Tamil Nadu Chief Minister Jayalalithaa’s death
It is very clear that we did the very best for the person, not only because she was the Chief Minister, but also because she was very sick. Frankly, during the first 48 hours, we thought her chances were zero. But then she improved and we were able to control the infection. However, she developed a simultaneous heart valve issue, along with respiratory distress. She was not in a position to have surgeries and had several co-morbidities, including diabetes and hypertension.
She had a cardiac arrest in front of the doctor, who did everything immediately to bring her back. Even on the ECMO [to support the heart and lungs], she did not come back. We are competent, and every kind of expert was there at hand to assist in treatment.
On technology in healthcare
Technology has done a lot for healthcare; it has a significant role in the advancements in treating patients. We are currently working on a product that will provide an artificial intelligence-driven clinical protocol to bring out the best outcomes in a patient and make predictions based on clinical inputs fed into it.
As a hospital we have also striven to get the latest technology, sometimes as pioneers. We order products that will be state-of-the-art not when we sign the contract but will be the latest in the market on the day of installation. We are fortunate to have been able to stay with the best in the trade for so long. Our Proton Centre, that will be inaugurated in Chennai at the end of the year, will be one such modern station for treatment of cancers.
Top three requests for Prime Minister Modi
Primarily, take action before the huge tsunami of non-communicable diseases destroys our families and our youth. Look at both prevention and treatment options for all NCDs.
Secondly, provide adequate protection for doctors. Doctors want to do the best for the patient, but sometimes they are in the position of making crucial decisions when the patient is critically ill. If the patient does not make it, then people rampage through hospitals. Protect doctors, and hospitals — treat destruction of hospital property as a non-bailable offence.
Finally, the demand-supply gap in healthcare is still huge; the government should encourage people to establish new infrastructure. We need new hospital beds; now, for instance, we have 1.1 beds per 1,000 people, while the global average is 2.7 and the WHO recommendation is 3.5. We need to work towards increasing that, and increasing the doctor-patient ratio as well.

Celestial misfit

We should accept Pluto as a dwarf planet, though an exceptional one

After years of arguing over whether Pluto is a planet, in 2006 the International Astronomical Union (IAU) voted to remove Pluto’s planetary status. Now some researchers are challenging this decision, citing the manner in which scientific tradition has dealt with the taxonomy of planets. The IAU, in 2006, designated Pluto a ‘dwarf planet’ along with Ceres in the asteroid belt and Xena, an object in the Kuiper belt, which is an icy ring of frozen objects that circle the solar system beyond Neptune’s orbit. It was a bid to overcome sentiment and go by scientific rationale. The meeting defined three conditions for a celestial object to be called a planet: one, it must orbit the Sun; two, it should be massive enough to acquire an approximately spherical shape; three, it has to ‘clear its orbit’, that is, be the object that exerts the maximum gravitational pull within its orbit. Owing to this third property, if an object ventures close to a planet’s orbit, it will either collide with it and be accreted, or be ejected out. However, Pluto is affected by Neptune’s gravity. It also shares its orbit with the frozen objects in the Kuiper belt. Based on this, the IAU deemed that Pluto did not ‘clear its orbit’. Dwarf planets, on the other hand, need only satisfy the first two conditions.
This rationale has been questioned by Philip Metzger, a planetary physicist who has worked with the U.S. National Aeronautics and Space Administration, and others who have studied the history of classifying planets and come up with several exceptions to the third rule. In a paper published in the journal Icarus, they point out that the only work in history that used this rule to classify planets was an article by William Herschel in 1802. They also argue that this work was based on reasoning and observations that have since been disproved. However, the last argument does not build up a strong enough case to give up what is, in fact, a sensible rule. Physics has many examples where an idea was once discarded for being incorrect, and much later emerged in a different form and gained acceptance — the concept of photons, for instance. And then again, if Pluto were to be re-designated a planet, many more complications would arise. For one thing, Charon, Pluto’s moon, is much too large to be called a satellite. Judging by this, the Charon-Pluto system should then rightly be called a binary planet system. This would then lead to classifying several other sets of bodies as binary planets. Recent research shows that both the Kuiper Belt and the Oort cloud, a shell of objects that surrounds the entire solar system far beyond the Kuiper belt, contain objects that can then be called planets, thereby complicating the issue. Denying planetary status to Pluto is then nothing less than a sweep of Occam’s razor, and Pluto remains a dwarf planet, albeit an exceptional one.

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