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Daily News Simplified - DNS

22 04 20 Notes

SL. NO. TOPICS

THE HINDUPAGE NO.

1 Futures shock (Editorial)Why are oil prices in negative terrain?

0610

2 The key strategy is fiscal empowerment of States - Lead Article 06

3 A change in Migrant Policy – Article 07

4 Ill-equipped to deal with a crisis 07

5 ICMR asks States to stop using rapid tests for the next 2 days 01

6 Putting the SAGAR vision to the test – Article 07

Dated: 22-April-2020 DNS Notes

Title 1. Futures shock (Editorial) + Why are oil prices in negative terrain? (The Hindu Pg. No. 06 & 10)

Syllabus Prelims: Economy Mains: GS Paper III - Economy

Theme Shock decline in price of crude oil Highlights

Context: Futures for the West Texas Intermediate (WTI) U.S. crude plunged below zero to touch a historic low of -$40.32 a barrel. A negative price implies that a seller would have to pay the buyer to hold the oil to be supplied. India will be benefited by the fall in oil price as the oil import bill will fall sharply this fiscal year, giving tremendous relief to the government on the external account front.

Before diving into the news analysis, first let us understand what futures mean?

So West Texas Intermediate oil is traded as futures contracts in the New York Mercantile Exchange where traders buy and sell monthly futures such as, for instance, May futures, June futures and so on.

What does futures mean? o The sellers of such futures will have to deliver a barrel of crude oil at

the contracted price in the contracted month just as buyers will have to take delivery at the contracted date.

What was the main reason behind such a fall? What is “speculation”?

o As with all trading in commodities, there’s a huge speculative participation in oil futures trading too.

o So speculators buy and sell contracts with no intention of taking delivery (in the case of buyers) or offering delivery (in the case of sellers) of the physical oil, on the contracted date.

o These speculators have to get rid of their “positions” on the contract expiry date.

o If they fail to do so, they will have to take physical delivery of the crude oil on the contracted date.

So, speculators who did not want to take delivery in May (because most of the world will be under lockdown and hence demand would be at its minimum) proceeded to sell their “positions,” leading to the massive fall in prices.This was because the futures contracts are set to expire today, Tuesday.

What is Cantango trades? So if you look at the prices of futures now. (April 21)

o May oil futures are negativeo June oil futures is at $20.43 a barrel, o November is at $31.66 a barrel.


May June november

-40

-30

-20

-10

0

10

20

30

40

Futures

What Cantango looks like on graph

This is contango which means the spot prices are lower than the futures. This happens when traders expect a surge or rise in demand and value the

commodity higher for the future. Which in this case is obviously due to

o the expectation that Covid will be contained within 3 months. o Traders also expect that storage space may be created as existing

inventory is drawn down. o Countries are increasingly gearing up for filling up their strategic

reserves.o Since the contract expiry for 2, 3 months contracts is still weeks away,

giving speculators that much more time to speculate.

So how are Oil traders and intermediaries responding? They are making the most of this windfall by hiring Very large crude carriers

(with capacity up to 2 million barrels) and filling them with cheap crude and letting it float in ocean.

That is also reflected in historic shoot up in rentals of VLCC (at $72,500 a day, compared to $30,500 a day a year ago)

Why isn’t Brent crude as devastated as WTI? There are many reasons to that:

Superior quality o Brent is a superior grade produced in the North Sea off the British

coast and is the accepted benchmark for this part of the world. Serves larger market (EU + Asia)

o The market that it serves is considerably larger than that of the United States and demand is, therefore, higher. Transporting oil from the U.S. to Asia is not economical thus limiting the scope for the WTI grade.

Brent futures can be settled in cash: o A trader who has bought oil for May delivery is not forced to take

physical delivery of the oil but can settle the contract in cash. o This big difference between WTI and Brent has ensured that Brent

futures will not crash like that of WTI.

How is India benefiting from this price crash? Much needed relief in Import bill:

o The oil import bill will fall sharply this fiscal year, giving tremendous relief to the government on the external account front.


o But this does not mean relief in CAD as merchandise exports from India are also badly hit due to the lockdown in the West.

Built up of Strategic reserve: o India is quietly building up its strategic reserves, taking advantage of

the cheap prices. o India has a capacity to hold over 39 million barrels of oil at its strategic

reserves in Visakhapatnam, Mangalore and Padur, near Udupi. o These are underground salt caverns converted and built to store crude

oil.

What a strategic Petroleum reserve looks like

Strategic Petroleum reserve Locations in India


Personal Notes

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Title 2. The key strategy is fiscal empowerment of States (Lead Article) (The Hindu – Pg. 06)

Syllabus Prelims: Polity & Governance Mains: GS Paper II - Polity & Governance

Theme Need for States to take lead in fight against COVID-19 Highlights

Context: The outbreak of COVID-19 has to be countered by both Centre and States in the spirit of Cooperative Federalism. Public health and Public Order have been placed under the State List under the Indian Constitution and hence the States must take the lead in the fight against COVID-19. The Role of the Centre should be that of enabler, coordinator and facilitator. Such a clear-cut distribution of roles and responsibilities between Centre and States would enable us to put an effective, coordinated and sustained fight against COVID-19. In this regard, this article focuses on 3 inter-related dimensions:

1. Why States should take a lead in fight against COVID-19?2. What are the various constraints before the State Governments?3. What should be done in order to empower the states?

Need for States to take lead in fight against COVID-19Constitutional Responsibilities: The Indian Constitution provides for distribution of roles and responsibilities in accordance with the principle of Subsidiary. According to this principle, subjects should be allocated to that level of government where it can be performed in the most efficient manner. (For Example- Defence has been allocated to Union whereas agriculture has been allocated to State Government). The Schedule VII of the Indian Constitution which provides for Union List, State List and Concurrent List is based on this principle. The Public Health has been allocated to the State Governments since this function can be efficiently performed by them as compared to Central Government. Accordingly, it is the constitutional role of the states to take the lead in its fight against COVID-19.Need for decentralised approach: There is a need to adopt decentralised approach to deal with this pandemic. For instance, there could be staggered lifting of lockdown and easing of restrictions to revive economic activities. Since the states


are aware of ground realities and much closer to people, the states are in a best position to decide the future course of action. The States are better informed to decide the areas and activities where relaxations should be done as the coronavirus curve is flattened. What are the various constraints before the state Governments?The article highlights four constraints before the State Governments to deal with the COVID-19:

Current legal framework Decrease in the Revenue Mobilisation Limit on the Fiscal Deficit under FRBM Act

Current Constitutional and Legal Framework:Constitutional Framework: Public Health is under the State List. The Centre has powers only over preventing the spread of diseases from one State to another (Entry 29 of the Concurrent List).Legal Framework: The Disaster Management Act, 2005 empowers the Centre to take necessary actions for the prevention and mitigation of disaster. The Epidemic Diseases Act, 1897 enables the States to take necessary actions to prevent the outbreak or spread of dangerous epidemic diseases. It limits the Centre’s role to inspecting ships in ports and detaining persons. Problems with the current framework:Problem with Disaster Management Act, 2005: The Parliament has enacted the Disaster Management Act, 2005 by invoking entry 23 in the concurrent list i.e. ‘Social security and social insurance, employment and unemployment’ even though all aspects of crisis management cannot be said to be covered by this entry. This is so because disaster includes natural calamities, health related disasters (epidemics), industrial disasters and disasters caused by hostile elements such as terrorists. Some of the states have also passed their own laws to deal with the disasters. Hence, to avoid this confusion, the Second Administrative reforms commission had recommended that there should be a separate entry of "Management of Disasters and Emergencies, natural or manmade" in the concurrent list. Unlike in other cases of proposals for inclusion in the Concurrent List, State Governments may also welcome this, as this will also enable them to have legislation without ambiguity regarding the entry.Use of the Current legal framework: The Centre has invoked Disaster Management Act, 2005 (DM Act) to impose a blanket lockdown throughout India. Accordingly, sweeping guidelines were issued for state governments to follow. However, even before the DM Act was invoked, several State Governments had used their powers under the Epidemic Diseases Act, 1897 (ED Act) to deal with the Covid-19 outbreak. Although public order and public health are subjects that lie with the States as per the Indian Constitution, the Centre has used the DM Act to effectively bypass States and assume complete control. This indicates a certain friction in the current legal framework when it comes to managing a crisis such as Covid-19 as the Centre and States do not appear to be fully in sync. Decrease in Revenue MobilisationThe State Governments are required to provide fiscal stimulus to counter the pandemic. However, they are severely constrained in their revenue mobilisation on account of following reasons:

1. Decrease in own tax collection: The demand and supply side disruption caused


due to COVID-19 has led to large scale fall in the revenue collection of the states. For example, before the pandemic, the Karnataka government had estimated that it would be able to raise Rs 12,000 crores every month. However, post-pandemic, it is struggling to raise even Rs 300 crores every month.

2. Decrease in Tax Devolution from Centre to States: The Centre is required to transfer 41% of the total central divisible pool to the states in accordance with the 15th Finance Commission recommendations for the financial year 2020-21. The decrease in the total taxes collected by the centre due to COVID-19 would lead to decrease in the central divisible pool and hence adversely affect the tax devolution from Centre to States. It is estimated that the total tax devolution to the states in 2020-21 would be Rs 2.2 lakh crores lower than the Finance Commission estimates.

Limits on Fiscal Deficit under FRBM Act The FRBM Act formulated by the respective state Governments require them

to maintain Fiscal Deficit to 3% of their GSDP. The disruption caused by COVID-19 is unprecedented and hence the state governments would be required to provide fiscal stimulus through borrowings. Hence, the Fiscal deficit limit imposed under FRBM Act constrains the ability of the state governments to deal with the pandemic.

What should be done in order to empower the states?1. The State Governments must be enabled to provide fiscal stimulus by

enhancing the Fiscal Deficit limit to 5% of GSDP.2. The State Governments must be allowed to approach the Finance Commission

and ask for the supplementary report. The Finance Commission then relook at the expenditure commitments of the state governments to deal with the pandemic and give appropriate recommendations.

The COVID-19 has exposed the historical neglect of the health-care sector in the country. The total public expenditures of Centre and States on health is hardly around 1.5% of GDP. The centrally sponsored scheme, the National Health Mission, is inadequately funded with lack of autonomy to the states. Similarly, the focus of “Ayushman Bharat” has been to advocate insurance rather than building wellness centres. Hence, the health crisis imposed by COVID-19 must be seen as an opportunity to address various flaws in our healthcare system.

Personal Notes


Title 3. A change in Migrant Policy – Article (Page number 07) Syllabus Prelims: Social Issues

Mains: GS Paper II – Social Justice Theme Structural flaws in migration policy in IndiaHighlights

Context The COVID 19 crisis has brought to the forefront the issues surrounding

migration in India particularly during a disaster. In this context this article analyses structural flaws in migration policy in India and emphasizes the need to bring about a change in migration policy.

The framework under which we will discuss this issue is as follows Importance of migration issue during a disaster Adequacy of the relief measures Way Forward

Importance of migration issue during a disaster1. Huge numbers

According to 64th NSSO and Census 2011 data there are approximately 2 million daily wage workers, the chunk of which are rural-urban migrants.

For instance out of 123 million population of Bihar the number of rural-urban migrants constitutes about 10 million and inter-State migrants are about 3 Million.

Problem With such huge numbers, the exodus of migrants during the times of crisis is

a logistical challenge.2. High dependency

The growth poles in India particularly the cities depend heavily on the services of migrant workers particularly in sectors such as construction, garment manufacturing, mining and agriculture

The migration has resulted in these sectors coming to a standstill.3. Lack of alternate source of livelihood

The reverse migration to source state is a huge problem as there is not enough alternate source of livelihood for these workers

Besides for the source states it also amounts loss of income that comes in the form remittances.

4. Spread of disease In the case of epidemics, the exodus of seasonal migrants creates

apprehensions about the spread of the disease in the source states. 5. Poor conditions

For those migrants who choose to stay back in their place of work face severe issue of poor living conditions as most of them live in slum colonies which lack sanitation, hygiene, safe drinking water, health services etc.

Adequacy of relief packagesThough the focus of relief measures has been poorer sections of the society it is said to be inadequate to deal with the issue of migrants

1. Migrants who have remained in the cities are unable to benefit from additional free food grains as they are registered under the PDS in their source states

2. Increase in MGNREGA wages has not benefitted the migrant labours who have not returned back to their source states

3. Given the low rates of registration, they are deprived of benefits from the


cess fund of Building and Other Construction Workers Welfare Board.Way forwardThe migration policy in India needs a structural revamp to address both short-term distress and initiating long-term measures such as

1. The One-nation-One-Ration scheme of announced by Ministry of Consumer Affairs, Food and Public Distribution in February should be rolled out without any delay.

2. Scaling up sector-specific registration of migrant workers and setting up of dedicated relief fund under each sector.

3. Distribution of food without ration cards in Municipalities. (Delhi has done this)

4. Provision of night shelters in cities with adequate living conditions5. Compulsory cash transfers from employees every month

Personal Notes

Title 4. Ill-equipped to deal with a crisis – Article (The Hindu Pg. No. 7)Syllabus Prelims: General Science

Mains: GS Paper III – Science & Technology Theme Impact of India’s low investment in Science & Technology Highlights

Context: The article highlights loopholes/ deficit in science policy making in India that Ill-equips India to deal with a crisis such as COVID-19. Reason behind such a scenario:

India’s low investment in science and tech - Gross expenditure on R&D


as percentage share of the Indian GDP hovers around 0.7 per cent. While China spends 2.1 per cent and USA 2.8 per cent.

Low access to data - to be able to make any informed data-driven policy decisions and follow up action.

Poor policy decisions – undertaken without any sound scientific and environmental considerations — as can be seen in case of the Karnataka government’s decision to continue with the proposal for the Hubballi-Ankola railway line through the last remaining forests of the Western Ghats.

As a result: India has become a hotspot for emerging diseases. - Even after being

a global superpower in information technology, the use of techniques such as ‘big data’ and informatics to understand large-scale environmental challenges, infectious diseases, such as Covid remains low.

Complex socio-environmental problems such as how disasters push people into poverty - are not understood properly. As it requires integrating natural and social sciences to generate multidimensional knowledge.

Still not all is lost - some hopeful signs: India has nine large national science missions in various stages of

implementation. Example - Mission in quantum computing (National Mission on Quantum Technologies and Applications), on biodiversity (National Biodiversity Mission) etc.

Further at this Juncture, India needs to: Substantially investments in a science directed towards the well-being

of all social sectors; a science for realising the UN SDGs; a science to build resilience against environmental disasters; and a science for healing humanity’s relationship with Nature to ward off biodiversity loss and mitigate climate change.

Provide new data to direct policy making: Undertake rigorous testing, monitoring, and modeling to inform policy and action for successful mitigation of COVID-19.

Take steps to ensure healthcare as an individual basic right and Earth-care as a collective right.

Personal Notes

Title 5. ICMR asks States to stop using rapid tests for the next 2 days (The Hindu Pg. No. 1)

Syllabus Prelims: General Science Mains: GS Paper III – Science & Technology

Theme Impact of India’s low investment in Science & Technology Highlights

Context: The Indian Council of Medical Research (ICMR) has directed the States not to use the COVID-19 rapid testing kits for the next two days following reports of wide variations in results. The kits would be tested and validated by ICMR teams and an advisory will be issued in the next two days. If they are found to be not up to the mark, replacements would be sought from the manufacturers.

What Is an Immunoglobulin Test?

An immunoglobulin test measures the level of types of antibodies in the blood. The immune system makes antibodies to protect the body from bacteria, viruses, and


allergens.

The body makes different antibodies, or immunoglobulins, to fight different things. For example, the antibody for chickenpox isn't the same as the antibody for mononucleosis. Sometimes, the body may even mistakenly make antibodies against itself, treating healthy organs and tissues like foreign invaders. This is called an autoimmune disease.

The types of antibodies are:

Immunoglobulin A (IgA): It's found in the linings of the respiratory tract and digestive system, as well as in saliva (spit), tears, and breast milk.

Immunoglobulin G (IgG): This is the most common antibody. It's in blood and other body fluids, and protects against bacterial and viral infections. IgG can take time to form after an infection or immunisation.

Immunoglobulin M (IgM): Found mainly in blood and lymph fluid, this is the first antibody the body makes when it fights a new infection.

Immunoglobulin E (IgE): Normally found in small amounts in the blood. There may be higher amounts when the body overreacts to allergens or is fighting an infection from a parasite.

Immunoglobulin D (IgD): This is the least understood antibody, with only small amounts in the blood.

What are immunoglobulin detection-based tests for COVID-19 coronavirus?

Immunoglobulin detection tests are based on the qualitative detection of IgM and IgG that are specifically generated by the body in response to SARS-CoV-2 infection.

IgM is usually the first, specific antibody type generated by the body in response to infection. Then, the IgG antibody type is generated and replaces IgM as the predominant antibody in the response to infection.

IgM and IgG fight infections by targeting specific antigens on the surface of the SARS-nCoV-2 virus.

In general, immunoglobulin tests use specific viral antigens to detect the IgM and/or IgG antibodies against those antigens.

The results need to be read after 10 minutes and no more than 15 minutes (the test resembles a home pregnancy test in this respect.)

Personal Notes


Title 6. Putting the SAGAR vision to the test – Article (The Hindu Pg. No. 7)Syllabus Prelims: Current event of International Importance

Mains: GS Paper II - International Relations Theme Observer Status for India at Indian Ocean Conference Highlights

Context - Following a request from New Delhi, the Indian Ocean Conference (IOC) granted observer status to India on March 6 at the Commission’s 34th Council of Ministers. Indian Ocean Conference

An intergovernmental organisation founded in 1982. Five small-island states in the Western Indian Ocean: the Comoros,

Madagascar, Mauritius, Reunion (a French department), and Seychelles. Headquarter - Ebene, Mauritius Decisions in the IOC are consensus-based

IOC and India's maritime vision IOC has demonstrated leadership in the maritime security domain. As

maritime security is a prominent feature of India’s relations with Indian Ocean littoral states, India can both learn and contribute to IOC.

Bottom-up regionalism The IOC style of ‘bottom-up regionalism’ has produced a sub-regional view of

maritime security problems and local ownership pathways towards workable solutions.

This is in sync with India’s strategic vision for the Indian Ocean - Security and Growth for All in the Region (SAGAR). India’s SAGAR vision is intended to be “consultative, democratic and equitable”

Maritime security through integrated information centres In 2012, the IOC was one of the four regional organisations to launch,

European Union-funded, MASE Programme — Maritime Security in Eastern and Southern Africa and Indian Ocean. Under MASE, the IOC has established a mechanism for surveillance and control of the Western Indian Ocean with two regional centres.

India's Information Fusion Centres that can link to those of the wider region. [Indian Navy has launched its Information Fusion Centre (IFC) that will share information on vessels of interest with other friendly nations.

India can fill the cap in IOC capability States of IOC face limitation in policing and patrolling their enormous

Exclusive Economic Zones (EEZs) and regional dependence on international navies.

India with vast experience and capability can provide expertise and infrastructural support to IOC. India can also support the regional coordination centres with satellite imagery.

Counter to hegemonic forces Indian Ocean With proper regional coordination, more sustainable ways of addressing

maritime security, and local successes at curbing maritime threats will have broader security dividends for the Indian Ocean space.

Hegemonic tendency of China in Indian Ocean can be resisted.


A new Vision for Indian Ocean This sub-regional efforts of IOC will help India calibrate the Indian Ocean

strategy away from outdated, neo-imperialist conceptions of great power and spheres of influence.

As an observer of the IOC, a specific, parallel opportunity to embrace bottom-up regionalism presents itself. India’s “consultative, democratic and equitable” leadership can truly take shape.

Personal Notes

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