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8TH 14TH MAY, 2016

SYNERGY IAS
CURRENT AFFAIRS (SPECIAL)
PRS LEGISLATIVE RESEARCH
SUMMARY

SYNERGY
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From the Editor,


Dear Students,
This is our second issue of Sunday Special - PRS Legislative Research
articles summary.
SYNERGY IAS is presenting the summary of important articles from PRS
Legislative Research in a lucid manner. Along with the articles, we will
also be presenting you with certain other terms/topics that are of
importance from civil services point of view.
We are looking for making this an enriching journey for both of us,
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Your feedback will be much appreciated!
Articles of the week:
1. Overview of Ground Water in India
2. The rise of Non Performing Assets in India

Happy Reading!

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Overview of ground water in India


FEW DEFINITIONS

Ground water is the water that seeps through rocks and soil and is stored below
the ground. The rocks in which groundwater is stored are called aquifers.
Aquifers are typically made up of gravels, sand, sandstones or limestone. Water
moves through these rocks because they have large connected spaces that
make them permeable. The area where water fills the aquifer is called as the
saturated zone.
The depth from the surface at which groundwater is found is called the water
table. The water table can be as shallow as a foot below the ground or it can
be a few hundred meters deep. Heavy rains can cause the water table to rise
and conversely, continuous extraction of ground water can cause the level to
fall.

WHAT ARE THE SOURCES OF GROUND WATER IN INDIA?

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Hard-rock aquifers of peninsular India: These aquifers represent around 65% of
Indias overall aquifer surface area. Most of them are found in central
peninsular India.

Alluvial aquifers of the Indo-Gangetic plains.

What is the status of ground water availability in India?


The net annual ground water availability for the entire country is 398 BCM.

Source of ground water

Contribution

Rainfall

68%

Canal seepage, return flow from


irrigation, recharge from tanks, ponds
and water conservation structures

32%

What is the spatial distribution of ground water?

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The figure indicates that ground water is available at a lower level in the
Northwestern region of the country. There are other significant pockets across the
country where the depth of the water level is more than 10 metres. This implies that
one has to dig deeper to reach the water table in these regions. When the ground
water level crosses 10 metres, sophisticated equipment is required to extract it.

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WHAT ARE THE USES OF GROUND WATER?

The largest component of ground water use is the water extracted for irrigation.
Over the years, there has been a decrease in surface water use and a continuous
increase in Groundwater utilization for irrigation. Figure above illustrates the pattern
of use of the main sources of irrigation.
As can be seen, the share of tube-wells has increased exponentially, indicating
the increased usage of ground water for irrigation by farmers. The dependence of
irrigation on ground water increased with the onset of the Green Revolution, which
depended on intensive use of inputs such as water and fertilizers to boost farm
production.
Incentives such as credit for irrigation equipment and subsidies for electricity supply
have further worsened the situation. Low Power Tariffs has led to excessive water
usage, leading to a sharp fall in water tables.

WHAT IS THE EXTENT OF GROUND WATER CONTAMINATION IN


INDIA?
Ground water contamination is the presence of certain pollutants in ground water
that are in excess of the limits prescribed for drinking water. The commonly
observed contaminants include arsenic, fluoride, nitrate and iron, which are
geogenic in nature.

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Other contaminants include bacteria, phosphates and heavy metals, which are a
result of human activities including domestic sewage, agricultural practices and
industrial effluents.

WHAT IS THE LEGISLATIVE FRAMEWORK RELATED TO GROUND WATER


IN INDIA?
1. Fundamental Right to Availability of Water has been evolved by the apex
court as part of 'Right to Life' under Article 21 of the Constitution
2. Currently, the Easement Act, 1882 provides every landowner with the right to
collect and dispose, within his own limits, all water under the land and on the
surface. This gives landowners significant power over ground water. Further,
the law excludes landless ground water users from its purview.
3. Water falls under List II of schedule 7 of our Constitution. In order to give broad
guidelines to state governments, central government has published a Model
Bill for Ground Water Management as well as National Water Policy
4. In response to the Model Bill, 11 states and 4 UTs have adopted and
implemented ground water legislation.
5. Central Ground Water Authority issued advisory to states and UTs to take
necessary measures for adopting Rainwater Harvesting in all Government
buildings.
6. 30 states and UTs have made rainwater harvesting mandatory through laws,
rules and regulations and including provisions in building byelaws.
7. Draft Model Building Bye-Laws, 2015, mandates rainwater-harvesting
structures in all buildings having a plot size of 100 sq. m or more.
8. National Water Policy, 2012, emphasises on the necessity of pricing of water
beyond basic needs. The policy proposes fair pricing for different uses through
the establishment of a Water Regulatory Authority (WRA) in each State.

WHAT IS THE INSTITUTIONAL FRAMEWORK RELATED TO GROUND


WATER IN INDIA?

The Ministry of Water Resources, River Development and Ganga


Rejuvenation is responsible for the conservation and management of water
in the country.

The Ministry of Rural Development also implements certain programmes


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related to ground water management.

Ministry of Environment, Forests and Climate Change is partially responsible


for the prevention and control of pollution, including water pollution, and
ground water contamination.

In addition, four major central institutions address issues related to ground


water. The main roles of these institutions are summarized in the table
below:

WHAT ARE THE KEY ISSUES IN GROUND WATER SECTOR TODAY?


ESTIMATION OF GROUND WATER RESOURCES
The current assessment methodology uses only a sample to estimate ground water
sources to establish the presence. This makes data indicative and not
representative. To obtain a comprehensive view, data collection of ground
resources should be done at the local level.

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AGRICULTURAL CROP PRICING AND WATER INTENSIVE CROPS


In the last four decades, roughly 84% of the total addition to the net irrigated area
has come through ground water. The primary cause of over-exploitation has been
the rising demand for ground water from agriculture. Further, decisions such as
cropping pattern and cropping intensity are taken independent of the ground
water availability in most areas.
The High-Level Committee on restructuring of the Food Corporation of India in 2014,
chaired by Mr. Shanta Kumar observed that system of Minimum Support Prices
(MSPs) creates highly skewed incentive structures in favour of wheat and paddy,
which are water intensive crops and depend heavily on ground water for their
growth.
Table below shows the average amount of water (in cubic meters/tonne) needed
to grow different crops. It indicates Indias efficiency in the usage of water for
agriculture as compared to other countries. As can be seen, India uses almost
twice the amount of water to grow crops as compared to China and United States.

Solution:

Cultivating less water-intensive crops like legumes and oilseeds

Adopting modern precision irrigation techniques like drip and sprinkler


system

Regulate extraction of ground water through regulatory measures

ENERGY SUBSIDIES AND GROUND WATER EXTRACTION


The practice of providing power subsidies for agriculture has played a major role in
the decline of water levels in India. Moreover, electricity supply is not metered and
a flat tariff is charged depending on the horsepower of the pump.

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Solution:

National Water Policy, 2012 recommends that the over extraction of


groundwater should be minimized by regulating the use of electricity for its
extraction.

Separate electric feeders for pumping ground water for agricultural use
could address the issue.

Farmers should fix ceilings on use of water or electricity. If they are able to
use less than ceilings fixed for them, they should be given cash incentives

INADEQUATE REGULATION OF GROUND WATER LAW


The government, from time to time has stated that ground water needs to be
manage as a community resource.
However, Section 7(g) of the Easement Act, 1882 states that every owner of land
has the Right to collect and dispose within his own limits all water under the land
and on its surface which does not pass in a defined channel. The legal
consequence of this law is that the owner of the land can dig wells in his land and
extract water based on availability and his discretion. Additionally, landowners are
not legally liable for any damage caused to the water resources because of over
extraction.
The lack of regulation for over-extraction of this resource further worsens the
situation and has made private ownership of ground water common in most urban
and rural areas.
The CGWB identifies over-exploited and critical areas within states. However, the
Board does not have the power to stop ground water extraction in such areas and
can only notify the owners.
Additionally, because of a very large number of small users, it becomes
increasingly difficult for the Board to identify and penalize the offenders.

QUALITY OF GROUND WATER


The Comptroller and Auditor General (CAG) has observed that despite increasing
pollution of ground water sources and presence of contaminants like arsenic,
nitrate, fluoride, salinity, etc., no programme at the central or state level is being
implemented for control of pollution and restoration of groundwater.
Additionally, the Central Pollution Control Board and the CGWB do not carry out
real-time monitoring of water pollution in rivers, lakes and ground water sources.

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Solution:
CAG has recommended that:

Establishing enforceable water quality standards by Central government

Penalties need to be levied for violations of water quality standards

States need to take measures for source control of pollutants through


sewage and agriculture runoff entering water bodies in projects for
conservation and restoration of lakes.

LOCAL MANAGEMENT OF GROUND WATER


The phenomena of local water users successfully managing their water resources
is being observe only in a few areas.

Solution:
Determining the relationship between surface hydrological units such as
watershed or river basins, and hydrological units below the ground such as aquifers,
Identification of ground water recharge areas.
Maintaining ground water balance at the level of the village or the watershed,
and
Creating regulatory options at the community level such as Panchayats.
(Source: http://www.prsindia.org/parliamenttrack/discussion-papers/overviewof-ground-water-in-india-4173/)

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THE RISE OF NON PERFORMING ASSETS (NPA) IN INDIA


Banks give loans and advances to borrowers which may be categorised as:
(i) Standard Asset (any loan which has not defaulted in repayment).
(ii) Non-Performing Asset (NPA), based on their performance.

WHAT ARE NPAS?


NPAs are loans and advances given by banks, on which the borrower has ceased
to pay Interest and Principal Repayments.

WHAT IS THE LEVEL OF NPAS IN INDIAN ECONOMY?


In recent years, the gross NPAs of banks have increased from 2.3% of total loans in
2008 to 4.3% in 2015 (SEE FIGURE 1 ALONGSIDE*).

WHAT ARE THE MAIN CAUSES FOR ACCUMULATION OF NPAS IN


INDIAN ECONOMY?

Stagnant growth rate of Indian economy: Before the growth rate picked
up in 2015-16, India's average growth rate had declined which had led to
suppression of domestic demand and employment opportunities

Stagnant world GDP: Global GDP growth has declined for five consecutive
quarters and was lowest in March 2016 since the beginning of 2013. Both
emerging as well as developed market have shown a decline, alike. This
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has led to suppression of export demand, thus compromising upon profits
of corporate.

Declining Commodity Prices: Prices of petrol have been on a decline due


to non-cooperation among the OPEC members. India exports refined
petrol (though it is a net importer of petrol). Decline in prices of petrol has
led to decline in export value, contributing to corporate losses.

Policy Paralysis: This has been caused due to Judicial Activism, Irrational
Laws (especially Environment Laws) as well as Bureaucratic Red-Tape.
Projects which had taken loans from the banks could not start off and earn
revenues due to policy paralysis.

Lack of autonomy among Public Sector Banks (PSBs): In many cases, the
PSBs did not perform appropriate due diligence before lending out loans.
The decision by PSBs to lend was not based on commercial criterion, but
rather political ones.

WHY IS THERE A NEED TO REDUCE NPAS?


Unsustainable level of NPAs is fatal for economy's growth in more than one sense.

REDUCED LENDING CAPACITY OF THE BANK :


Higher the NPA, lower will be the ability of the banks to lend and lower will be the
credit outflow in the economy, thus impacting the liquidity and economic activity.

MORAL HAZARD:
In economics, moral hazard means an even in which one party will get involved in
the risk, knowing that the other will bear the cost. High rate of defaults and loan
write off, provides an adverse incentive to other borrowers (who are yet to pay
back their loans) to repay. This leads to a vicious never ending cycle of defaults.

MARKET SENTIMENT:
High NPAs sends the signal that there is not enough liquidity in the economy which
adversely impacts economic expectations. This does not augurs well for the
economy as such expectations, often, are self-fulfilling. The recent stock market
crash in China is being a case in point.

INEQUITABLE GROWTH:
High level of NPAs may compromise upon the capability of banks to lend to the
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bottom of the pyramid like landless farmers, MSMEs, women entrepreneurs and
underprivileged students. This, in future, may amount to inequitable growth.

WHAT ARE VARIOUS MECHANISMS TO DEAL WITH NPAS?


There are various legislative mechanisms available with banks for debt recovery.
These include:

LEGISLATIVE MECHANISM:
(i) Recovery of Debt Due to Banks and Financial Institutions Act, 1993 (DRT Act).
The Debt Recovery Tribunals established under DRT Act allow banks to recover
outstanding loans
(ii) Securitisation and Reconstruction of Financial Assets and Security Interest Act,
2002 (SARFAESI Act).
The SARFAESI Act allows a secured creditor to enforce his security interest without
the intervention of courts or tribunals.
(iii) Proposed Insolvency and Bankruptcy Code, 2015
(Already covered in a separate article)

VOLUNTARY MECHANISM:
In addition to these, there are voluntary mechanisms such as Corporate Debt
Restructuring and Strategic Debt Restructuring. These mechanisms allow banks to
collectively restructure debt of borrowers (which includes changing repayment
schedule of loans) and take over the management of a company.

INSTITUTIONAL MECHANISM:
In 2015, GOI came up with a 7-point Indradhanush plan to reform the banking
sector as well as deal with NPAs. The 7 points of Indradhanush are:

APPOINTMENTS: Making system of appointments of bank chiefs more


transparent.

BANK BOARD BUREAU: Setting up a Bureau to set up strategies related to


appointments, growth and development of public sector banks (PSBs).

CAPITALIZATION: Infusion of fresh capital in PSBs to provide them with liquidity.


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DE-STRESSING PSBS : By ensuring that highly leveraged sectors like


infrastructure have alternative avenues of credit, other than PSBs.

EMPOWERMENT: PSBs will be empowered to ensure their autonomous and


independent functioning.

FRAMEWORK OF ACCOUNTABILITY : Formulating a set of Key Performing


Indicators for bank staff and linking their perks with the same.

GOVERNANCE REFORMS : Aimed at reinforcing No Interference Policy of


GOI in functioning of PSBs.

Challenges and recommendations for reform :


In recent years, several committees have given recommendations on NPAs:
Action against defaulters:
Wilful default refers to a situation where a borrower defaults on the repayment of
a loan, despite having adequate resources. The Standing Committee of Finance,
in February 2016, observed that 21% of the total NPAs of banks were from wilful
defaulters. It recommended that the names of top 30 wilful defaulters of every
bank be made public. It noted that making such information publicly available
would act as a deterrent for others.
Asset Reconstruction Companies (ARCs):
ARCs purchase stressed assets from banks, and try to recover them. The ARCs buy
NPAs from banks at a discount and try to recover the money.
The Standing Committee observed that the prolonged slowdown in the economy
had made it difficult for ARCs to absorb NPAs. Therefore, it is recommended that
the RBI should allow banks to absorb their written-off assets in a staggered manner.
This would help them in gradually restoring their balance sheets to normal health.
Improved recovery:
The process of recovering outstanding loans is time consuming. This includes time
taken to resolve insolvency, which is a situation where a borrower is unable to repay
his outstanding debt. The inability to resolve insolvency is one of the factors that
impacts NPAS, the credit market, and affects the flow of money in the country. As
of 2015, it took over four years to resolve insolvency in India. This was higher than
other countries such as the UK (1 year) and USA (1.5 years).

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The Insolvency and Bankruptcy Code seeks to address this situation. The Code,
which was passed by Lok Sabha on May 5, 2016, is currently pending in Rajya
Sabha. It provides a 180-day period to resolve insolvency (which includes change
in repayment schedule of loans to recover outstanding loans.) If insolvency is not
resolved within this time period, the company will go in for liquidation of its assets,
and the creditors will be repaid from these sale proceeds.

Possible Questions:
Question: The problem of NPAs of
Public Sector Banks in India is both
symbolic as well as systemic. Explain.
Also, critically analyse the recent
measures taken by the executive,
legislature and the judiciary to curb
rising NPAs.

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