IAS Gyan

Daily News Analysis


26th May, 2020


The problem with the liquidity push

Government strategy:

- The government has relied heavily on measures aimed at pushing credit to banks, non-banking financial companies (NBFCs) and businesses big and small, which are expected to use borrowed funds to lend to others.

- The thrust is to get the Reserve Bank of India (RBI) and other public financial institutions to infuse liquidity and increase lending by the financial system by cutting down the Repo rate to 4%.

- In periods of crisis, individuals, small businesses, firms, financial institutions and even governments tend to experience a liquidity crunch. Relaxing that crunch is a focus of the government’s crisis-response package.

- Another component of the “liquidity” push is the measures that temporarily increase the disposable income of different sections.

- Advance access to savings like provident fund contributions, lower tax deduction at source, reduced provident fund contributions and moratoriums on debt service payments for a few months, are expected to provide access to cash inflows and reduce cash outflows, to induce agents to meet overdue payments or just spend to enhance the incomes of others.

About liquidity:

- In economic and business parlance, liquidity refers to ease of access to cash.

- A liquid asset is one that can be easily sold for or replaced with cash.

- A liquid firm or agent is a holder of cash, a line providing access to cash, or assets that can be easily and quickly converted to cash without significant loss of value.

Focus on NBFCs

- The main intermediaries being enlisted for the task of transmitting liquidity are the banks, with NBFCs constituting a second tier.

- Among the first steps taken by the RBI was the launch of special and ‘targeted’ long term repo operations (TLTROs), which allowed banks to access liquidity at the repo rate to lend to specified clients.

- One round of such operations, which was relatively more successful, called for investment of the cheaper capital in higher quality investment grade corporate bonds, commercial paper, and non-convertible debenture like Reliance, L & T and HDFC.

- There is little evidence that this is triggering new investment decisions.

- Second round focussing on NBFC was not successful as their balance sheets are hammered.

- Government has identified other financial agencies like NABARD, SIDBI and NHB that could refinance lending by the banks to different sections, with targeted lending amounts providing figures to fatten the “stimulus”.

- Strategy is of persuasion to lend to micro, small and medium enterprises, street vendors, marginal farmers, etc.

- Government has offered them partial or full credit guarantees in case their clients defaulted.

- The government also sought to persuade the RBI to lend directly to NBFCs against their paper.


- The actual size of package is roughly 1% of GDP and not the 10% as claimed by the government.

- These measures will not work, as economic activities are completely standstill; those who can access credit would either not borrow or only do so to protect themselves and not use the funds either to pay their workers or buy and stock inputs.

- Even after the lockdown is lifted, the compression of demand resulting from the loss of employment and incomes would be considerable.

- It would be aggravated by the fact that spending by a fiscally conservative government would fall sharply because of a collapse in revenue collections.

- But the impact of push to disposable income will remain marginal in nature.

- Overall, the “transmission” of the supply side push from these monetary policy initiatives for relief and revival is bound to be weak.

- These measures would only deepen the crisis as borrowers will borrow only to remain afloat and default later.

Way Forward:

- Government needs to support in the form of new and additional transfers to people in cash and kind.

- It needs to undertake measures such as wage subsidies, equity support and spending on employment programmes.

- It needs to do to debt monetisation.


 -The government’s “self-reliance package” calls on citizens to rely only on themselves, aided by an uncertain offer of temporary access to credit.

Reference: https://www.thehindu.com/opinion/lead/the-problem-with-the-liquidity-push/article31674800.ece


Karnataka govt. takes efforts to solve mystery over birthplace of Purandara Dasa


- Commencement of the field research by Department of Archaeology, Heritage and Museums to explore definitive archaeological evidences that may put an end to speculations regarding the birthplace of Purandara Dasa.

About Purandar Dasa:

- Purandara (c. 1484 – c. 1565) was a Haridasa.

- He was a renowned composer of Carnatic music, a great devotee of the supreme Lord Krishna, a Vaishnava poet, a saint and a social reformer.

- He was a disciple of the Dvaita philosopher-saint Vyasatirtha, and a contemporary of yet another Haridasa, Kanakadasa.

- Purandara Dasa is noted for composing Dasa Sahithya, as a Bhakti movement vocalist, and a music scholar.

- His practice was emulated by his younger contemporary, Kanakadasa.

Controversies around him:

- Controversies are around his birth where he was born in Karnataka or Maharashtra.

- Prior to his initiation to Haridasa tradition, Purandara Dasa was a rich merchant and was called as Srinivasa Nayaka.

- According to historians, Araga in Malnad was a buzzing commercial centre during the Vijayanagar rule, the period to which the poet belonged.

- Referring to the names of the places in the vicinity of Keshavapura — Varthepura, Vithalanagundi, Dasanagadde, it was argued that these places were inhabited by merchant community influenced by the Vaishnava tradition to which Purandara Dasa belonged.


- To solve the mystery regarding the birthplace, the Karnataka State Government had directed the Kannada University, Hampi, to form an expert committee.

Reference: https://www.thehindu.com/news/national/karnataka/purandara-dasas-birthplace-archaeology-dept-to-start-research-in-village-in-shivamogga-dist/article31673889.ece



China warns U.S. of retaliation if punished for Hong Kong law


- China has threatened counter-measures against the U.S. if it was punished for plans to impose a sedition law on Hong Kong. Hong Kong has become the latest flashpoint in soaring tensions between the world’s two super powers, which China has likened to “the brink of a new Cold War”.

Steps by China:

- China has introduced a proposal to impose a security law in Hong Kong to suppress the semi-autonomous city’s pro-democracy movement to ban treason, subversion and sedition.

- The business hub’s security chief hailed it as a new tool that would defeat “terrorism”.

Beijing Comment:

- Protests are foreign backed.

- Hongkong matters are its internal matter and no other country has right to intervene in it.

Reference: https://www.thehindu.com/news/international/china-warns-us-of-retaliation-if-punished-for-hong-kong-law/article31673999.ece



With wheat harvest over, Punjab registers spike in stubble burning

Government data:

- There is a steep rise in stubble burning cases.

Government actions:

- Challans are being issued to offenders, besides police cases are also being registered against the farmers who are burning wheat straw.

- The ban and action against people burning the crop residue is regulated under the Air (Prevention and Control of Pollution) Act, 1981.

- Besides ‘red- pen entry’ has been made in the revenue record of 510 farmers and FIRs registered against 322 farmers for defying the ban.

Reference: https://www.thehindu.com/news/national/other-states/with-wheat-harvest-over-punjab-registers-spike-in-stubble-burning/article31674936.ece