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Daily Current Affairs 11.08.2021 (LS clears Bill restoring States’ rights to specify OBC groups, MFIs urge RBI to drop urban, rural difference for borrowers)

Daily Current Affairs 11.08.2021 (LS clears Bill restoring States’ rights to specify OBC groups, MFIs urge RBI to drop urban, rural difference for borrowers)

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1.LS clears Bill restoring States’ rights to specify OBC groups

Lawmakers across parties call for removal of 50% cap on reservation

The Lok Sabha on Tuesday passed the 127th Constitution Amendment Bill, 2021, with unanimous support from the House and not a single vote against, with Social Justice and Empowerment Minister Virendra Kumar stating that there was a need for careful examination of the demand made by several Lok Sabha MPs to remove the 50% cap on reservation currently in place.

Replying to the debate on the Bill, the first such debate in an orderly manner in a session marked by three weeks of disruptions and adjournments, Dr. Kumar said the issue required a careful going over of legal and constitutional issues.

Indra Sawhney case

“In the Indra Sawhney case the court has observed that the limit can be increased beyond the 50% but only in certain special circumstances. The government is aware of the wishes of the members,” he said.

The Minister said the current Constitution Amendment Bill was historic legislation as 671 castes in the country would benefit from it and restore the States’ rights to make their own list of Other Backward Classes (OBCs) and should be considered as the 105th Constitution Amendment Bill after being renumbered.

The Bill seeks to restore the power of State governments to identify OBCs that are socially and educationally backward after a Supreme Court order in May 2021 empowered only the Centre to do so.

The amendment was thought necessary because the SC, in its order on Maratha reservation, upheld the 102nd Constitutional Amendment Act that inserted Articles 338B and 342 A (with two clauses) after Article 342, which said the President of India, in consultation with the Governors, would specify socially and educationally backward classes, taking away the powers of State governments to do so.

Background:

  • The amendment was necessitated after the Supreme Court in its ruling earlier this year upheld the 102nd constitutional amendment but said the President, based on the recommendations of the National Commission for Backward Classes (NCBC), would determine which communities would be included on the state OBC list.
    • The 102nd Constitution Amendment Act of 2018 inserted Articles 338B and Article 342A (with two clauses) after Article 342.
      • Articles 338B deals with the structure, duties and powers of the National Commission for Backward Classes.
      • Article 342A says that the President, in consultation with the governor, would specify the socially and educationally backward classes.
    • The ruling struck down the Maratha quota introduced by the Maharashtra government – a politically potent issue in the state.

About the Bill:

  • It will amend clauses 1 and 2 of Article 342A and also introduce a new clause 3.
    • The bill will also amend the Articles 366 (26c) and 338B (9).
      • It is designed to clarify that the states can maintain the “state list” of OBCs as was the system before the Supreme Court judgement.
      • Articles 366 (26c) defines socially and educationally backward classes.
    • The “state list” will be completely taken out of the ambit of the President and will be notified by the state assembly.

Other Developments on OBCs:

  • Some MPs have raised the issue of defining Creamy Layer in the ongoing Monsoon Session of Parliament.
    • Further, the Justice Rohini committee is considering the sub-categorization of OBC quota and if any particular community or group of communities are benefiting most from the OBC quota and how to iron out anomalies.
    • The Union Health Ministry has announced 27% reservation for the Other Backward Classes (OBCs) and 10% quota for the Economically Weaker Sections (EWS) in the All India Quota (AIQ) scheme for undergraduate (UG) and postgraduate (PG) medical/dental courses from 2021-22 onwards.

Constitution Amendment Bills

  • As per the procedure laid down in the Constitution, Constitution Amendment Bills can be of three types viz.
    • requiring a simple majority for their passage in each House.
    • requiring special majority for their passage in each House i.e., a majority of the total membership of a House and by a majority of not less than two-thirds of the members of that House present and voting (article 368).
    • requiring special majority for their passage and ratification by Legislatures of not less than one-half of the States by resolutions to that effect passed by those Legislatures (proviso to clause (2) of article 368).
      • A Constitution Amendment Bill under article 368 can be introduced in either House of Parliament and has to be passed by each House by special majority.
      • There is no provision of joint sittings on a Money Bill or a Constitution Amending Bill.

2.MFIs urge RBI to drop urban, rural difference for borrowers

Fix income limit at 2 lakh p.a., revise periodically: Sa-Dhan

Microfinance lenders have urged the Reserve Bank of India (RBI) to drop the distinction between urban and rural households in its proposed new definition of eligible borrowers and allow the use of ration cards to identify households.

Currently, a microfinance borrower is identified by annual household income not exceeding ₹1.25 lakh for rural areas and ₹2 lakh for urban and semi-urban areas.

As per fresh norms drafted for the sector in June, the RBI proposed retaining these thresholds while tweaking the definition of households in line with that used by the National Sample Survey Office — a group of persons normally living together and taking food from a common kitchen.

Sa-Dhan, a self-regulatory body representing microfinance institutions (MFIs), has suggested that the central bank peg the annual income limit at ₹2 lakh for both urban and rural households, and revise the threshold based on inflation, perhaps once in 2-3 years.

Stressing that the household definition may not work for migrant labourers, Sa-dhan said that using the ration card as an identifier should help. “While they won’t be living together and using the common kitchen, migrant labour contribute in the household income.

“Therefore, exclusion of these members will give an improper household income assessment,” it noted, adding that around 19% of the rural population and 33% of the urban population, however, do not possess any ration card.

About:

  • MFI is an organization that offers financial services to low income populations.
    • These services include microloans, microsavings and microinsurance.
    • MFIs are financial companies that provide small loans to people who do not have any access to banking facilities.
      • The definition of “small loans” varies between countries. In India, all loans that are below Rs.1 lakh can be considered as microloans.
    • In most cases the so-called interest rates are lower than those charged by normal banks, certain rivals of this concept accuse microfinance entities of creating gain by manipulating the poor people’s money.
    • Microfinance sector has grown rapidly over the past few decades and currently it is serving around 102 million accounts (including banks and small finance banks) of the poor population of India.
    • Different types of financial services providers for poor people have emerged – non-government organizations (NGOs); cooperatives; community-based development institutions like self-help groups and credit unions; commercial and state banks; insurance and credit card companies; telecommunications and wire services; post offices; and other points of sale – offering new possibilities.
    • Non Banking Finance Company (NBFC)-MFIs in India are regulated by The Non-Banking Financial Company -Micro Finance Institutions (Reserve Bank) Directions, 2011 of the Reserve Bank of India (RBI).

Major Business Models:

  • Joint Liability Group:
    • This is usually an informal group that consists of 4-10 individuals who seek loans against mutual guarantee.
    • The loans are usually taken for agricultural purposes or associated activities.
    • Self Help Group:
      • It is a group of individuals with similar socio-economic backgrounds.
      • These small entrepreneurs come together for a short duration and create a common fund for their business needs. These groups are classified as non-profit organisations.
        • The National Bank for Agriculture and Rural Development (NABARD) SHG linkage programme is noteworthy in this regard, as several Self Help Groups are able to borrow money from banks if they are able to present a track record of diligent repayments.
    • Grameen Model Bank:
      • It was the brainchild of Nobel Laureate Prof. Muhammad Yunus in Bangladesh in the 1970s.
      • It has inspired the creation of Regional Rural Banks (RRBs) in India. The primary motive of this system is the end-to-end development of the rural economy.
    • Rural Cooperatives:
      • They were established in India at the time of Indian independence.
      • However, this system had complex monitoring structures and was beneficial only to the creditworthy borrowers in rural India. Hence, this system did not find the success that it sought initially.
  • Benefits:
    • They provide easy credit and offer small loans to customers, without any collateral.
    • It makes more money available to the poor sections of the economy, leading to increased income and employment of poor households.
    • Serving the under-financed section such as women, unemployed people and those with disabilities.
    • It helps the poor and marginalised section of the society by making them aware of the financial instruments available for their help and also helps in developing a culture of saving.
    • Families benefiting from microloans are more likely to provide better and continued education for their children.
  • Challenges:
    • Fragmented Data:
      • While overall loan accounts have been increasing, the actual impact of these loans on the poverty-level of clients is not clear as data on the relative poverty-level improvement of MFI clients is fragmented.
    • Impact of Covid-19:
      • It has impacted the MFI sector, with collections having taken an initial hit and disbursals yet to observe any meaningful thrust.
    • Social Objective Overlooked:
      • In their quest for growth and profitability, the social objective of MFIs—to bring in improvement in the lives of the marginalized sections of the society—seems to have been gradually eroding.
    • Loans for Non-income Generating Purposes:
      • The proportion of loans utilized for non-income generating purposes could be much higher than what is stipulated by the RBI which is 30% of the total loans of the MFI.
      • These loans are short-tenured and given the economic profile of the customers, it is likely that they soon find themselves in the vicious debt trap of having to take another loan to pay off the first.
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