19th November 2018
Answer questions in NOT MORE than 200 words each. Content of the answer is more important than its length.
Links are provided for reference. You can also use the Internet fruitfully to further enhance and strengthen your answers.
GS III: INDIAN ECONOMY
Q1. The Reserve Bank of India must have a Board of Directors. Discuss the composition and the powers of the Board of Directors vis-à-vis the RBI Governor.
- As per the RBI Act, the board is made up of the following members: the Governor and four Deputy Governors, four directors (one each from the four regional boards of the RBI), 10 directors to be nominated by the Centre, and one government official who is also to be nominated by the Centre.
- The present board is made up of 18 members, which is the Governor and four Deputy Governors, four regional board members and nine nominees from the Centre who include two officials, the Economic Affairs Secretary and the Secretary, Department of Financial Services. The RBI Board has several representatives from industry. The present board includes N. Chandrasekaran, Chairman of Tata Sons, Dilip Shanghvi, MD of Sun Pharma, and Manish Sabharwal, founder of Teamlease.
- The sections in the RBI Act dealing with this subject of the power balance between the Governor and the RBI board are rather vaguely worded. Eminent past Governors have interpreted Section 7, the relevant one, to mean that the powers of the board and that of the Governor are concurrent. The Governor draws his powers from Section 7(3) of the Act. He can exercise all powers and do all things that may be exercised and done by the RBI.
- This is subject to a caveat though. The board, under Section 58, can make regulations that will give it the powers to override those of the Governor’s. But this is subject to two important conditions. First, the regulations have to be consistent with the provisions of the RBI Act, which essentially means that the board has to act within the framework of the Act. Second, these regulations have to go through an elaborate approval process before they become law (Section 58(4)). The board has to forward the regulations to the Centre, which will have to table them in both Houses of Parliament. Members have a period of 30 days within which they can either suggest modifications to the regulations or annul them.
- And then, there is Section 7(1) which confers powers on the Centre to issue directions to the RBI “from time to time” in the public interest after consultations with the Governor.
- This is the framework of the law but till now, the convention has been that, the RBI Board has always functioned in an advisory role with the understanding that the Governor would consider its advice while making policy decisions. In other words, there was mutual respect between the board and the Governor, with both operating in a spirit of accommodation. Neither Section 7(1) nor Section 7(3) has been unleashed in the 83-year existence of the RBI. Not even when the RBI was privately owned between 1935 and 1949.
GS III: ENERGY/ENVIRONMENT
Q2. According to the latest report by the Composite Water Management Index (CWMI) by the NITI Aayog the thermal power sector will be highly affected by water shortage. Discuss.
- The Composite Water Management Index (CWMI) by the NITI Aayog, which was released this June, shows that 600 million people face high to extreme water stress in India. The report, which was published in association with the Ministry of Water Resources, Ministry of Drinking Water and Sanitation and the Ministry of Rural Development, places India at a dismal 120 among 122 countries in the water quality index. It predicts that a persistent water crisis will lead to an eventual 6% loss in the country’s Gross Domestic Product by 2030.
- A significant key to this stress is the vast gulf — of about 1498 billion cubic metres (BCM) versus 744 BCM — that has been predicted between the demand and supply of fresh water, by 2030. In the projections that the Central Water Commission (CWC) released in 2015, the sector-wise requirement of water (that is, for drinking and domestic use, industry and energy) will rise steeply between 2030 and 2050.
- This mounting rise in demand is starkly evident in the energy sector, which is key to India’s ambitious developmental plan. The share of water consumed by this sector was 0.62% in 2010, which is pegged to rise up to 1.37% in 2030 and 8.98% in 2050.
- The CWMI report covers these broad themes — ground water and surface-water restoration; major and medium irrigation; watershed development; participatory irrigation management; on-farm water use; rural and urban water supply; and policy and governance. The projected water demand of the energy sector makes it an important point for the NITI Aayog to consider while bringing out future iterations of the CWMI.
- As per the Central Electricity Authority (CEA), March 2018, thermal electricity accounts for more than 86% of India’s total power generation. Analysis shows that 77% of India’s total electricity comes from thermal power plants that are dependent on freshwater sources. Of all the freshwater-cooled thermal plants, 38.9% of generation capacity is installed in areas with high or extremely high water-stress. By 2030, more than 70% of India’s existing thermal power utilities are likely to experience an increased level of water competition from agricultural, urban, and other industrial demands. As the power sector consumes more water, competition between power and the other thirsty players is only likely to increase — a factor that future editions of the CWMI will have to consider.
- The CWMI also raises three main issues related to data: limited coverage, unreliable data and limited coordination and sharing. Measuring water consumption by power plants has been a challenge for long. However, it can easily be tackled by using the existing CEA reporting mechanism for daily generation. To do so, daily water withdrawal and consumption reporting should be mandated. These can be measured with existing technology and added into this reporting framework.
- In addition, information about water stress, power plant siting (location) and so on must be shared seamlessly across departments — a service that the CWMI could perform. Water-scarce States such as Gujarat, Madhya Pradesh, Andhra Pradesh, Karnataka, Maharashtra and Telangana are leaders in the Index. CWMI notes that this is “likely driven by necessity in the face of looming water shortages”. Factoring in the water-energy nexus linkages, especially the metrics around power plant water withdrawal and consumption, will only help make the Index better and the States better prepared to manage their water and power resources.