QUESTION : “Water governance in the country requires greater Centre-State coordination to deal with the current issues as well as future challenges. In light of this, examine the challenges and suggest the strategies to deal with it.”
The Hindu Editorial Topic : SHARING DURING SCARCITY
Inter-state Water Dispute
WHY IN NEWS ?
The Union Ministry of Jal Shakti’s gazette notification on the jurisdiction of the Krishna and Godavari River Management Boards over projects and assets in the fields of irrigation and hydropower.
KRISHNA RIVER DISPUTE :
- Both states have disagreements over the sharing of the Krishna River water continue to shape politics in the region.
- AP alleges that Telangana has been drawing Krishna water from four projects — Jurala, Srisailam, Nagarjuna Sagar, and Pulichintala without approvals from the Krishna River Management Board (KRMB).
- The KRMB an autonomous body that was set up after the bifurcation of the state, to manage and regulate the waters in the Krishna basin.
WHAT IS THE ISSUE ?
- The water that is used for power generation, Andhra says, is being wasted by releasing it into the Bay of Bengal, even as farmers in the Krishna delta ayacut are yet to begin sowing of the kharif crop.
- Telangana says it would continue with the hydropower generation to meet its requirements of power.
- At the same time, it has taken strong exception to the irrigation projects of the Andhra Pradesh government, especially the Rayalaseema Lift Irrigation Project (RLIP), which it claims is illegal.
- Telangana has called for a 50:50 allocation of water from the Krishna River.
HISTORICAL BACKGROUND :
- Set up of Krishna Water Dispute Tribunal:
o In 1969, KWDT was set up under the Inter-State River Water Dispute Act, 1956,
o It was headed by Justice R.S. Bachawat,
o It was constituted in April 1969 for adjudication of inter-state water dispute regarding the sharing of Krishna waters.
o It presented its report in 1973 which was published in 1976.
o It divided the 2060 TMC (thousand million cubic feet) of Krishna water at 75 per cent dependability into three parts: 560 TMC for Maharashtra, 700 TMC for Karnataka and 800 TMC for Andhra Pradesh.
o At the same time, it was stipulated that the KWDT order may be reviewed or revised by a competent authority or tribunal any time after May 31, 2000.
o The KWDT addressed three issues:
- the extent to which the existing uses should be protected as opposed to future or contemplated uses;
- diversion of water to another watershed; and
- rules governing the preferential uses of water. The tribunal relied on the principle of equitable apportionment for allocation of water.
- New Grievances and KWDT 2 set up:
o Afterward, as new grievances arose between the states, the second KWDT was instituted in 2004.
o It delivered its report in 2010, which made allocations of the Krishna water at 65 per cent dependability and for surplus flows as follows: 81 TMC for Maharashtra, 177 TMC for Karnataka, and 190 TMC for Andhra Pradesh.
o In 2010, Andhra Pradesh challenged the order in the Supreme Court through a Special Leave Petition (SLP).
- Another Report by KWDT:
o In 2013, the KWDT issued a ‘further report’, which was again challenged by Andhra Pradesh in the Supreme Court in 2014.
- Changed Allocation:
o After the bifurcation of the erstwhile State of Andhra Pradesh in 2014 into the States of Andhra Pradesh & Telangana, arrangements were changed.
o It was agreed between the two states that the 811 TMC allocation made by the KWDT-I would be apportioned in a manner wherein the State of Telangana will have 299 TMC while the State of Andhra Pradesh will get 512 TMC.
o This agreement (2015 Agreement) was entered before and is monitored by KRMB.
- Krishna River Management Board:
o In exercise of the powers conferred under section 85 of the Andhra Pradesh Reorganization Act, 2014, the Central Government constituted KRMB for
- the administration,
- maintenance and
- operation of such projects,
as may be notified by the Central Government from time to time.
o The present petition arises out of the allegation against the State of Telangana of indiscriminately drawing water for power uses contrary to the rules of the integrated operation of the Reservoirs and the provisions of the 2015 Agreement.
IMPORTANT TAKEAWAYS :
- The two river boards can now administer, regulate, operate and maintain 36 projects in the Krishna Basin and 71 in the Godavari to ensure judicious water use in Andhra Pradesh and Telangana.
- The arrangement is expected to leave the working of Water Resources or Irrigation Department in the States intact.
CRITICAL ANALYSIS :
- Welcome Development:
- There was a seven-year delay to get the notification from Union government which reflects the tense equations between the two States over river water sharing.
- A gazette notification is a step in long term solution to the problem
- Avoids Competitive Water Projects:
- The States have been locked in a battle of sorts over the utilisation of Krishna water, with AP proposing a few projects, including a lift irrigation scheme for Rayalaseema, and Telangana coming up with half-a-dozen projects of its own.
- Empowering Krishna & Godavari River Board will ensure that such activities take place with approval of Board.
- Telangana’s Objection Addressed:
- Telangana had held the view that the notification should flow from finalisation by Krishna Water Dispute Tribunal (KWDT)-II through expanding the scope of reference.
- Telangana had even moved the Supreme Court but the Centre said it would consider Telangana’s request only if it withdrew its petition which it did.
- In the process, Telangana wanted its complaint to be referred to the current Tribunal to avoid duplication of inquiry.
ABOUT GODAVARI RIVER :
- Godavari river rises from Trimbakeshwar near Nasik in Maharashtra and flows for a length of about 1465 km before outfalling into the Bay of Bengal.
- The Godavari basin extends over states of Maharashtra, Telangana, Andhra Pradesh, Chhattisgarh and Odisha in addition to smaller parts in Madhya Pradesh, Karnataka and Union territory of Puducherry.
- Tributaries: Pravara, Purna, Manjra, Penganga, Wardha, Wainganga, Pranhita (combined flow of Wainganga, Penganga, Wardha), Indravati, Maner and the Sabri
ABOUT KRISHNA RIVER :
- It originates near Mahabaleshwar (Satara) in Maharashtra. It is the second biggest river in peninsular India after the Godavari River.
- It runs from four states Maharashtra (303 km), North Karnataka (480 km) and the rest of its 1300 km journey in Telangana and Andhra Pradesh before it empties into the Bay of Bengal.
- Tributaries: Tungabhadra, Mallaprabha, Koyna, Bhima, Ghataprabha, Yerla, Warna, Dindi, Musi and Dudhganga.
INTER-STATE RIVER WATER DISPUTES :
o Article 262 of the Constitution provides for the adjudication inter-state water dispute
- Under this, Parliament may by law provide for the adjudication of any dispute or complaint with respect to the use, distribution and control of waters of any inter-state river and river valley.
- Parliament may also provide that neither the Supreme Court nor any other court is to exercise jurisdiction in respect of any such dispute or complaint.
o The Parliament has enacted the two laws, the River Boards Act (1956) and the Inter-State Water Disputes Act (1956).
o The River Boards Act provides for the establishment of river boards by the Central government for the regulation and development of inter-state river and river valleys.
- A River Board is established on the request of state governments concerned to advise them.
o The Inter-State Water Disputes Act empowers the Central government to set up an ad hoc tribunal for the adjudication of a dispute between two or more states in relation to the waters of an inter-state river or river valley.
- The decision of the tribunal is final and binding on the parties to the dispute.
- Neither the Supreme Court nor any other court is to have jurisdiction in respect of any water dispute which may be referred to such a tribunal under this Act.
- The Centre has not notified the exact jurisdiction of KRMB.
- Time limit should be fixed for adjudication by a Tribunal.
- Upper age limit for chairman of KRMB must be fixed to favour an independent working mechanism of the Board.
- Orders of the Tribunal should be made binding and stringent punishment should be there for Contempt.
- Powers of the Disputes Resolution Commission should be clearly defined
WAY FORWARD :
- Fair Functioning of Boards: The Centre must now see to it that the empowered Boards function in a fair manner, as the Union government’s decision will be final with regard to matters concerning jurisdiction of the two bodies.
- Water Conservation: At the same time, the two States should instead focus on water and energy conservation and improving the efficiency of irrigation schemes and hydel reservoirs.
- River Basin Organisations: After studying the experiences of the revamped Boards, the Centre should look at turning the much talked-about concept of river basin organisations into a reality.
- The Ministry of Jal Shakti (MoJS) issued a gazette notification defining the jurisdiction of the Krishna River Management Board (KRMB) and the Godavari River Management Board (GRMB).
- The notification will come into effect from October 14. This could be seen in the light of overcoming challenges.
- Also, the table given below should be followed, as recommended, for clear demarcation of power of each state.
Bridging the governance gap between the Centre and State and creation of institutional framework is at the heart of addressing the future challenges to the federal water governance in the country.
QUESTION : Discuss the factors driving equity market boom globally and factors that could threaten such boom with a major correction.
The Hindu Editorial Topic: INDIA’S EQUITY MARKET BUBBLE MAY BURST SOON
Stock market bubble during covid-19 Pandemic
WHY IN NEWS ?
Even as the real economy returns to the doldrums after being hit by the second wave of COVID-19 infections, the continuing bull run in India’s equity market in the April-June quarter has baffled many observers.
STOCK MARKET BUBBLE ?
A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation.
Behavioural finance theory attributes stock market bubbles to cognitive biases that lead to groupthink and herd behaviour. Bubbles occur not only in real-world markets, with their inherent uncertainty and noise, but also in highly predictable experimental markets. In the laboratory, uncertainty is eliminated and calculating the expected returns should be a simple mathematical exercise, because participants are endowed with assets that are defined to have a finite lifespan and a known probability distribution of dividends.
KEY TAKEAWAYS :
- Bubble, in an economic context, generally refers to a situation where the price for something—an individual stock, a financial asset, or even an entire sector, market, or asset class—exceeds its fundamental value by a large margin.
- Financial bubbles, aka asset bubbles or economic bubbles, fit into four basic categories: stock market bubbles, market bubbles, credit bubbles, and commodity bubbles.
- Bubbles are deceptive and unpredictable, but understanding the five stages they characteristically go through can help investors prepare for them.
- The five steps in the lifecycle of a bubble are displacement, boom, euphoria, profit-taking, and panic.
- The damage caused by the bursting of a bubble depends on the economic sector(s) involved, whether the extent of participation is widespread or localized, and to what extent debt fueled the investments that inflated the bubble.
V-SHAPED RECOVERY OF THE EQUITY MARKET :
- The benchmark BSE Sensex had nosedived to below 28,000 in March-April 2020, following the nationwide lockdown.
- The equity market posted a sharp V-shaped recovery in 2020-21.
- The Sensex surged beyond 50,000 in February 2021 and is currently closing on the 53,000 level.
FACTORS SUGGESTING BUBBLE IN THIS MARKET :
- There was an 81%-plus growth in the Sensex between April 2020 and March 2021 in the backdrop of real GDP growth plummeting to -7.3% during the same period.
- While output contraction had reversed from the third quarter of 2020-21, the inflation rate also rose and remained way ahead of the real GDP growth rate in the last two quarters (Chart 1).
- It is difficult to find any rationality behind the skyrocketing BSE Sensex in the context of such stagflation in the real economy.
- Just like the fall in the equity prices was driven by the exit of foreign portfolio investors (FPI), the return of massive FPI inflows has driven the Indian equity bubble since then (Chart 2).
- Net FPI inflows clocked an unprecedented ₹2.74 lakh crore in 2020-21, the previous high being ₹1.4 lakh crore in 2012-13.
- The Reserve Bank of India (RBI)’s annual report (2020-21) to state stated that: “This order of asset price inflation in the context of the estimated 8 per cent contraction in GDP in 2020-21 poses the risk of a bubble.”
GLOBAL FACTORS :
- The global liquidity glut, following the expansionary, easy money policies adopted by the fiscal and monetary authorities of the OECD and G20 countries, has led to equity price inflation in several markets driven by FPIs, especially in Asia.
- Following cues from the U.S. and the U.K., Asian equity markets in Singapore, India, Thailand, Malaysia and Hong Kong are currently witnessing price-earnings (P/E) ratios significantly above their historic means.
- The BSE Sensex’s P/E ratio of 32 in end-June 2021 is way above its historic mean of around 20.
What could burst the bubble?
- Change in monetary policy: With COVID-19 vaccination and economic recovery proceeding apace in the U.S., the U.K. and Europe, fiscal and monetary policy stances will change soon.
- Exit of FPIs: Once the U.S. Federal Reserve and other central banks start raising interest rates, the direction of FPI flows will invariably change bringing about corrections in equity markets across Asia.
- India remains particularly vulnerable to a major correction in the equity market because of two reasons.
- Low pace of vaccination: The pace of COVID-19 vaccination in India, given the vast population, lags behind most large countries.
- In the absence of a substantial increase in the vaccination budget and procurement, large segments of the Indian population will remain vulnerable to a potential third wave of COVID-19, with its attendant deleterious impact on the real economy.
- Weak fiscal stimulus: India’s economic recovery from the recession will remain constrained by the weak fiscal stimulus that has been delivered by the Central government.
- Data from the IMF clearly show that while the total global stimulus consisted of additional public spending or revenue foregone measures amounting to 7.4% of global GDP, India’s fiscal measures amounted to 3.3% of GDP only.
With all agencies, including the RBI, downsizing India’s growth projections for 2021-22, it remains to be seen how long India’s equity bubble lasts.