17 Sep 2018: UPSC Exam Comprehensive News Analysis

TABLE OF CONTENTS

A. GS1 Related
B. GS2 Related
GOVERNANCE
1. CIC examines how MPLADS funds are spent
C. GS3 Related
ENVIRONMENT
1. Pollution in Indian rivers
2. Surat: A case study for water management
3. Typhoon slams into China after killing 59 in Philippines
SCIENCE AND TECHNOLOGY
1. Private satellite launch from Odisha
2. ISRO launches two U.K. satellites
ECONOMY
1. Sliding Rupee and Government response
2. States and fiscal targets
3. India calling: 5G networks may be in place by 2020
4. Ten years of collapse of Lehman Brothers
D. GS4 Related
E. Editorials
SOCIAL ISSUES
1. Lethal filth – on manual scavenging
ECONOMY
1. Covering the last field – On Pradhan Mantri Fasal Bima Yojana (PMFBY)
2. Where goes the rupee? – on depreciation in the value of rupee
F. Tidbits
G. Prelims Fact
H. UPSC Prelims Practice Questions
I. UPSC Mains Practice Questions 

A. GS1 Related

Nothing here for today!!!

B. GS2 Related

Category: GOVERNANCE

1. CIC examines how MPLADS funds are spent

In news

  • Noting that ₹12,000 crore of the Members of Parliament Local Area Development Scheme (MPLADS) funds remains unspent, the Central Information Commission (CIC) has asked the Lok Sabha Speaker and the Rajya Sabha Chairman to come out with a legal framework to ensure its transparency and hold parliamentarians and political parties accountable for their obligations under the scheme.

 

About  Central Information Commission (CIC)

The Central Information Commission (CIC) set up under the Right to Information Act is the authorised body, established in 2005, under the Government of India to act upon complaints from those individuals who have not been able to submit information requests to a Central Public Information Officer or State Public Information Officer due to

a)   either the officer not have been appointed,

b)   or because the respective Central Assistant Public Information Officer

c)    or State Assistant Public Information Officer refused to receive the application for information under the RTI Act.

  • The Commission includes 1 Chief Information Commissioner (CIC) and not more than 10 Information Commissioners (IC) who are appointed by the President of India.
  • CIC and members are appointed by the President of India on the recommendation of a committee consisting of—Prime Minister as Chairperson, the Leader of Opposition in the Lok Sabha; a Union Cabinet Minister to be nominated by the Prime Minister.
  • There are two woman whowomenme CIC till now first is Ms Deepak Sandhu (4th CIC) and Second Ms Sushma Singh(5th CIC)

About MPLADS

  • The MPLADS allots ₹5 crore per year to each Member of Parliament (MP) to be spent on projects of their choice in their constituency.
  • The scheme is funded and administered through the Union Ministry of Statistics and Programme Implementation (MoSPI).
  • Projects are to be recommended to and implemented by the district-level administration.

 

 

  • Central Information Commissioner Sridhar Acharyulu issued interim orders on Sunday in two cases where petitioners had requested details on MPLADS, but were told by the MoSPI that the Centre does not maintain constituency-wise, and work-wise details.
  • A recent MoSPI report showed that in February 2018, funds allotted to MPLADS but unspent stood at ₹4,773.13 crore, while 2,920 instalments of ₹2.5 crore were yet to be released. That resulted in a total backlog of ₹12,073.13 crore.
  • The CIC’s orders asked the leaders of the two Houses of Parliament to consider providing the necessary legal frame for the scheme, which would make all Parliamentary parties and MPs answerable and accountable for MPLADS funds as public authorities under the RTI Act to prevent MPLADS irregularities.
  • The framework should make transparency a legal obligation, with all MPs and parties required to present the public and Parliament with a comprehensive report on the number of applications received for their constituency, works recommended, works rejected with reasons, progress of works and details of beneficiaries.
  • Liabilities for any breach of duties should also be imposed, said the order. Further, the framework should prohibit and prevent MPs using the funds for their private works, or diverting them to private trusts or to their own relatives.
  • District administrations must provide regular information — work-wise, MP-wise, and year-wise details on progress — which are to be compiled by the MoSPI and made available to the public, said the order.

C. GS3 Related

Category: ENVIRONMENT

1. Pollution in Indian rivers

  

Central Pollution Control Board (CPCB)

  • The Central Pollution Control Board (CPCB) of India is a statutory organisation under the Ministry of Environment, Forest and Climate Change (MoEF&CC).
  • It was established in 1974 under the Water (Prevention and Control of pollution) Act, 1974.
  • CPCB is also entrusted with the powers and functions under the Air (Prevention and Control of Pollution) Act, 1981.
  • It serves as a field formation and also provides technical services to the Ministry of Environment and Forests under the provisions of the Environment (Protection) Act, 1986.
  • It Co-ordinates the activities of the State Pollution Control Boards by providing technical assistance and guidance and also resolves disputes among them.

 

National Green Tribunal

The NGT was established in 2010 under the National Green Tribunal Act 2010, passed by the Central Government.

  • The stated objective of the Central Government was to provide a specialized forum for effective and speedy disposal of cases pertaining to environment protection, conservation of forests and for seeking compensation for damages caused to people or property due to violation of environmental laws or conditions specified while granting permissions.

The NGT has the power to hear all civil cases relating to environmental issues and questions that are linked to the implementation of laws listed in Schedule I of the NGT Act. These include:

1. The Water (Prevention and Control of Pollution) Act, 1974;

2. The Water (Prevention and Control of Pollution) Cess Act, 1977; (yes, cess act)

3. The Forest (Conservation) Act, 1980;

4. The Air (Prevention and Control of Pollution) Act, 1981; 

5. The Environment (Protection) Act, 1986; (aka EPA)

6. The Public Liability Insurance Act, 1991; (good option to confuse)

7. The Biological Diversity Act, 2002.

  • The NGT has not been vested with powers to hear any matter relating to the Wildlife (Protection) Act, 1972, the Indian Forest Act, 1927 and various laws enacted by States relating to forests, tree preservation etc.
  • Therefore, specific and substantial issues related to these laws cannot be raised before the NGT.

The NGT is not bound by the procedure laid down under the Code of Civil Procedure, 1908, but shall be guided by principles of natural justice.

  • NGT is also not bound by the rules of evidence as enshrined in the Indian Evidence Act, 1872.
  • Thus, it will be relatively easier for conservation groups to present facts and issues before the NGT, including pointing out technical flaws in a project, or proposing alternatives that could minimize environmental damage but which have not been considered.
  • While passing Orders/decisions/awards, the NGT will apply the principles of sustainable development, the precautionary principle and the polluter pays principles.

 

 

BOD (Biochemical Oxygen Demand)

Biochemical oxygen demand (BOD, also called biological oxygen demand) is the amount of dissolved oxygen (DO) needed (i.e., demanded) by aerobic biological organisms to break down organic material present in a given water sample at certain temperature over a specific time period.

  • The BOD value is most commonly expressed in milligrams of oxygen consumed per litre of sample during 5 days of incubation at 20 °C and is often used as a surrogate of the degree of organic pollution of water.
  • BOD can be used as a gauge of the effectiveness of wastewater treatment plants.

Why is BOD important?

  • Biochemical Oxygen Demand is an important water quality parameter because it provides an index to assess the effect discharged wastewater will have on the receiving environment.
  • The higher the BOD value, the greater the amount of organic matter or “food” available for oxygen consuming bacteria.
  • If the rate of DO consumption by bacteria exceeds the supply of DO from aquatic plants, algae photosynthesis or diffusing from air, unfavourable conditions occur.
  • Depletion of DO causes stress on aquatic organisms, making the environment unsuitable for life. Further, dramatic depletion can lead to hypoxia or anoxic environments.
  • BOD is also used extensively for wastewater treatment, as decomposition of organic waste by microorganisms is commonly used for treatment.

 

 

In news

  • The number of polluted stretches in India’s rivers has increased to 351 from 302 two years ago, and the number of critically polluted stretches — where water quality indicators are the poorest — has gone up to 45 from 34, according to an assessment by the Central Pollution Control Board (CPCB).
  • While the ₹20,000 crore clean-up of the Ganga may be the most visible of the government’s efforts to tackle pollution, the CPCB says several of the river’s stretches — in Bihar and Uttar Pradesh — are actually far less polluted than many rivers in Maharashtra, Assam and Gujarat.
  • These three States account for 117 of the 351 polluted river stretches.Based on the recommendations of the National Green Tribunal, the CPCB last month apprised the States of the extent of pollution in their rivers.

BOD (Biochemical Oxygen Demand): Mithi among the worst

  • The CPCB, since the 1990s, has a programme to monitor the quality of rivers primarily by measuring BOD, which is a proxy for organic pollution — the higher it is, the worse the river.
  • The health of a river and the efficacy of water treatment measures by the States and municipal bodies are classified depending on BOD, with a BOD greater than or equal to 30 mg/l termed ‘priority 1,’ while that between 3.1-6 mg/l is ‘priority 5.’
  • The CPCB considers a BOD less than 3 mg/l an indicator of a healthy river.
  • The most significant stretches of pollution highlighted by the CPCB assessment (which is yet to be published) include the Mithi river — from Powai to Dharavi — with a BOD (Biochemical Oxygen Demand) of 250 mg/l, the Godavari — from Someshwar to Rahed — with a BOD of 5.0-80 mg/l; the Sabarmati — Kheroj to Vautha — with a BOD from 4.0-147 mg/l; and the Hindon — Saharanpur to Ghaziabad — with a BOD of 48-120 mg/l.
  • In its compilation of polluted stretches in Uttar Pradesh, the Ganga with a BOD range of 3.5-8.8 mg/l is indicated as a ‘priority 4’ river.
  • The cultural significance of the Ganga is such that there’s been greater focus on it but many more rivers are far more polluted.
  • In its 2015 report, the CPCB had identified 302 polluted stretches on 275 rivers, spanning 28 States and six Union Territories.
  • The increase in numbers reflected higher pollution levels as well as an increase in water quality monitoring stations.

2. Surat: A case study for water management

 

In news

  • India’s ‘Diamond City’ offers a lesson for the country’s ever-expanding cities on water management and the optimal use of water, which is rapidly becoming a scarce resource.
  • Surat’s civic body is setting up state-of-the-art sewage treatment plants (STPs) to ensure every drop of waste water is treated and reused for purposes other than drinking.

Sewage treatment

  • Sewage treatment is the process of removing contaminants from municipal wastewater, containing mainly household sewage plus some industrial wastewater.
  • Physical, chemical, and biological processes are used to remove contaminants and produce treated wastewater (or treated effluent) that is safe enough for release to the environment.
  • A by-product of sewage treatment is a semi-solid waste or slurry, called sewage sludge. The sludge has to undergo further treatment before being suitable for disposal or application to land.
  • Sewage treatment may also be referred to as wastewater treatment. However, the latter is a broader term which can also refer to industrial wastewater.
  • For most cities, the sewer system will also carry a proportion of industrial effluent to the sewage treatment plant which has usually received pre-treatment at the factories themselves to reduce the pollutant load. If the sewer system is a combined sewer then it will also carry urban runoff (stormwater) to the sewage treatment plant.

Status of STPs in India

  • Disposal of domestic sewage from cities and towns is the biggest source of pollution of water bodies in India . All Class I cities and Class II towns together generate an estimated 29129 MLD sewage (as per population in 2001 census).
  • Against this, installed sewage treatment capacity is only 6190 MLD. There remains a gap of 22939 MLD between sewage generation and installed sewage treatment capacity.
  • In percentage this gap is 78.7 %. Another 1742.6 MLD sewage treatment capacity is under planning or construction stage. If this is also added to existing capacity, even then there is a gap of 21196 MLD (equal to 72.7 %) in sewage treatment capacity.
  • CPCB has prepared and published a report ‘Status of sewage treatment in India‘. This reports analyzes and presents in detail the gap between sewage generation and treatment capacity, the technologies used for sewage treatment in India, performance of 115 sewage treatment plants studied by Central Pollution Control Board with plant-specific technical remarks and also discusses the efficacies of various treatment technologies.

The main recommendations of the report are:

  • The actual capacity utilization of STPs is only 72.2% and as such only 13.5 % of the sewage is treated.
  • This clearly indicates dismal position of sewage treatment, which is the main cause of pollution of rivers and lakes.
  • To improve the water quality of rivers and lakes, there is an urgent need to increase sewage treatment capacity and its optimum utilization.
  • State Governments should realize the problem of pollution of water bodies and pay attention to their liability to set up sewage treatment plants in cities and towns to prevent this pollution.
  • This activity requires to be recognized as one of the most important indicators of overall development of the States. If not realized urgently, this problem is fast going to magnify to an unmanageable level.

 

  • From March 2019, the Surat Municipal Corporation (SMC) will be supplying 115 MLD (million litres per day) treated water to industries located within the city, in order to meet the entire industrial requirement of water through treated or recycled water.
  • The entire quantum of water will be treated from domestic sewerage water in tertiary treatment plants at the Bamroli and Dindoli areas for supplying to mainly textile factories in the Pandesara and Sachin industrial clusters housing over 400 dying and printing units.
  • At present 40 MLD treated water are being suupplied to industries in Pandesara in the city. This is the largest capacity of tertiary water treatment in the country. In fact, Surat was the first city in the country to start selling recycled water to industries in 2014.
  • Surat’s cost effective water management system is most advantageous for its contribution towards reducing the dependency on conventional resources of water, and thus optimal use of the resource.
  • So far, the SMC has invested ₹ 280 crore in creating tertiary water treatment facilities in the city. By March next year, the corporation will save 115 MLD fresh water by supplying recycled water to industries. The SMC charges industrial units ₹ 23 per 1,000 litres of water.

Recycling technology

  • The civic body’s efforts to create infrastructure for water management is in line with the State government’s policy of promoting the use of recycled water for non-drinking purposes, and reducing dependence on ground water.

Water shortage in India

  • India is facing its worst water shortage in history, according to a report by the Niti Aayog. Nearly 600 million Indians faced water stress and about 2,00,000 people die every year because of lack of access to safe water.

3. Typhoon slams into China after killing 59 in Philippines

 

In news

Typhoon Mangkhut slammed into mainland China  after leaving a trail of destruction in and Macau and killing at least 59 people in the northern Philippines.

 

Background:Typhoons

Hurricanes, typhoons and cyclones are all rotating storms spawned in the tropics. As a group, they can be referred to as tropical cyclones. Because of the Coriolis effect, these storms rotate counterclockwise in the Northern Hemisphere and clockwise in the Southern Hemisphere.

A typhoon is a mature tropical cyclone that develops between 180° and 100°E in the Northern Hemisphere. This region is referred to as the Northwestern Pacific Basin,and is the most active tropical cyclone basin on Earth, accounting for almost one-third of the world’s annual tropical cyclones.

Typhoon Mangkhut

  • Typhoon Mangkhut,known in the Philippines as Typhoon Ompong, is currently a weakening tropical cyclone over southern China.
  • The thirty-first tropical depression, twenty-second tropical storm, and ninth typhoon of the 2018 Pacific typhoon season, Mangkhut made landfall in the Philippine province of Cagayan on September 15, 2018 as a Category 5-equivalent super typhoon, and subsequently impacted Hong Kong and southern China.
  • Mangkhut was the strongest typhoon to make landfall in the Philippines since Typhoon Haiyan in November 2013,as well as the strongest typhoon to strike Hong Kong since Typhoon Ellen in 1983.
  • Mangkhut was also the strongest tropical cyclone worldwide in 2018.
  • As of September 16, at least 62 fatalities have been attributed to Mangkhut, including 59 in the Philippines,4 in mainland China, and 1 in Taiwan.

 

  • The world’s biggest storm this year felled trees and sent skyscrapers swaying in high-rise Hong Kong, injuring more than 200 people there before making landfall on the coast of Jiangmen city, in southern China’s Guangdong province.
  • Provincial authorities said they evacuated a total of 2.37 million people and ordered tens of thousands of fishing boats back to port before the arrival of what Chinese media has dubbed the “King of Storms”.
  • Mangkhut left large expanses in the north of the main Philippine island of Luzon underwater as fierce winds tore trees from the ground and rain unleashed dozens of landslips.
  • Hong Kong weather authorities issued their maximum alert for the storm, which hit the city with gusts of more than 230 km per hour and left 213 people injured, according to government figures.
  • The Philippines was just beginning to count the cost of the typhoon which hit northern Luzon on Saturday. The death toll jumped to 59 on Sunday evening, police said, as more landslip victims were discovered.
  • An average of 20 typhoons and storms lash the Philippines each year, killing hundreds of people.
  • The latest victims were mostly people who died in landslips, including a family of four. In addition to those killed in the Philippines, a woman was swept out to sea in Taiwan.

Category: SCIENCE AND TECHNOLOGY

1. Private satellite launch from Odisha

In news

  • Gurudatta Panda, a 28-year-old from Odisha’s Berhampur, is part of a small team of technocrats that built a satellite for a private satellite design, manufacturing and management company.
  • The eight-member team, including Mr. Panda, from Hyderabad-based Exseed Space Private Limited has constructed 10 cm cube-sized communication satellite, which will be launched into space by the United States-based SpaceX.

SpaceX

SpaceX (Space Exploration Technologies Corporation) is aerospace manufacturer and space transport services company headquartered in California, US.

  • It was founded in 2002 by Internet tycoon Elon Musk, CEO of Tesla Motors and former PayPal entrepreneur with the goal of creating the technologies to reduce space transportation costs and enable colonization of Mars.
  • SpaceX has developed the Falcon 1 and Falcon 9 launch vehicles, both designed to be reusable, thus reducing the cost of launch.
  • It also has developed Dragon spacecraft to supply cargo to ISS. It is also developing manned version of Dragon.
  • In 2008, SpaceX had created history by launching first privately funded, liquid-propellant rocket Falcon 1 to reach orbit in 2008.
  • It also became first privately funded company to successfully launch, orbit and recover spacecraft (Dragon) in 2010.
  • It was also the first private company to send a spacecraft to ISS, in 2012.

 

The small satellite will carry a linear transponder on FM for voice communication. This is the first of its kind private space endeavour.

Background: Radio communication

Transponder

  • A communications satellite’s transponder is the series of interconnected units that form a communications channel between the receiving and the transmitting antennas. It is mainly used in satellite communication to transfer the received signals.
  • In radio broadcasting, it is necessary to send audio frequency signal (eg. music, speech etc.) from a broadcasting station over great distances to a receiver.
  • The music, speech etc., are converted into audio signals using a microphone. The energy of a wave increases with frequency.
  • So, the audio frequency (20 – 20000 Hz) is not having large amount of energy and cannot be sent over long distances. The radiation of electrical energy is practicable only at high frequencies e.g. above 20 kHz. The high frequency signals can be sent through thousands of kilometres with comparatively small power.
  • Therefore, if audio signal is to be transmitted properly, the audio signal must be superimposed on high frequency wave called carrier. The resultant waves are known as modulated waves and this process is called as modulation.
  • This high frequency wave (Radio frequency wave) is transmitted in space through antenna. At the receiver end, the audio signal is extracted from the modulated wave by the process called demodulation.
  • The audio signal is then amplified and reproduced into sound by the loud speaker.
  • A high frequency radio wave is used to carry the audio signal. On adding the audio signal to carrier, any one of the characteristics namely amplitude or frequency or phase of the carrier wave is changed in accordance with the intensity of the audio signal.
  • This process is known as modulation and may be defined as the process of changing amplitude or frequency or phase of the carrier wave in accordance with the intensity of the signal. Some of the modulation process namely,
    1. amplitude modulation
    2. frequency modulation and
    3. phase modulation 

Frequency modulation (FM)

  • When the frequency of carrier wave is changed in accordance with the intensity of the signal, the process is called frequency modulation.
  • In frequency modulation, the amplitude and phase of the carrier wave remains constant. Only, the frequency of the carrier wave is changed in accordance with the signal.
 

Natural calamities

  • Through private companies , the Indian Space Research Organisation (ISRO) now plans to groom space start-ups that build new solutions in communication satellites, applications from remote sensing and rocketry.
  • This satellite will serve the ham or the amateur radio community. As a result, it will be of great help during natural calamities, when conventional communication services get disrupted.

Amateur radio / Ham radio

  • Amateur Radio (ham radio) is a popular hobby and service that brings people, electronics and communication together. People use ham radio to talk across town, around the world, or even into space, all without the Internet or cell phones.
  • Amateur radio, also known as ham radio, describes the use of radio frequency spectrum for purposes of non-commercial exchange of messages, wireless experimentation, self-training, private recreation, radiosport, contesting, and emergency communication.
  • The term “amateur” is used to specify a duly authorized person interested in radioelectric practice with a purely personal aim and without pecuniary interest either direct monetary or other similar reward and to differentiate it from commercial broadcasting, public safety such as police and fire, or professional two-way radio services such as maritime, aviation, taxis, etc.

 

After the launch, this artificial satellite will be on a polar orbit with two passes over India everyday. The public will be able to receive this artificial satellite’s beacon on 145.90 Mhz using a TV tuner and USB dongles.

Polar orbit

  • A polar orbit is an orbit that passes directly over the poles of a object, or another way of looking it is an orbit with a 90° inclination.
  • Because the object is rotating beneath it the spacecraft will eventually pass over ever single part of the object.
  • A polar orbit is one in which a satellite passes above or nearly above both poles of the body being orbited (usually a planet such as the Earth, but possibly another body such as the Moon or Sun) on each revolution.
  • It therefore has an inclination of (or very close to) 90 degrees to the body’s equator.
  • A satellite in a polar orbit will pass over the equator at a different longitude on each of its orbits.

Mr. Panda, a ham radio enthusiast, helped in communication through his ham set-up when cyclone Phailin hit Ganjam district in 2013. He hoped that more youngsters from Odisha get interested in aerospace technology, an emerging field of development in the country.

2. ISRO launches two U.K. satellites

 

  • PSLV-C42 lifted off carrying two satellites from the United Kingdom – NovaSAR and S1-4 from the first launch pad at the Satish Dhawan Space Centre, SHAR here.
  • PSLV-C42 or Polar Satellite Launch Vehicle-C42 of the Indian Space Research Organisation (ISRO) launched two satellites of the United Kingdom from Sriharikota. The mission entailed launching satellites — NovaSAR and S1-4 — into ‘Sun Synchronous Orbit’. The satellites launched into this orbit are usually used for imaging, reconnaissance and weather forecasts.
  • The PSLV-C42 is the lightest version of the PSLV and flew in its core-alone version without the six strap-on motors.
  • ISRO mentioned that NovaSAR is intended for forest mapping, land use, and ice cover monitoring as well as flood and disaster monitoring while S1-4 is a high-resolution satellite that will be used for surveying resources, environment monitoring, urban management, and disaster monitoring.
  • The lightest version of the PSLV, flying in its core-alone version without the six strap-on motors, the PSLV-C-42 rose into the skies. Almost 18 minutes later, the two satellites were placed in the desired orbit by ISRO. This was the 12th such launch of a core-alone version of the PSLV by ISRO.
  • The two satellites, owned by Surrey Satellite Technology Ltd (SSTL) were placed in a circular orbit around the poles, 583 km from Earth. The commercial arm of ISRO, Antrix Corporation earned more than ₹220 crore on this launch.
  • The NovaSAR is a technology demonstration mission designed to test the capabilities of a new low cost S-band SAR platform. It will be used for ship detection and maritime monitoring and also flood monitoring, besides agricultural and forestry applications. The S1-4 will be used for environment monitoring, urban management, and tackling disasters.

Category: ECONOMY

1. Sliding Rupee and Government response

The measures announced by Finance Minister Arun Jaitley to address widening current account deficit and attract inflows to stabilise the currency may not yield result immediately and the rupee could be under further pressure.

Current account deficit

  • It means the value of imports of goods/services/investment incomes is greater than the value of exports.
  • It is sometimes informally referred to as a trade deficit.
  • The major contributor to India‘s Current Account Deficit (CAD) has been imports of Gold and Crude Oil.
  • The steps were primarily aimed at easing conditions related to external commercial borrowings, hedging conditions for infrastructure loans, and relaxing restrictions on masala bonds.

External commercial borrowings

  • ECBs refer to commercial loans in the form of bank loans, securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares), buyers’ credit, suppliers’ credit availed of from non-resident lenders with a minimum average maturity of 3 years.
  • Any money borrowed from foreign sources for financing the commercial activities in India are called ECBs.
  • The Central Government permits ECBs as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment.

Thus, ECBs are defined as money borrowed from foreign resources including the following:

1.   Commercial bank loans

2.   Buyers’ credit and suppliers’ credit

3.   Securitised instruments such as Floating Rate Notes and Fixed Rate Bonds etc.

  • Credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial Institutions such as World Bank, ADB, AFIC, CDC, etc.

ECB and FDI

  • In case of Foreign Direct Investment, the foreign money is used to finance the Equity Capital. But in case ECBs, foreign money is used to finance any kind of funding other than Equity.

 

About Hedging

  • Hedging is any strategy designed to offset or reduce the risk of price fluctuations for an asset or investment. Hedging should not be confused with hedge funds, which are private investment funds that often, but not always, employ hedging strategies.
  • When an investor buys or sells a security, the investor bets that the price of the investment will move in a certain direction. As with any bet, there’s always the risk of losing money if the price moves in the opposite direction. An investor hedges against this risk if he employs any tool or strategy that minimizes this risk.
  • In general, creating a hedge requires the purchase of a second asset with a negative correlation to the first. If the hedged security does not move as predicted, the hedge minimizes loss to the investor.

 

 

About Masala bonds

  • “Masala Bonds” are the 10 year off-shore rupee bonds issued by International Finance Corporation (IFC), a member of the World Bank group, in the international capital market in November 2014, to raise funds for supporting private sector infrastructure development initiatives in India. Masala bonds are listed in London Stock Exchange.
  • Subsequently, RBI put in place a framework for issuance of Rupee denominated bonds overseas within the overarching External Commercial Borrowing (ECB) policy, in order to facilitate Rupee denominated borrowing from overseas.
  • The term Masala bonds now extends to any rupee denominated bonds issued to overseas buyers even though RBI has not resorted to the use of this name in their guidelines.
  • The term “masala” stands for Indian spices, which gives Indian cuisine its characteristic flavour, and helped India gain a place in the global trade map.
  • By usage of the term, Masala Bonds are similar to dimsum bonds -bonds issued outside China but denominated in Chinese currency. But they are different from samurai bonds which are Yen (Japanese currency)-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.

 

  • The government believes these measures could lead to additional capital flows to the tune of $5 billion-$10 billion and limit currency pressures to some degree.
  • The rupee went close to 73 per dollar last week, weakening by about 13% in 2018 on the back of rising oil prices and widening current account deficit. Concerns over trade wars have also made emerging market currencies vulnerable, along with the strengthening dollar.
  • The capital account measures announced are unlikely to result in any significant shift in fund flows in the immediate future since these are better suited when the sentiment in the global market is positive towards emerging markets and when it is relatively easy for emerging market corporates to raise money abroad.
  • Currency experts, while appreciating that the Centre avoided any knee jerk reaction since the primary source of the rupee weakening is coming from external sources, said the rupee could depreciate again and test the 73-to-a-dollar mark.
  • It is good that there was no knee-jerk reaction from the government, like NRI deposits schemes etc. because the main reason for the rupee’s weakness is coming from external sources. The steps will help attract inflows in the long run.
  • The rupee, which had strengthened in the last two trading sessions in anticipation of the measures, could start weakening again.
  • Rupee may depreciate as long as the external factors are in play. It may touch 73 a dollar levels.
  • A separate dollar window for oil marketing companies may help the rupee. The $400 billion of foreign exchange reserves is a source of comfort for the currency but reserves have depleted in the last few months.

2. States and fiscal targets

 

  • Funding of farm loan waivers, poll-related spending and other populist measures are likely to ensure that States are set to miss their fiscal consolidation targets budgeted at the beginning of the year, says a report.
  • Given the factors such as funding of crop loan waivers, election-related spending and the flood relief will see the States miss their fiscal consolidation targets.

 

Fiscal consolidation

  • Fiscal Consolidation refers to the policies undertaken by Governments (national and sub-national levels) to reduce their deficits and accumulation of debt stock.
  • Key deficits of government are the revenue deficit and the fiscal deficit.
  • The gains from the economic reforms introduced in India in early nineties could not be sustained for a much longer period. Deficits were widening and by 1999-2000 the combined fiscal deficit (of centre and states) almost reached levels of the crisis year ‘1990-91’. Sustainability of debt too was becoming a major issue.
  • In December 2000, Government of India introduced the Fiscal Responsibility and Budget Management (FRBM) Bill in the Parliament as it was felt that institutional support in the form of fiscal rules would help in setting the agenda for the future fiscal consolidation programme.
  • The Twelfth Finance Commission recommended in November 2004 that state governments too enact their fiscal responsibility legislations. However, states like Karnataka, Kerala, Punjab, Tamil Nadu and Uttar Pradesh had already enacted their fiscal responsibility legislation even before the Commission recommended so.

Fiscal deficit

  • Fiscal deficit is the difference between revenue receipts plus non-debt capital receipts on the one side and total expenditure including loans, net of repayments, on the other.
  • It measures the gap between the government consumption expenditure including loan repayments and the anticipated income from tax and non-tax revenues. It also indicates the borrowing requirements of the government from all sources.
  • The bigger the gap the more the government will have to borrow or resort to printing money to make both ends meet. Indiscriminate borrowings will push the economy into debt trap, while too much deficit financing may be inflationary.
  • Increasing fiscal deficit over a period of time means government expenditure is rising faster than its revenues. Implementation of Fiscal Responsibility and Budget Management (FRBM) legislation during the period 2005-10 has helped the Union and State governments to reduce their fiscal deficits to a considerable extent.
  • However, the expansionary fiscal stance of these governments during the global slowdown years (2008-09 and 2009-10) resulted in fiscal deficit moving up significantly.
  • The Thirteenth Finance Commission (FC-XIII) has proposed a target of attaining a 3% fiscal deficit (of GDP) for the federal government by 2013-14 and for State Governments in stages, and in a manner that all states would attain 3 % fiscal deficit (of their Gross State Domestic Product) latest by 2014-15.
  • The fiscal deficit target set by the Thirteenth Finance Commission for the Union Government for the current fiscal year, viz 2011-12, is 4.8% of GDP. As against this, the Medium Term Fiscal Plan of the Union Government has placed this figure at 4.6%.

 

Background:State Development Loans(SDLs)

  • State Development Loans (SDLs) are dated securities issued by states for meeting their market borrowings requirements. In effect, the SDL are similar to the dated securities issued by the central government.
  • Purpose of issuing State Development Loans is to meet the budgetary needs of state governments. Each state can borrow upto a set limit through State Development Loans. 
  • The SDL securities issued by states are credible collateral for meeting the SLR requirements of banks as well as a collateral for availing liquidity under the RBI’s LAF including the repo.
  • One remarkable feature of SDL is that it is a market oriented instrument for states to mobilise funds from the open market. Higher the fiscal strength of a state, lower will be the interest rate (yield) it has to pay for the SDL borrowings.
  • RBI facilitates the issue of State Development Loans securities in the market. SDL securities are considered as superior to loans mobilized or bonds issued by state government entities.
  • The RBI as the facilitator to the issue of SDLs, has the power to make repayments to SDLs out of the central government allocation to states.

Issue and marketability of SDLs

  • SDLs are basically securities and they are auctioned by the RBI through the Negotiated Dealing System (NDS) which is dedicated electronic trading system for government securities and other instruments. RBI holds SDL auctions once a fortnight.
  • The SDLs doesn’t have any credit risk and in this respect, they are similar to central government securities.
  • This means that under the CRAR prudential norm, the risk weight of SDL is zero and banks need not keep any capital for investing in SDLs.
  • Such a treatment and the higher yield (interest rate) of SDLs have encouraged banks to invest in them in recent years and states are hence able to meet their borrowing requirements.

Trading of SDLs

  • SDL’s are traded electronically on the RBI managed NDS-OM (Negotiated Dealing System-Order Matching) and traded in the voice market (NDS).

Interest rate or yield on SDLs

  • The rate of interest or yield of SDL securities are determined through auction. Still the interest rate will be slightly higher than that of Central Government securities (G-secs) of matching tenure.

Who buys SDLs?

  • The investors in SDL are basically commercial banks, mutual funds, insurance companies who are attracted by the slightly higher interest rate of SDL (compared to central government securities). In 2015, Government allowed Foreign Portfolio Investors (FPIs) to buy SDLs up to 2% of outstanding SDLs in the market.

 

  • The States’ fiscal deficit is primarily financed by issuing State development loans (SDLs). In April-August of FY19, gross issuance of SDL contracted by 3.4% to ₹1.32 trillion, primarily led by a sharp decline in issuance by Uttar Pradesh, Maharashtra and Gujarat.
  • However, excluding these three States, total SDL issuance by the remaining States has grown 14.7% in the first five months of FY19.
  • The agency also estimates that ₹1.3 trillion of SDLs are scheduled to be redeemed in FY19, much higher than ₹0.8 trillion redeemed in FY18.
  • Recently, the Reserve Bank of India had estimated that fiscal deficits of all the 29 States might decline to 2.6% of their gross State domestic product (GSDP) citing their FY19 Budget estimates, from 3.1% in FY18.
  • But an analysis of the FY19 Budgets of nine States, accounting for about 62% of the combined GSDP of all 29 States in FY17, shows that their fiscal deficits are budgeted to slip to 2.5% of GSDP in FY19 from 2.6% in FY18.
  • As 12 of the 29 States, three of which were part of the nine included in the analysis, are also poll-bound, apart from the general elections before May 2019, there is a risk of new schemes being announced or a higher allocation for welfare schemes, the note said.
  • The unforeseen expenditure on flood relief in states like Kerala and Karnataka, which may not be fully offset by higher grants or other revenue mobilisation measures, can exert pressure on their fiscal balances.

3. India calling: 5G networks may be in place by 2020

 

  • India — one of the fastest growing telecom markets in the world — is pushing for a timely roll-out of 5G technology in the country.
  • The Indian government is aiming to commercially introduce 5G services in the country by the end of 2020, almost in line with rest of the world.
  • 5G is the next generation of mobile Internet connectivity that would offer much faster and more reliable networks, which would form the backbone for the emerging era of Internet of Things (IoT).
  • Previous generations of mobile networks addressed consumers predominantly for voice and SMS in 2G, web browsing in 3G and higher speed data and video streaming in 4G.
  • The transition from 4G to 5G will serve both consumers and multiple industries.Globally, over 150 pre-commercial 5G trials are under way around the world, including South Korea, China and the U.S. However, a recent report by a top panel set up by the Centre pointed out that so far, 5G trials are yet to begin in India.
  • Ericsson pointed out in the report that the 4G networks now serve more than 240 million subscribers in urban areas across the country; however, LTE coverage in rural areas remains a challenge.
  • The 4G link speeds in India are picking up, averaging 6-7 Mbps as compared to 25 Mbps in advanced countries.
  • The 5G standards, currently being developed by the third Generation Partnership Project (3GPP) — an industry-driven standardisation body — envisages high speed links with peak rates of 2 to 20 Gbps for various services.
  • Once commercialised, 5G is expected to disrupt not only telecom but other industries as well as. 5G is expected to see use beyond delivery of services just on personal phone platforms.
  • It will also connect new devices including machines, sensors, actuators, vehicles, robots and drones, to support a much larger range of applications and services.
  • Initially the next generation network will see usage in key government projects such as smart cities and Digital India, besides other business-to-business applications.
  • An Ericsson report estimates that 5G would enable a $27-billion revenue opportunity for Indian telecom operators by 2026.
  • The government panel report noted that even after the entry of 5G, the earlier generation mobile technologies — 2G, 3G and 4G — would continue to remain in use and it may take 10 or more years to phase them out.
  • The government expects the cumulative economic impact of 5G on India to be about $1 trillion by 2035.
  • The reserve price for proposed spectrum band for 5G services in 3300-3600 MHz frequency had been fixed at ₹492 crore per MHz for a pan-India minimum block of 20 MHz, meaning operators would have to shell out about ₹10,000 crore.
  • This comes at a time when the industry continues to reel under financial stress, weighed down by high debt.
  • Going by global standards, the price of ₹492 crore per MHz for 5G spectrum is on the higher side as the South Korean auctions that happened recently had the price at ₹130 crore per MHz.
  • The steering committee has recommended that the 5G spectrum allocation policy should be announced by the end of this year.

4. Ten years of collapse of Lehman Brothers

In news

  • It has been ten years since the investment banking firm Lehman Brothers collapsed in mid-September 2008. Shortly after, there was a meltdown in global financial markets, including India.

Background

  • From 2005 to 2007, at the height of the real estate bubble, mortgages were given to many homebuyers who could not afford them, and then packaged into securities and sold off.
  • Lehman Brothers bought several mortgage brokerages and posted record profits. But in mid-2007, defaults on sub-prime mortgages rose exponentially.
  • A credit crisis erupted in August 2007 with the failure of two Bear Stearns hedge funds while payment defaults triggered massive declines in banks and real estate incomes. In 2008, Lehman Brothers declared bankruptcy.
  • In 2008, when America’s two biggest banks Merrill Lynch and Lehman Brothers reported high losses due to huge exposure to risk assets, all triggered by sub-prime lending by banking institutions, Bank of America came to the rescue of Merrill Lynch while Lehman Brothers had to file for bankruptcy.

Sub-prime loan

  • Sub-prime refers to a loan given to a borrower who does not qualify for a regular home loan because of a poor credit record, low income and lack of job security.
  • Banks expected the value of the underlying security or the property to go up.So, they increased the mortgage interest rate (higher than the conventional loan) and called it a sub-prime mortgage.
  • They could earn more with the higher mortgage interest rate and if the borrowers discontinued repayment, they could sell the property for a higher consideration due to appreciation in property prices.

Impact on India

  • The impact on the Indian economy was less severe due to lower dependence on exports and the fact that a sizeable contribution to the GDP came from domestic sources.
  • Indian banks had limited exposure to the U.S. mortgage market, directly or through derivatives, and also to the failed and financially-stressed global financial institutions.

D. GS4 Related

Nothing here for today!!!

E. Editorials

Category: SOCIAL ISSUES

1. Lethal filth – on manual scavenging

The law should be enforced vigorously to eliminate manual scavenging in its entirety.

Context:

Five young men who were employed to clean a septic tank in an upmarket residential community died during the process. Around the same time as the Delhi incident, five workers died in a septic tank in Odisha.

Background:

What is manual scavenging?

Manual scavenging is a term used mainly in India for a caste-based occupation involving the manual removal of untreated human excreta from bucket toilets or pit latrines by hand with buckets and shovels.

Details:

  • Manual scavenging has been officially prohibited by law in 1993 due to it being regarded as a dehumanizing practice (if not done in a safe manner).
  • Prohibition of Employment as Manual Scavengers and their Rehabilitation Act, 2013’ came into effect from 6thDecember, 2013 replacing Employment of Manual Scavengers and Construction of Dry Latrines(Prohibition) Act, 1993.This Act intends to achieve its objectives of eliminating insanitary latrines, prohibition of employment as manual scavengers etc
  • The act says National Commission for Safai Karamcharis (NCSK)would monitor implementation of the Act and enquire into complaints regarding contravention of the provisions of the Act.

What does the Prohibition of Employment as Manual Scavengers and their Rehabilitation Act, 2013 say?

  • A violation can be punished with two years of imprisonment or fine or both.
  • Under the provision, no person, local authority or agency should engage or employ people for hazardous cleaning of sewers and septic tanks.
  • Mechanised cleaning of septic tanks is the prescribed norm.

Issue:

  • The law (Prohibition of Employment as Manual Scavengers and their Rehabilitation Act, 2013) is not being enforced, and there is no fear of penalties.
  • The workers in Delhi were apparently asked to perform the task in violation of Section 7 of the Act;
  • In spite of a well-funded programme such as the Swachh Bharat Abhiyan in operation, little attention is devoted to this aspect of sanitation.
  • The requirements of worker safety and provision of safety gear for rare instances when human intervention is unavoidable are often ignored.
  • The Ministry of Drinking Water and Sanitation in its manual of 2016 on toilet design acknowledges that in rural areas, mechanical pumps to clear septic tanks are not available.
  • In the southern States, sanitation has expanded along with urbanisation, but it has brought with it a higher number of deaths as workers clean septic tanks manually. For instance, Tamil Nadu recorded 144 fatalities of workers engaged for septic tank cleaning in the past three years, according to official data.
  • Toilet designs proposed by the government include those in which fully composted waste must be removed from pits every two years.
  • In the absence of political will and social pressure, more lives could be lost because more tanks are being built in rural and urban areas as part of the drive to construct toilets.

Way forward:

  • If the law on manual scavenging is to be effective, the penalties must be uniformly and visibly enforced.
  • It is equally important for State governments to address the lack of adequate machinery to clean septic tanks.
  • The Centre must ensure that the proposals for new toilet design does not become a fresh avenue to oppress members of some communities who are expected to perform such work, reflecting social inequalities.

Conclusion:

The incident is a shocking reminder that India’s high-profile sanitation campaign has done little to alter some basic ground realities. India’s sanitation problem is complex, and the absence of adequate toilets is only one lacuna. The Swachh Bharat Abhiyan should make expansion of the sewer network a top priority and come up with a scheme for scientific maintenance that will end manual cleaning of septic tanks. The law should be enforced vigorously to eliminate manual scavenging in its entirety.

Category: ECONOMY

1. Covering the last field – On Pradhan Mantri Fasal Bima Yojana (PMFBY)

Issue:

  • Excess rains and floods in Kerala, deficit rainfall in eastern and north-eastern India, and associated large-scale crop losses have again highlighted the need for providing social protection to poor farmers.

 Pradhan Mantri Fasal Bima Yojana (PMFBY):

  • A highly subsidised Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched in 2016 to provide insurance to farmers from all risks.
  • The scheme was aimed at reducing basis risk and premium burden of the farmers
  • The scheme’s total expenses today are almost Rs. 30,000 crore.
  • In comparison to earlier schemes, the PMFBY is more farmer friendly, with sums insured being closer to the cost of production.
  • The scheme’s linkage with parallel programmes like the ‘Jan Dhan Yojana’ and ‘Digital India’ makes it a truly inclusive and welfare-based scheme.
  • The scheme therefore led to increased coverage of 5.7 crore farmers in 2016 and the sum insured crossed ₹200,000 crore. However, notwithstanding its ambition and intent, the scheme since its operation has been scrutinised more for its misses than its hits.

What are some of the problems inherent in the scheme:

  • Outmoded method of crop loss assessment
  • Inadequate and delayed claim payment
  • High premium rates
  • Poor execution

Consequently, in 2017, the expansive coverage of the scheme suffered some setback as seen in a drop of nearly one crore farmers in enrolment (about 17%). Such shortcomings inspired recent announcements such as that of Bihar to start its own scheme, the “Bihar Rajya Fasal Sahayata Yojna”.

How can the scheme be made more effective?

In order to make the PMFBY a sustained developmental action for a comprehensive climate risk protection for every Indian farmer, the following action points are suggested:

  • Faster and appropriate claim settlement: Timely estimate of loss assessment is the biggest challenge before the PMFBY. The weakness of the PMFBY (and most likely for the Bihar variant) is the methodology deployed for crop loss assessment: the crop cutting experiments (CCEs).

Crop Cutting Experiments: are periodic exercises conducted nationwide every season to determine crop yields of major crops. Sample villages are chosen through scientifically designed surveys, and crops are physically harvested to determine yields. These experiments require huge capital and human resources and have to be done simultaneously all over India in a limited time. Therefore, they have large errors.

  • Improvement in the efficacy of the PMFBY: technology use must be intensified. With options available today, such as detailed weather data, remote sensing, modelling and big data analytics, the exercise of monitoring crop growth and productivity can be not only more accurate and efficient but also resource saving. Hybrid indices, which integrate all relevant technologies into a single indicator, are good ways to determine crop losses. Their deployment can assist in multi-stage loss assessment and thus provide farmers with immediate relief for sowing failure, prevented sowing and mid-season adversity apart from final crop loss assessment.
  • Creation of an online portal: the whole process of monitoring can be made accessible and transparent to farmers, policy-makers and insuring agencies alike through an online portal. Immediate claims settlements can be made once this is linked to the process of direct benefit transfers.
  • Universal and free coverage for all smallholders: Farmers’ awareness about the scheme and crop insurance literacy remain low in most States, especially among smallholders in climatically challenged areas in most need of insurance. The complicated enrolment process further discourages farmers. To increase insurance coverage a system should be thought of whereby farmers do not need to enrol themselves and every farmer automatically gets insured by the state. This will provide social protection to every farmer if the full premium of smallholders is also paid by the state. In the process, coverage can go up almost 100%. Such differential subsidies are already applicable in urban areas for water and electricity.
  • Improved and transparent insurance scheme design: Insurance companies are supposed to calculate actuarial rates, and based on tenders, the company quoting the lowest rate is awarded the contract. It is often seen that the rates quoted by companies for the same region and for the same crop varying from 3% to more than 50%. Such large variations are irrational. One reason for such inflated premiums is lack of historical time series of crop yields at the insured unit level. To minimise their risks caused by missing data and to account for other unforeseen hazards, insurance companies build several additional charges on pure premium. Science has the capacity today to characterise risks and reconstruct reasonably long-time series of yields. The premium rates, and hence subsidy load on the government, can come down significantly if we make greater use of such proxies and appropriate sum insured levels.

Conclusion:

If a comprehensive social protection scheme is implemented, there would be opportunities for further rationalisation of subsidies. The government today spends more than Rs. 50,000 crore annually on various climate risk management schemes in agriculture, including insurance. This includes drought relief, disaster response funds, and various other subsidies. Climate-risk triggered farm-loan waivers are an additional expense. All these resources can be better utilised to propel farm growth. Reinvigorating the crop insurance scheme will provide better social protection to every farmer.

2. Where goes the rupee? – on depreciation in the value of rupee

Context:

Rising crude oil prices in global markets and strengthening dollar has dragged the rupee below the 73 per dollar mark. It was just under 64 at the beginning of the year. There is now intense debate in the media on whether the Reserve Bank of India (RBI) should step in and take steps to defend the dollar.

Background:

Rupee Devaluation vs Rupee Depreciation:

The term devaluation is used when the government reduces the value of a currency under Fixed-Rate System. When the value of the currency falls under the Floating Rate System, it is called depreciation.

Revaluation is a term which is used when there is a rise in currency value in relation with a foreign currency in a fixed exchange rate. In the floating exchange rate regime, the correct term would be appreciation.

A long time ago, the ‘standard’ or textbook prescription for countries with severe balance of payments deficits was to devalue their currencies. The underlying rationale was that devaluation decreases the price of exports in foreign countries and so provides a boost to exports by making them more competitive. Correspondingly, imports become more expensive in the domestic economy, in turn reducing the volume of imports.

Details:

  • Fortunately, the RBI has a huge stock of foreign exchange reserves and so the balance of payments situation is not (at least in the immediate future) the main cause of anxiety for the steady decline in the value of the rupee.
  • What must concern policy-makers is that the slide in the rupee can have adverse effects on the domestic economy. For instance, the surge in the landed price of crude oil has already resulted in a steep rise in the prices of petroleum and diesel.
  • Diesel price hikes increase the cost of transportation of goods being transported by road. Unfortunately, many food items fall in this category. Obviously, any increase in food prices must set alarm bells ringing in the Union Finance Ministry.
  • The devaluation will also increase prices of imported inputs, particularly those for which there are no alternative domestic sources of supply. This can have some effect on output expansion.
  • Many domestic companies that have taken dollar loans will also face significantly higher servicing costs.

Causes for depreciation:

  • Finance Minister has rightly observed that external factors are the cause.
  • In particular, global capital and perhaps currency speculators have been flocking to the American economy. This is not really surprising because the U.S. economy has become a very attractive option. Some months ago, U.S. President Donald Trump announced a massive decrease in corporate tax rates. More recently, the U.S. Federal Reserve has also increased interest rates.
  • The icing on the cake for global investors’ is the booming U.S. economy.
  • The dollar has appreciated sharply against practically all other currencies too. For instance, it has moved up against both the euro and the pound.
  • Developing economies are typically even harder hit since global portfolio investors tend to withdraw from these markets, perhaps because their economic or political fundamentals are relatively more unstable.
  • Countries such as Turkey and South Africa have experienced significantly higher rates of devaluation than India.
  • If several countries are devaluing at the same time — as it seems to be happening now — then none of these countries benefit from their exports being cheaper abroad. In other words, there may not be any surge in Indian exports following the current round of devaluation. Neither will there be a huge fall in imports.
  • Crude oil is by far the biggest item in the list of Indian imports, and this is price-inelastic.
  • Imports from China now constitute a tenth of overall imports. Since the yuan has also depreciated against the dollar, there is not much reason to believe that Chinese imports will be costlier than earlier.

Corrective options:

  • The problems caused by the spiralling prices of petroleum products can be addressed in the following manner. Both the Central and State governments earn huge revenues from excise duties and value-added tax (VAT) on petrol and diesel. In fact, excise duties were raised in the recent past merely as a revenue-gathering device. Now that the rupee cost of crude has shot through the roof, the Centre should certainly lower duties.
  • Rates of VAT should also be lowered by State governments. A small reduction in VAT may even be revenue neutral since VAT is levied as a percentage of price paid by dealer.
  • The RBI has several policy options. It could the most direct route — of offloading large amounts of dollars. This would increase the supply of dollars and so check the appreciation of the dollar, but at the cost of decreased liquidity. Clearly, this weapon has to be used with caution. The RBI does intervene in the foreign exchange market from time to time to manage a soft landing for the rupee, and this has to continue.
  • The Central bank now has an explicit inflation target of 4%, a level that is almost certain to be breached if the rupee remains at its current level. This is very likely to induce the Monetary Policy Committee (MPC) of the RBI to raise interest rates again in order to reduce the inflationary tendencies.
  • The MPC must moderate any rate increase. Any sharp increase has an obvious downside risk to it — any increase in interest rates can have an adverse effect on growth. This can actually backfire if profitability of companies goes down. Any ‘big’ negative change in profitability may make foreign portfolio investors pull out of Indian stocks and actually exacerbate the rupee’s woes.
  • The best option for the government would be to borrow from non-resident Indians (NRIs) by floating special NRI bonds that have to be purchased with foreign exchange, and with maturity periods of at least three years.
  • Interest rates have to be attractive, and investors must of course be protected from exchange rate fluctuations. Since interest rates in countries like the U.K. and even the U.S. are quite low, the promised interest rate does not really have to be very high by prevailing Indian levels.
  • Further, the term limit imposed on borrowings of manufacturing companies is to be shortened further in order to curb dollar demand. The response to the move from the markets will need to be carefully tracked.
  • The steps to strengthen the rupee in the short term are welcome, given the large-scale outflow of capital from emerging markets to the West. These ad hoc steps to avoid an immediate crisis in the external sector, however, should not deflect attention from the more fundamental reasons behind the decline of the rupee.
  • India has been unable to boost exports over the years for various reasons. At the same time, it has been unsuccessful in finding sustainable domestic sources of energy to address the over-reliance on oil imports. This has meant that the rise in the price of oil has traditionally exerted tremendous stress on the current account deficit and the currency.
  • The depreciating rupee is also a symptom of persistently higher domestic inflation in India over many decades. For example, in line with vastly different inflation rates in India and the U.S., the rupee has lost about 60% of its value in the last 10 years against the dollar. This problem cannot be addressed without drastic changes in the style of monetary policy conducted by the RBI, which is an unlikely proposition.

Conclusion:

At the moment, what must be avoided is any sharp fluctuation in the exchange rate — in either direction. Neither the government nor the RBI can afford the option of inaction. The other extreme of knee-jerk, overkill options must also be avoided. The government must now make use of moderate but effective instruments available. It has to think of a long-term plan to boost exports, preferably through steps that remove policy barriers that are impeding the growth of export-oriented sectors, in order to find a sustainable solution to the problem of the weakening rupee.

F. Tidbits

Nothing here for today!!!

G. Prelims Fact

Nothing here for today!!!

H. Practice Questions for UPSC Prelims Exam

Question 1. Consider the following statements:
 

  1. The Central Pollution Control Board (CPCB) of India is an executive organisation.
  2. It Co-ordinates the activities of the State Pollution Control Boards by providing technical assistance and guidance.

Which of the above statements are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. None of the above

See

Answer

 

Question 2. Consider the following statements:
 

  1. The National Green Tribunal (NGT) has been vested with powers to hear any matter relating to the Wildlife (Protection) Act, 1972, the Indian Forest Act, 1927.
  2. The NGT has the power to hear all civil cases relating to environmental issues and questions.

Which of the above statements are incorrect?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. None of the above

See

Answer
Question 3. Consider the following statements:
 

  1. Biochemical oxygen demand (BOD) is the amount of dissolved oxygen (DO) needed (i.e., demanded) by aerobic biological organisms to break down organic material.
  2. BOD can be used as a gauge of the effectiveness of wastewater treatment plants.

 Which of the above statements are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. None of the above

See

Answer
Question 4. Consider the following statements: 
 

  1. Transponder is mainly used in satellite communication to transfer the received signals.
  2. When the amplitude of carrier wave is changed in accordance with the intensity of the signal, the process is called frequency modulation.

Which of the above statements are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. None of the above

See

Answer

I. Practice Questions for UPSC Mains Exam

  1. Disposal of domestic sewage from cities and towns is the biggest source of pollution of water bodies in India. Dismal position of sewage treatment is the main cause of pollution of rivers and lakes. Critically examine.

  2. India’s sanitation problem is complex, and the absence of adequate toilets is only one lacuna. There needs to be an expansion of the sewer networks and a scheme for scientific maintenance will end manual cleaning of septic tanks. Suggest some measures that can be taken to reduce the menace of manual scavenging.

Also, check previous Daily News Analysis

 

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