Articles Daily Current Affairs

1ST SEPTEMBER DAILY CURRENT AFFAIRS FOR UPSE PRELIMS& MAINS

UPSC  PRELIMS & MAINS

1. Rare Renati Chola Era Inscription Unearthed:

Context:

  A rare inscription dating back to the Renati Chola era has been unearthed in a remote village of Kadapa district in Andhra Pradesh. 

Details:

  The inscription was written in archaic Telugu.

  It was assigned to the 8th century A.D. when the region was under the rule of the Chola Maharaja of Renadu.

  The inscription also throws light upon the priority given to morality in those days. 

Renati Cholas: 

The Telugu Cholas of Renadu (also called Renati Cholas) ruled over the Renadu region, the present-day Kadapa district.

  They had the unique honour of using the Telugu language in their inscriptions belonging to the 6th and 8th centuries.  The inscriptions at Gandikota at Jammulamadugu and Proddatur are proof of this fact.

2.India’s Population Data And A Tale Of Two Projections:

Context:

  A study by the Seattle-based Institute for Health Metrics and Evaluation (IHME)

Details:

∙ The study estimates that India’s population will peak by mid-century at around 1.61 billion. It also estimates that by 2100, India’s total population will be around 1.09 billion and could also be as low as 724 million.

       o India’s current population stands at 1.35 billion.

∙ The IHME study’s observation is in line with the widely-used United Nations projections of India becoming the largest population country by around mid-century. 

∙ However, the two projections exhibit large divergence on their prediction of the population number by 2100. While the UN predicts a population of 1.45 billion by 2100, the IHME study predicts a total population of around 1.09 billion.

Possible causes for divergence:

∙ The IHME population projections accuracy is subject to the assumptions made. The IHME study assumes an average Total Fertility Rate (TFR) of 1.29. 

                           o Total fertility rate (TFR) refers to the total number of children born or likely to be born to a woman in her lifetime if she were subject to the prevailing rate of age-specific fertility in the population. 

∙ Since the assumed TFR is less than the replacement level fertility, it is resulting in a sharp population decline. 

                   o Replacement level fertility is the total fertility rate at which a population exactly replaces itself from one generation to the next, without migration. This rate is roughly 2.1 children per woman for most countries, although it may modestly vary with mortality rates. 

∙ The assumption for the TFR for India is based on data regarding contraceptive use in the National Family Health Survey (NFHS) and the potential for increasing contraceptive use.∙ However, there are concerns that the contraceptive use in the NFHS is poorly estimated, and as a result, unmet need for contraception may be lower than that estimated by the IHME model, generating implausibly low fertility projections for 2100.

Significance of the study:

Despite the divergence in the projection of numbers for 2100, the UN’s projections and the IHME projections both predict that India’s population will peak by mid-century and subsequently decline driven by a sharp reduction in fertility. 

∙ The high population would pressurize the developmental process in India given the scarce resource base. 

∙Ideally, the population policy should focus on peaking at the earliest and then decreasing. A major aspect of this would be the need to decrease the TFR in india.

Fertility decline: 

In the 1950s, India’s total fertility rate (TFR) was nearly six children per woman and today it stands at 2.2

∙ The massive push for family planning coupled with forced sterilisation during the 1970s led to a 17% decline in TFR from 5.9 in 1960 to 4.9 in 1980. Between 1992 and 2015, TFR has fallen by 35% from 3.4 to 2.2. 

Around 18 States and Union Territories have a TFR below 2, below the replacement fertility levels. 

Possible causes for declining TFR: 

  Family planning programme:

 ∙ This involved measures like sterilisation, condom distribution and intrauterine device (IUD) insertion. 

∙ Between 1975 and 1994, family planning workers were assigned targets on sterilisations, condom distribution and intrauterine device (IUD) insertion. There were concerns that such targets often led to coercion. Following the Cairo Conference on Population and Development in 1994, family planning has lost primacy in the Indian policy discourse.

Disincentive system:

∙ Punitive policies designed to punish people with large families include measures like denial of maternity leave for third and subsequent births, limiting benefits of maternity schemes and ineligibility to contest in local body elections for individuals with large families. 

∙ These public policies are aimed to encourage the small family norm.

∙ However, these policies were mostly ignored in practice.

Aspirational revolution:

 ∙ The socio-economic transformation of India since the 1990s seems to have played an important role in decreasing the TFR in India. 

Agriculture has become an increasingly smaller part of the Indian economy and aspirations for jobs outside agriculture have grown. 

∙ While farmers preferred more children as a resource in their agricultural work, the new parents aspire to ensure quality education for their children. Given the scarcity of their monetary resources, they prefer to limit the number of their children as this allows them to invest more in each child Subsequently, parents have begun to rethink their family-building strategies. 

∙ While the fertility decline in western countries can be mainly attributed to retreat from the family, Indian parents’ aspirations for their children seem to be driving the fertility decline in India

Conclusion: 

∙ While the demographic data suggests that the aspirational revolution is already underway, the need of the hour is to hasten the fertility decline by ensuring that the health and family welfare system are able to provide contraception and sexual and reproductive health services on demand.

3.From Locker Rooms To Classrooms:

Context

       Increasing instances of cybercrimes and cyberbullying of girls and women.

Concerns:

Gender violence:

      Instances of non-consensual sharing of images online to threaten and shame girls and women amount to a form of gender violence and raise serious questions about the existing mindsets of the youngsters indulging in such acts.

Growing digital presence: 

    • There is a growing trend of digital presence in the form of social media usage.
    • As the boundary between the real and the virtual world becomes increasingly blurred, the perceived risks of the use of technology for nefarious purposes have only increased.

Challenge posed by the pandemic:

               COVID-19 seems to have only increased the challenges that women face. The National Commission for Women has reported a surge in domestic violence and cybercrimes, which has made girls and women more vulnerable as they face violence and abuse inside their homes and online.

Wrong solutions:

               Deactivating social media handles or deleting so-called provocative photos are being used as a quick fix measure. However, this approach does not address the real problem which seems to be the existing gender norms and norms of masculinity.

 Way forward:

 Mainstreaming the issue: 

          Societies must sensitize children and young women and men of the issue of gender violence

         ∙ Schools should adopt Gender-based Violence programmes and curricula, to mainstream the issue of gender violence which will allow the possibility of healthy discussions on the issue.

Educational intervention: 

There should be efforts made to shape positive mindsets among the young. This could involve educational interventions. Such educational interventions will enable society to move towards the ideal of gender equality. 

This could involve engagement between school communities, civil society organisations and governments to define alternatives for pre-existing gender norms. 

Engaging boys: 

There is a need to engage boys to achieve gender equality. 

A community-based behavioral change program needs to be designed to provide young boys with the skills and knowledge they need to challenge existing gender norms and take action to end violence and discrimination against women and girls.

 Social movement:

  The movements towards gender equality and the eradication of violence against women like the Riot Grrrl and #MeToo movement are gaining traction. These movements point to the fact that positive changes can be effected only when people come together to confront the dominant social norms

There is a need for a social movement involving everyone to redefine the existing gender norms and norms of masculinity. 

Safer digital spaces: 

A major measure to prevent and counter cyberbullying would involve the creation of safe digital spaces and addressing the issues of privacy.

4. Debt Revamp To Prolong Banks’ Asset Quality Uncertainty: Fitch

 Context: 

According to Fitch Ratings, a one-time debt restructuring allowed by RBI to help lenders and borrowers amid the COVID-19 pandemic will prolong uncertainty about the banking sector’s asset quality.

 Details: 

RBI recently announced that it will allow restructuring of corporate and personal loans to ease debt strains on companies and lenders. 

Fitch said it believes that the scheme may be designed to give banks more time to raise capital, which remains challenging in the current environment, to address the impact of the crisis on loan portfolios. 

“The policy could open a window for banks to build capital buffers while putting off full recognition of the coronavirus pandemic’s impact on loan portfolios, but is reminiscent of a strategy adopted over 2010-2016 that delayed and exacerbated problems for the banks,” Fitch said. 

RBI has set up a committee to oversee restr◘ucturing plans involving creditors with more than ₹15 billion of debt. o According to Fitch, lending to retail and small- and mediumsized firms is likely to account for a substantial portion of future pandemiclinked asset quality stress. 

Concerns: 

Indian banks are burdened with more than $120 billion in bad loans. 

The banking sector is ranked the third-worst among 13 major world economies in asset quality. 

RBI’s experience with loan restructuring in the past hasn’t been encouraging. 

            o In several instances the restructuring was used for evergreening of loans, a practice in which banks provide additional loans to stressed borrowers, often indirectly, to enable them to repay existing loans. 

  1. Naga Groups Seek Accord Review:

Context: 

The Working Committee of the Naga National Political Groups (NNPGs) has sought a review of the Framework Agreement (FA) that the Centre had signed with the rival Isak-Muivah faction of the National Socialist Council of Nagaland, or NSCN (I-M), in August 2015. 

The NNPGs comprise seven rival factions of the NSCN (I-M) and older armed groups. 

Background: 

The NSCN-IM, one of the largest Naga groups, signed a framework agreement in August 2015 to end the decades-old issue. 

Ravi (interlocutor) signed the agreement on behalf of the Centre in the presence of the Prime Minister. The other two signatories were Isak Chishi Swu, who died in 2016 and Thuingaleng Muivah, 86, who is leading the talks. 

An understanding was reached between the two sides not to release this in the public domain for security reasons. 

Issue: 

Having released the details of the agreement, NSCN-IM has accused interlocutor R.N. Ravi of deleting a key word from the original document and sharing the modified version with other Naga groups. 

The Naga talks have hit rough weather as the NSCN-IM has demanded that the interlocutor be removed from the positionT. 

  1. IAF To Get 106 Trainer Aircraft:

 Context: 

The Defence Acquisition Council (DAC) chaired by Defence Minister has approved defence procurements worth ₹8,722.38 crore. 

Details: 

The defence procurements include 106 HTT-40 Basic Trainer Aircraft (BTA) for the Indian Air Force (IAF) built by Hindustan Aeronautics Limited (HAL). 

HTT-40 Basic Trainer Aircraft (BTA): 

o HTT-40 is a training aircraft design and developed by Aircraft Research and Design Centre (ARDC) and built by Hindustan Aeronautics Limited (HAL). 

 o Hindustan Aeronautics Limited has successfully developed HTT-40 prototypes and certification process is underway. o It will replace the Indian Air Force’s retired HPT-32 Deepak as a basic trainer.

  The DAC also approved the procurement of an upgraded version of Super Rapid Gun Mount (SRGM). 

Super Rapid Gun Mount (SRGM):

o SRGM is fitted as the main gun on board Navy and Coast Guard warships from Bharat Heavy Electricals Limited (BHEL). 

o The upgraded version of SRGM has enhanced capability to perform against fast manoeuvring targets such as missiles and fast attack crafts and increase the maximum engagement range. 

Procurement of 125 mm APFSDS (Armour Piercing Fin Stabilized Discarding Sabot) ammunition for the Army as a ‘design and development case’ has been approved.

o The ammunition being procured will have a 70% indigenous content.

  The DAC also granted approvals that are likely to speed up the procurement of AK-203 assault rifles from Russia and Unmanned Aerial Vehicle upgrades. 

  1. Israel AI-based technologies to help tackle COVID-19

 Why is in News? 

As a part of Israel-India cooperation to fight the ongoing COVID-19 pandemic, AIIMS, Delhi, has received state-of-the-art AI-based technologies and high-end equipment from the Embassy of Israel. The technologies include:

∙ An AI video-oriented, voice-operated autonomous personal AI assistant robot. 

∙ An app that can be installed on any mobile phone of COVID-19 staff which makes the work of the hospital staff much more effective and easier. 

∙ Innovative products designed to give clinicians constant contact-free access to patient’s vitals like heart rate and respiratory rate to ensure contact-free, continuous patient monitoring. 

∙ A 12-hour disinfection product called CPD that stays active and continuous to protect the surface against new attacks of contamination. 

∙ A non-invasive remote-patient monitoring system that aids as a preliminary screening tool of respiratory indicators of suspected COVID-19 patients and recovering patients. 

∙ AI-based software for ultrasound use and designed specially to fight COVID-19

  1. SC Imposes Rupee 1 Fine On Bhushan For Contempt:

 Context: 

The Supreme Court punished civil rights lawyer Prashant Bhushan with a fine of ₹1 for committing criminal contempt by scandalizing the court. 

“By showing magnanimity, instead of imposing any severe punishment, we are sentencing the contemnor with a nominal fine of ₹1,” a three-judge Bench led by Justice Arun Mishra said. 

Judgment:

  The judgment authored by Justice Mishra pointed to an internal mechanism to deal with grievances against judges. 

The mechanism is intended to protect the dignity of “sufferer judges”. 

“Judges cannot take to the public forum to answer allegations made against them. This handicap, imposed by their code of conduct, however, causes them suffering till eternity”, the judgment said. 

“Truth can be the defense to the judges also, but they are bound by their judicial norms, ethics and code of conduct,” the judgment said. 

Contempt of court 

Contempt of court is the offense of being defiant or disrespectful to the court of law. Being impolite to legal authorities in the courtroom, or rebelliously failing to follow a court order may draw Contempt of Court proceedings. A judge can levy sanctions such as a penalty or prison for someone found guilty of contempt of court 

Definition of Contempt of Court 

Contempt of court often referred to simply as “contempt”, is the offence of being disobedient to or disrespectful toward a court of law and its officers in the form of behaviour that opposes or defies the authority, justice and dignity of the court. A similar attitude towards a legislative body is termed contempt of Parliament. 

There are broadly two categories of contempt:

  1. Being disrespectful to legal authorities in the courtroom. 
  2. Willfully failing to obey a court order.

 Contempt proceedings are especially used to enforce equitable remedies, such as injunctions. In some jurisdictions, the refusal to respond to subpoena, to testify, to fulfil the obligations of a juror, or to provide certain information can constitute contempt of the court. 

  1. Just Closure:

 Context: 

The Supreme Court of India has indicated that it would not allow the closure of the trial in the Enrica Lexie-St. Antony’s case until “hefty” and “adequate” compensation is paid by Italy for the killing of two fishermen by its marines. 

Background: 

Permanent Court of Arbitration ruling:

  Recently, the Permanent Court of Arbitration had ruled that while India is entitled to get compensation in the Italian Marines case, it can’t prosecute the marines and the marines should face criminal proceedings only in Italy. 

The PCA’s finding on jurisdiction is in conflict with the Supreme Court’s ruling in 2013 that the Union government of India alone can try the case. 

Previously the Union government had declared that it would abide by the ruling of the Permanent Court of Arbitration (PCA) at The Hague but the continuation of the case in the Supreme Court of India has led to a complex situation. 

Arguments for ending the trial:

  Ending the ongoing trial in the SC would be in line with the Union government’s stand to abide by the ruling of the Permanent Court of Arbitration (PCA) at The Hague. This would portray India as a country respecting International laws and rules by keeping up its obligations under UNCLOS

There are no reasons to delay the process of bringing closure to the matter given that the PCA has itself ruled that India is entitled to compensation and has mandated negotiations on the quantum of the compensation. 

The pendency of the matter in court could portray India has being reluctant to cease criminal proceedings against the marines and may actually delay the reaching of a fair settlement in the case. 

The legal tangles in the Enrica Lexie-St. Antony case since 2012 have also caused diplomatic tensions between India and Italy. 

Way forward:

 Legal provisions: 

The central government can approach the SC for withdrawal from prosecution under Section 321 of the CrPC.

 o Section 321 of the Criminal Procedure Code enables the Public Prosecutor or the Assistant Public Prosecutor to withdraw from the prosecution of any person for which he is tried. For doing so, the consent of the Court is necessary.

  The central government can make use of the provisions available under Article 253 of the Constitution to bring a law to close the ongoing trial in the SC. 

o Article 253 of the Constitution allows the Parliament to enact a law to give effect to any international treaty or convention.

 Conclusion: 

  India’s focus should be on ensuring adequate compensation for families of fishermen killed by marines and ensuring a purposive criminal trial in Italy

  1. Rajya Sabha Output Up, Says Venkaiah:

What’s in News? 

M.Venkaiah Naidu has completed three years in office as Vice-President and Chairman of the Rajya Sabha. 

Productivity and output in Rajya Sabha: 

The Vice President remarked that the functioning of the Rajya Sabha has shown certain winds of change, with a consistently higher level of productivity and increased legislative output over the last few sessions. 

The attendance in the meetings of the Committees of the Upper House has for the first time crossed the 50% mark. 

Research and analysis commissioned by the Vice President had revealed that the productivity of the House had been declining over the last 25 years. 

The House had reported annual productivity of 100% only once in 1999 in the last 20 years. 

The overall productivity of the last eight sessions presided over by him during the last three years has been 65.50%. 

Referring to the improvement in legislative output as yet another indication of change, he referred to the 93 bills passed by the Rajya Sabha during the last three years of his chairmanship.

  1. Exercise Kavkaz 2020:

India has turned down Russia’s invitation to participate in the multilateral defence exercise Kavkaz 2020.

Exercise Kavkaz 2020 

The Kavkaz 2020 is also referred to as Caucasus-2020

The exercise is aimed at assessing the ability of the armed forces to ensure military security in Russia’s southwest, where serious terrorist threats persist and preparing for the strategic command-staff drills. 

The main training grounds that will be involved are located in the Southern Military District.

  The invitation for participation has been extended to at least 18 countries including China, Iran, Pakistan and Turkey apart from other Central Asian Republics part of the SCO. 

Why didn’t India participate? 

While it is learned that China has confirmed its participation, Pakistan is also likely to send its troops for the exercise. 

In the response communicated to Russia, New Delhi cited Covid-19 as the official reason to skip ‘Exercise Kavkaz 2020’. 

The move comes in the backdrop of a border standoff with China in eastern Ladakh. Earlier instances 

Exercise Tsentr last year had the participation of India, Pakistan and all Shanghai Cooperation Organisation (SCO) member-nations. 

India had participated in SCO peace mission exercise in 2018, and in 2019, for the first time, was involved in a strategic command and staff exercise as part of Exercise Tsentr.

12.Thinking Of New Recovery Path:

Pandemic: the opportunity to new recovery path

  The pandemic presents an opportunity for us to think of a new recovery path, one that can decouple economic growth and environmental degradation.

  It becomes more important as India sees opportunities on the global call to diversify the supply chain and its internal call for Atmanirbhar Bharat. 

For that, we need to strengthen our production and manufacturing capabilities.

 Issue of regulatory infrastructure 

Monitoring and implementing environmental regulations is the biggest challenge we face. 

Take the municipal solid waste rules. 

Two decades after the regulations came into effect, their status not in good shape. 

A comparatively recent regulation, centred around Extended Producer Responsibility, has also posed challenges in monitoring and implementation. 

In a recent ruling, the judiciary not only ruled against the industry but also blamed officials responsible for implementing the regulations. 

Focus on implementation and monitoring 

In the long run, diluting regulatory norms will create more adverse impacts resulting in greater community upsurge. 

The focus has to be to improve the system’s capabilities to monitor and implement regulatory requirements. 

There needs to be greater transparency and accountability; there is no dearth of technology to facilitate this. 

The intention and capacity to take action, rectify and diffuse is critical. 

The right ecosystem between the industry, community and regulator is crucial. 

If the three stakeholders remain isolated and get activated only in a crisis, we will not make any progress towards solving the issue.

Way forward 

We need to couple growth and environmental protection

Environmental health will be the key enabler of socio-economic growth in the future. 

Industry needs to realise that it is a part of an ecosystem and not at the centre of it. 

Communities get impacted, either positively or negatively, they need to empower themselves through education, so that they are not driven by the agenda of individuals with vested interests. 

We have a challenge in implementing environmental regulations. 

The community does not trust that the industry is meeting its compliance requirements, so, the regulatory system’s role is to improve this trust quotient

Conclusion

 As we plan our recovery past the pandemic, we have a good chance to create a new normal. We need to align towards a common cause and goals. We should not miss this chance.

 13.GST Reforms And Compensation Issue:

 Background 

Three years ago, the Centre and the States of the Union of India struck a grand bargain resulting in GST. 

The States gave up their right to collect sales tax and sundry taxes, and the Centre gave up excise and services tax. 

Issue of compensation 

Consent of the states was secured by a promise of reimbursing any shortfall in tax revenues for a period of five years. 

This reimbursement was to be funded by a special cess called the GST compensation cess. 

The promised reimbursement was to fill the gap for an assured 14% year on year tax growth for five years. 

Why is the Centre denying GST compensation? 

As the economy battles a pandemic and recession, the tax collection has dropped significantly

At the same time, expenditure needs are sharply higher at the State level. 

Using an equivalent of the Force Majeure clause in commercial contracts, the Centre is abdicating its responsibility of making up for the shortfall in 14% growth in GST revenues to the states. 

Why the Central government is wrong in denying the compensation 

1) The States do not have recourse to multiple options that the Centre has.[like sovereign bond or a loan against public sector unit shares from the Reserve Bank of India] 

2) The Centre can get loans at lower rates of borrowing from the markets as compared to the States. 

3) In terms of aggregate public sector borrowing, it does not matter for the debt markets, nor the rating agencies, whether it is the States or the Centre that is increasing their indebtedness. 

4) Fighting this recession through increased fiscal stimulus is basically the job of macroeconomic stabilisation, which is the Centre’s domain.

5) Using the alibi of the COVID-19 pandemic causes a serious dent in the trust built up between the Centre and States. 

It will weaken the foundation of cooperative federalism

Reforms needed 

GST is a destination-based consumption tax, which must include all goods and services with very few exceptions. 

That widening of the tax base itself will allow us to go back to the original recommendation of a standard rate of 12%, to be fixed for at least a fiveyear period. 

Some extra elbow room for the States’ revenue autonomy could be allowed by States non VATable surcharges on a small list of “sin” goods. 

In the long term, there are many changes in consumption patterns, production configurations and locations, which cannot be anticipated and hence a static concept of Revenue Neutral Rate cannot be a reference. 

The commitment to a low and stable rate is a must. 

We must recognize the increasing importance of the third tier of government

After 28 years of the 73rd and 74th Amendments, the local governments do not have the promised transfer of funds, functions and functionaries. 

Of the 12% GST, 10% should be equally shared between the States and the Centre, and 2% must be earmarked exclusively for the urban and rural local bodies.

Fresh approach also calls for an overhaul of the interstate GST and the administration of the e-way bill. 

Conclusion

 GST is a crucial and long-term structural reform which can address the fiscal needs of the future, strike the right and desired balance to achieve co-operative federalism and also lead to enhanced economic growth. The current design and implementation has failed to deliver on that promise. A new grand bargain is needed. 

  1. GDP Contracted By 23.9% In First Quarter:

 Why in News?

 According to the recent National Statistical Office (NSO) data, India’s Gross Domestic Product (GDP) growth contracted by 23.9% in the first (April-June) quarter of 2020 compared to the same period (April-June) in 2019. 

  • It is the sharpest contraction since India started reporting quarterly data in 1996. 
  • Gross Value Added (GVA) growth rate also declined by 22.8% in the first quarter of this financial year. 

o GDP is a measure of economic activity in a country. It is the total value of a country’s annual output of goods and services. It gives the economic output from the consumers’ side. 

o GVA is the sum of a country’s GDP and net of subsidies and taxes in the economy.

 Key Points 

.Sector Wise Data

o Construction, manufacturing, trade, hotels and other services and mining were the worst-hit sectors, recording contractions of 50.3%, 39.3%, 47.0% and 23% respectively. 

  •  This reflects the unprecedented suspension of economic activity in the first quarter of this fiscal due to the pandemic and the series of lockdowns. 

o Only the agriculture sector showed a positive growth at 3.4%. 

  • Factors of GDP Contraction:
  • o In any economy, the GDP growth is generated from one of the four engines of growth. i.e. private consumption, demand generated by private sector businesses, demand generated by government and exports.

∙ Private consumption has fallen by 27%. It is the biggest engine that drives the Indian economy. 

∙ Investment by private sector businesses have fallen by 47%. It is the second biggest engine. 

∙ The net export demand has turned positive in this first quarter because India’s imports have crashed more than its exports. 

∙ While on paper, this provides a boost to overall GDP, it also points to an economy where economic activity has plummeted. 

∙ The government’s expenditure went up by 16% but this was nowhere near enough to compensate for the loss of demand in other sectors (engines) of the economy. 

Implications: 

o On Jobs: The sectors which have contracted (e.g. construction, manufacturing etc.) are the sectors that create the maximum new jobs in the country. 

∙ Therefore, in a scenario where each of these sectors are contracting, would lead to more and more people either losing jobs (decline in employment) or failing to get one (rise in unemployment). 

o On Informal Sector: The real extent of the economic crisis is expected to be deeper given that the small-scale sector and informal sector is more affected than the organised sector, but is not reflected in the quarterly GDP numbers. 

∙ In the informal sector, factory output figures are used to extrapolate the trends in the growth. 

o On Banks: The looming defaults in the banking sector after the moratorium ends will add to the banking sector woes, impacting bank’s lending. 

∙ Also, there are worries regarding household debt, with incomes stagnating, salary cuts and job losses. 

o On Economy: With GDP contracting by more than what most observers expected, it is now believed that the full-year GDP could also worsen. 

∙ A fairly conservative estimate would be a contraction of 7% for the full financial year.

 Possible Solution 

As the incomes of individuals fall sharply, they reduce consumption. When consumption falls sharply, businesses stop investing. Since both of these are voluntary decisions, there is no way to force people to spend more and/or coerce businesses to invest more. 

o The same logic holds for exports and imports as well. 

  •  Therefore under these circumstances, there is only one engine that can boost GDP, that is the government.
  • o Only when the government spends more — either by building roads and bridges and paying salaries or by directly handing out money — can the economy revive in the short to medium term.

o If the government does not spend adequately enough then the economy will take a long time to recover. 

  • The Indian Government can also adopt the measures suggested by McKinsey Global Institute in which an additional 3.5 % of the GDP can be raised by the government. This includes: 

o Global Shift: Global trends such as digitization and automation, shifting supply chains, urbanization, rising incomes and demographic shifts, and a greater focus on sustainability, health, and safety can become the hallmarks of the post pandemic economy. 

o Higher Productivity through Privatisation: Privatisation of 30 or so of the largest state-owned enterprises to potentially double their productivity. 

o The government also had a focus on privatization under the Atmanirbhar Bharat Package. 

o Improvement in Infrastructure: India needs to unlock supply in land markets to reduce land costs by 20-25%, enable efficient power distribution to reduce commercial and industrial tariffs by 20-25%; and improve the ease and reduce the cost of doing business. 

o Efficient Financing: Streamlining fiscal resources can deliver USD 2.4 trillion in investment while boosting entrepreneurship by lowering the cost of capital for enterprises by about 3.5 percentage points. 

o Bad Bank: Creation of a ‘bad bank’ can take care of the inoperative assets. 

  1. Core Sector Contracted by 9.6%:

     

Why in News? 

The output of eight core infrastructure sectors dropped by 9.6% in July 2020. It has been a continued contraction for the past five months. 

Key Points 

  • Reasons: The contraction is due to a decline mostly in the production of steel, refinery products, and cement.
  • o In general, the weak demand and over-supply along with global and domestic disruptions due to Covid-19 are hampering the mobilization of economic resources.

o In July, local demand growth has slowed because of high fuel prices, renewed lockdown in parts of the country, and as monsoon rains hit transport, industrial and construction activity. 

  • Scenario:

 o The production of eight core sectors had expanded by 2.6% in July 2019. o Barring Fertiliser (grew by 6.9%), all seven sectors — coal, crude oil, natural gas, refinery products, steel, cement and electricity — recorded negative growth in July. 

o The output of steel saw the highest decline (16.5%). It was followed by refinery products (13.9%). 

o The minimum contraction in the output is in the electricity sector with 2.3%.

 Core Sector Industries 

  • The eight-core sector industries include coal, crude oil, natural gas, refinery products, fertiliser, steel, cement, and electricity. 
  • These comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP). 

Index of Industrial Production 

The Index of Industrial Production (IIP) is an indicator that measures the changes in the volume of production of industrial products during a given period.

  •  It is compiled and published monthly by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation. 
  •  IIP is a composite indicator that measures the growth rate of industry groups classified under:

 o Broad sectors namely- Mining, Manufacturing, and Electricity. 

o Use-based sectors- namely Basic Goods, Capital Goods, and Intermediate Goods. 

  • The base Year for IIP is 2011-2012. 

Significance of IIP: 

o It is used by government agencies including the Ministry of Finance, the Reserve Bank of India, etc, for policy-making purposes. 

o IIP remains extremely relevant for the calculation of the quarterly and advance GDP estimates. 

  1. Special Open Market Operations By RBI:

Why in News ?

Recently, the Reserve Bank of India (RBI) has announced several measures to ensure orderly market conditions and smooth financial conditions. 

  • These measures include two more tranches of special Open Market Operations (OMOs) in bonds and a hike in the Held-To-Maturity (HTM) limit under the Statutory Liquidity Ratio (SLR) for banks.

 Key Points

  • The move has been termed as ‘Operation Twist’. 

o Operation Twist is the name given to a USA Federal Reserve monetary policy operation, which involves the purchase and sale of government securities to boost the economy by bringing down longterm interest rates. It is now being used for similar measures taken by RBI in Indian context as well. 

  • OMOs: RBI will conduct additional special open market operations for an aggregate amount of Rs. 20,000 crore.
  • o RBI conducted OMOs in March as well.

Open Market Operations

  • Open Market Operations is the simultaneous sale and purchase of government securities and treasury bills by RBI. 
  • The objective of OMO is to regulate the money supply in the economy. 
  • RBI carries out the OMO through commercial banks and does not directly deal with the public. 
  • OMO is one of the quantitative tools that RBI uses to smoothen the liquidity conditions through the year and minimize its impact on the interest rate and inflation rate levels. 

o Quantitative tools control the extent of the money supply by changing the Cash Reserve Ratio (CRR), or bank rate or open market operations. Qualitative tools include persuasion by the Central bank in order to make commercial banks discourage or encourage lending which is done through moral suasion, margin requirement, etc.

  • Term Repo Operations: RBI will also conduct term repo operations for an aggregate amount of Rs. 1,00,000 crore at the prevailing repo rate in the middle of September to ease liquidity pressures on the market. 

o In order to reduce the cost of funds, banks that had availed of funds under Long-Term Repo Operations (LTROs) may exercise an option of reversing these transactions before maturity.

 ∙ LTRO is a tool that lets banks borrow one to three-year funds from the RBI at the repo rate, by providing government securities with similar or higher tenure as collateral. 

o Thus, the banks may reduce their interest liability by returning funds taken at the repo rate prevailing at that time (5.15%) and availing funds at the current repo rate of 4%.

  • Increase in HTM limit: RBI raised the limit on bonds held-to-maturity (HTM) to 22% from 19.5% of Net Demand and Time Liabilities (NDTL). This means banks will have room to buy more bonds without bothering about short-term fluctuations in yields. 

o HTM securities are the debt securities acquired with the intent to keep it until maturity.

 Key Terms 

  • Repo Rate: It is the rate at which RBI lends money to commercial banks. 
  • Government Securities (G-Sec): It is a tradable instrument issued by the central government or state governments.

 o Short term G-secs (with original maturities of less than one year) are called Treasury Bills. Long term G-secs (with original maturities of more than one year) or long term are called Government Bonds or Dated Securities. Treasury Bills are not issued by State Governments while Government Bonds or Dated securities are issues both by State and Central Governments. 

  • Net Demand and Time Liabilities (NDTL): It is the difference between the sum of demand and time liabilities (deposits) of a bank (with the public or the other bank) and the deposits in the form of assets held by the other banks. 

Way Forward 

    • The steps by RBI will definitely ensure orderly functioning of the financial market, as the market is facing a setback due to the global financial crisis amidst Covid-19 pandemic. 
    •  The six- month moratorium(extended to 2 years on sep-1st) on repayment of debt announced by RBI beginning 1st March, 2020 to help businesses and individuals tide over the financial problems on account of disruption in normal business activities ended on 31st August 2020. 
      • This may adversely affect the small businesses that are facing financial issues due to Covid-19 pandemic and lockdown. 
      • Recently, RBI announced use of Dynamic Stochastic General Equilibrium (DSGE) model to provide an assessment of the likely impact of Covid-19 and the subsequent lockdown on the Indian economy. 

 Coupled with the recently announced GDP contraction by 23.9%, the end of the six-month moratorium will adversely impact the market. Tackling the financial health of the country hit by Non-Performing Assets (NPAs), bank frauds and economic setbacks by Covid-19, as mentioned in the Annual report of RBI, will need a whole set of monetary reforms. Conducting market operations as required through a variety of instruments is one of them.

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