India Year Book-2018 -Summary and analysis (Shubhra ranjan IAS study)

Overall coverage of social issues, government schemes, economy,polity, IR, Environment, S&T, Culture & other aspects related to prelims.

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Source: xaam.in




Important Supreme Court judgments

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Prelims 2018 Special Current Affairs



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Government Schemes Part 2


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Source: xaam.in




ENVIRONMENT MINISTRY FRAMES NEW DRAFT COASTAL REGULATION ZONE (CRZ) NOTIFICATION 2018

THE NEWS

The Ministry of Environment, Forest and Climate Change (MOEF&CC) has framed a draft Coastal Regulation Zone (CRZ) notification, 2018.

SALIENT FEATURES OF THE CRZ

The important features of the new CRZ Notification, 2018 are as follows:
  • High Tide Line (HTL): The HTL has been demarcated by the National Centre for Sustainable Coastal Management (NCSCM) and shall be reckoned as a universal standard for the HTL for all regulatory purposes.
  • Hazard line: The mapping of Hazard Line has also been carried out by the Survey of India. However, it has been delinked from the CRZ regulatory regime and shall be used only as a took for Disaster Management and planning for adaptive and mitigation measures.
  • No Development Zone (NDZ): A NDZ of 20 meters has been proposed to be stipulated for all Islands close to the mainland coast and for all Backward Islands in the mainland.
  • CRZ-III: For CRZ-III areas, following two separate categories have been proposed:
    • CRZ-III A- Densely populated rural areas with a population density of 2161 per square kilometre. Such areas shall have an NDZ 50 meters from the HTL as against 200 meters from the HTL stipulated in the CRZ Notification, 2011.
    • CRZ-III B- Rural areas with a population density of below 2161 per square kilometre as per 2011 Census. Such areas shall continue to have an NDZ of 200 meters from the HTL.
  • Simplified Procedure: Procedure for CRZ clearances has been simplified. Only those projects, which are located in the CRZ-1 & IV areas shall be dealt with for CRZ clearance by the MOEF&CC and for all other projects located in CRZ-II/III areas, CRZ clearance shall be considered at the level of the CZMA.
  • Temporary Tourism Facilities: Temporary tourism facilities have been proposed in beaches and they are also proposed to be permissible in the No Development Zone (NDZ) of CRZ-III areas.
    • In the case of National or State Level Highway passing through the NDZ in CRZ-III areas, temporary tourism facilities have been proposed to be taken up on the seaward side of the roads.
    • On the landward side of such roads in the NDZ, tourism facilities have also been proposed to be permitted subject to the extant regulations of the concerned State.
  • Limestone Mining: Regulated limestone mining is also proposed to be permitted, subject to strict Environmental safeguards, in areas adequately above the height of HTL.

MAJOR CHANGES

The Coastal Regulation Zone Notification was the last reviewed and issued in 2011, with periodic amendments to some clauses. The major changes with respect to CRZ Notification, 2011 are as given below:
  • As per CRZ Notification, 2011 for CRZ-II areas, Floor Space Index (FSI) or the Floor Area Ratio (FAR) had been frozen at 1991 Development Control Regulation (DCR) levels.
  • Now, in the draft CRZ Notification, 2018, it has been proposed to de-freeze the same and permits FSI for construction projects.
  • Allowing tourism activities: Eco-tourism activities- Mangrove walks, tree huts, and others are permitted, in subjected areas, which are not permitted in CRZ Notification, 2011.
  • Reduction in HTL limit: As per the current law, CRZ, 2011, coastal region is the region from the HTL to 100 m of the creek or the width of the creek, whichever is less. The CRZ, 2018 have reduced this limit to 50 meters or the width of the creek, whichever is less.

ABOUT CRZ

  • Coastal Regulation Zone (CRZ) is the coastal land up to 500m from the HTL and a stage of 100m along banks of creeks, estuaries and rivers subject to tidal fluctuations.
  • They have been placed in the following four categories:
    • CRZ I: Ecologically sensitive areas lie between 0 to 100 metres.
    • CRZ II: Covers area close to the shoreline
    • CRZ III: Between 100 metre to 500 metre
    • CRZ IV: Aquatic area to the territorial limits.

COMMITTEE

  • The Environment Ministry had constituted a Committee under the Chairmanship of Dr Shailesh Nayak to examine the various issues and concerns of Coastal States/UTs and various other stakeholders, to recommend appropriate changes in the CRZ Notification, 2011.

BENEFITS

  • Economic Growth: The new proposal will make India’s coast more accessible to tourism and industrial infrastructure, which will lead to a boost to economic growth.
  • ‘State’- Deciding authority: Moreover, it will also give individual states the power to decide on their own about any development in the region.

THE ROAD AHEAD

The draft CRZ Notification, 2018 is prepared for India’s 7,500km coastline, it encompasses protection of ecologically sensitive areas, safeguarding aquatic system and marine life, plastic waste disposal, and simultaneously allowing eco-tourism and development of coastal zones. The recommendations, suggestions and objections from the public, on the draft will be examine by the committee under the ministry one more time and after proper examining a final notification will be issued.


Source: xaam.in




Scientists accidentally create mutant enzyme that eats plastic bottles

Scientists have created a mutant enzyme that breaks down plastic drinks bottles – by accident. The breakthrough could help solve the global plastic pollution crisis by enabling for the first time the full recycling of bottles.

The new research was spurred by the discovery in 2016 of the first bacterium that had naturally evolved to eat plastic, at a waste dump in Japan. Scientists have now revealed the detailed structure of the crucial enzyme produced by the bug.

The international team then tweaked the enzyme to see how it had evolved, but tests showed they had inadvertently made the molecule even better at breaking down the PET (polyethylene terephthalate) plastic used for soft drink bottles. “What actually turned out was we improved the enzyme, which was a bit of a shock,” said Prof John McGeehan, at the University of Portsmouth, UK, who led the research. “It’s great and a real finding.”

The mutant enzyme takes a few days to start breaking down the plastic – far faster than the centuries it takes in the oceans. But the researchers are optimistic this can be speeded up even further and become a viable large-scale process.

“What we are hoping to do is use this enzyme to turn this plastic back into its original components, so we can literally recycle it back to plastic,” said McGeehan. “It means we won’t need to dig up any more oil and, fundamentally, it should reduce the amount of plastic in the environment.”

About 1m plastic bottles are sold each minute around the globe and, with just 14% recycled, many end up in the oceans where they have polluted even the remotest parts, harming marine life and potentially people who eat seafood. “It is incredibly resistant to degradation. Some of those images are horrific,” said McGeehan. “It is one of these wonder materials that has been made a little bit too well.”

However, currently even those bottles that are recycled can only be turned into opaque fibres for clothing or carpets. The new enzyme indicates a way to recycle clear plastic bottles back into clear plastic bottles, which could slash the need to produce new plastic.

“You are always up against the fact that oil is cheap, so virgin PET is cheap,” said McGeehan. “It is so easy for manufacturers to generate more of that stuff, rather than even try to recycle. But I believe there is a public driver here: perception is changing so much that companies are starting to look at how they can properly recycle these.”

The new research, published in the journal Proceedings of the National Academy of Sciences, began by determining the precise structure of the enzyme produced by the Japanese bug. The team used the Diamond Light Source, near Oxford, UK, an intense beam of X-rays that is 10bn times brighter than the sun and can reveal individual atoms.

The structure of the enzyme looked very similar to one evolved by many bacteria to break down cutin, a natural polymer used as a protective coating by plants. But when the team manipulated the enzyme to explore this connection, they accidentally improved its ability to eat PET.

“It is a modest improvement – 20% better – but that is not the point,” said McGeehan. “It’s incredible because it tells us that the enzyme is not yet optimised. It gives us scope to use all the technology used in other enzyme development for years and years and make a super-fast enzyme.”

Industrial enzymes are widely used in, for example, washing powders and biofuel production, They have been made to work up to 1,000 times faster in a few years, the same timescale McGeehan envisages for the plastic-eating enzyme. A patent has been filed on the specific mutant enzyme by the Portsmouth researchers and those from the US National Renewable Energy Laboratory in Colorado.

One possible improvement being explored is to transplant the mutant enzyme into an “extremophile bacteria” that can survive temperatures above 70C, at which point PET changes from a glassy to a viscous state, making it likely to degrade 10-100 times faster.

Earlier work had shown that some fungi can break down PET plastic, which makes up about 20% of global plastic production. But bacteria are far easier to harness for industrial uses.

Other types of plastic could be broken down by bacteria currently evolving in the environment, McGeehan said: “People are now searching vigorously for those.” PET sinks in seawater but some scientists have conjectured that plastic-eating bugs might one day be sprayed on the huge plastic garbage patches in the oceans to clean them up.

Microplastic pollution in oceans is far worse than feared, say scientists
 Read more
“I think [the new research] is very exciting work, showing there is strong potential to use enzyme technology to help with society’s growing waste problem,” said Oliver Jones, a chemist at RMIT University in Melbourne, Australia, and not part of the research team.

“Enzymes are non-toxic, biodegradable and can be produced in large amounts by microorganisms,” he said. “There is still a way to go before you could recycle large amounts of plastic with enzymes, and reducing the amount of plastic produced in the first place might, perhaps, be preferable. [But] this is certainly a step in a positive direction.”

Prof Adisa Azapagic, at the University of Manchester in the UK, agreed the enzyme could be useful but added: “A full life-cycle assessment would be needed to ensure the technology does not solve one environmental problem – waste – at the expense of others, including additional greenhouse gas emissions.”

•This article was amended on 17 April 2018 to make clear that PET becomes viscous above 70C. Its melting point is above 250C.


Source: xaam.in




900-year drought wiped out Indus civilisation: IIT-Kharagpur

 The Indus Valley civilisation was wiped out 4,350 years ago by a 900-year-long drought, scientists at the Indian Institute of Technology in Kharagpur (IIT-Kgp) have found. Evidence gathered during their study also put to rest the widely accepted theory that the said drought lasted for only about 200 years.

The study will be published in the prestigious Quaternary International Journal by Elsevier this month.

Researchers from the geology and geophysics department have been studying the monsoon’s variability for the past 5,000 years and have found that the rains played truant in the northwest Himalayas for 900 long years, drying up the source of water that fed the rivers along which the civilisation thrived. This eventually drove the otherwise hardy inhabitants towards the east and south, where rain conditions were better.

The IIT-Kgp team mapped a 5,000-year monsoon variability in the Tso Moriri Lake in Leh-Ladakh — which too was fed by the same glacial source — and identified periods that had continuous spells of good monsoon as well as phases when it was weak or nil.
“The study revealed that from 2,350 BC (4,350 years ago) till 1,450 BC, the monsoon had a major weakening effect over the zone where the civilisation flourished. A drought-like situation developed, forcing residents to abandon their settlements in search of greener pastures,” said Anil Kumar Gupta, the lead researcher and a senior faculty of geology at the institute


Source: xaam.in




Government Schemes Part 2 Prelims 2018 (ShankarIAS )

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Source: xaam.in




Biosphere Reserves of India(All you need to know,Prelims 2018,UPSC Mains GS 3)

Biosphere reserves of India form an important topic for the UPSC CSE preparation. This blog post covers all important points about it.

Definition of Biosphere Reserves
· Biosphere Reserve (BR) is an international designation by UNESCO for representative parts of natural and cultural landscapes extending over large area of terrestrial or coastal/marine ecosystems or a combination thereof.
· BRs are thus special environments for both people and the nature and are living examples of how human beings and nature can co-exist while respecting each others’ needs.
· These areas are internationally recognized within the framework of UNESCO’s Man and Biosphere (MAB) programme, after receiving consent of the participating country.

Functions of Biosphere Reserves
Some functions of Biosphere Reserves are:
Conservation
•To ensure the conservation of landscapes, ecosystems, species and genetic variations.
• To encourage the traditional resource use systems
•To understand the patterns and processes of functioning of ecosystems
• To monitor the natural and human-caused changes on spatial and temporal scales
Development
• To promote, at the local level, economic development which is culturally, socially and ecologically sustainable.
• To develop the strategies leading to improvement and management of natural resources
Logistics Support
• To provide support for research, monitoring, education and information exchange related to local, national and global issues of conservation and development
• Sharing of knowledge generated by research through site specific training and education; and
• Development of community spirit in the management of natural resources.

National Biosphere Reserve Programme
India has created a network of protected areas in the form of 96 National Parks, 510 Wildlife Sanctuaries, 28 Tiger Reserves and 25 Elephant Reserves. The area covered under protected area network accounts for around 5% of the total geographical area of the country. The rich biodiversity in India has given shape to variety of cultural and ethnic diversity which includes over 550 tribal communities of 227 ethnic groups spread over 5,000 forest villages.
The national Biosphere Reserve Programme was initiated in 1986 and its aims and objectives are described in the following sections.

Aims of the Scheme
• To serve as wider base for conservation of entire range of living resources and their ecological foundations in addition to already established protected area network system
• To bring out representative ecosystems under conservation and sustainable use on a long-term basis.
• To ensure participation of local inhabitants for effective management and devise means of improving livelihood of the local inhabitants through sustainable use.
• To integrate scientific research with traditional knowledge of conservation, education and training as a part of the overall management of BR.

Objectives of the Scheme
It must be noted that BRs are not a substitute or alternative, but a re-enforcement to the existing protected areas. The objectives of the Biosphere Reserve programme are as follows:
• To conserve the diversity and integrity of plants and animals within natural ecosystems
• To safeguard genetic diversity of species on which their continuing evolution depends; • To provide areas for multi-faceted research and monitoring
• To provide facilities for education and training; and
• To ensure sustainable use of natural resources through most appropriate technology for improvement of economic well-being of the local people.

Criteria for Selection of Biosphere Reserves
The criteria for selection of sites for BRs are listed below:-

Primary Criteria
• A site that must contain an effectively protected and minimally disturbed core area of value of nature conservation and should include additional land and water suitable for research and demonstration of sustainable methods of research and management.
• The core area should be typical of a biogeographical unit and large enough to sustain viable populations representing all tropic levels in the ecosystem.

Secondary Criteria
• Areas having rare and endangered species
• Areas having diversity of soil and micro-climatic conditions and indigenous varieties of biota.
• Areas potential for preservation of traditional tribal or rural modes of living for harmonious use of environment.

Structure and Design of Biosphere Reserves
In order to undertake complementary activities of biodiversity conservation and development of sustainable management aspects, Biosphere Reserves are demarcated into three inter-related zones. These are:-
(I)   Natural or Core Zone
The core zone is kept absolutely undisturbed. It must contain suitable habitat for numerous plant and animal species, including higher order predators and may contain centres of endemism. Core areas often conserve the wild relatives of economic species and also represent important genetic reservoirs. The core zones also contain places of exceptional scientific interest. A core zone secures legal protection and management and research activities that do not affect natural processes and wildlife are allowed. Strict nature reserves and wilderness portions of the area are designated as core areas of BR. The core zone is to be kept free from all human pressures external to the system.
(II)  Manipulation or Buffer Zone
In the Buffer Zone, which adjoins or surrounds core zone, uses and activities are managed in ways that protect the core zone. These uses and activities include restoration, demonstration sites for enhancing value addition to the resources, limited recreation, tourism, fishing and grazing, which are permitted to reduce its effect on core zone. Research and educational activities are to be encouraged. Human activities, if natural within BR, are likely to be permitted to continue if these do not adversely affect the ecological diversity.
(III) Transition Zone Outside the Buffer Zone
The Transition Zone is the outermost part of a Biosphere Reserve. This is usually not delimited one and is a zone of cooperation where conservation, knowledge and management skills are applied and uses are managed in harmony with the purpose of the Biosphere Reserve. This includes settlements, crop lands, managed forests and area for intensive recreation, and other economic uses characteristic of the region.

In Buffer Zone and the Transition Zones, manipulative macro-management practices are used. Experimental research areas are used for understanding the patterns and processes in the ecosystem. Modified or degraded landscapes are included as rehabilitation areas to restore the ecology in a way that it returns to sustainable productivity.
List of Biosphere Reserves of India

Nine of the eighteen biosphere reserves of India are a part of the World Network of Biosphere Reserves (* marked in the above image), based on the UNESCO MAN and the Biosphere (MAB) Programme list.
How Biosphere Reserves are different from protected areas such as National Parks (NP) and Wildlife Sanctuaries(WS)?
It must be noted that the BR is not intended to replace existing protected areas but to widen the scope of conventional approach of protection and further strengthens the Protected Area Network. Existing legally protected areas (National Parks, Wildlife Sanctuary, Tiger Reserve and reserve/protected forests) may become part of the BR without any change in their legal status. On the other hand, inclusion of such areas in a BR will enhance their national value.
 However, the Biosphere Reserves differ from protected areas due to their emphasis on :
(i) Conservation of overall biodiversity and landscape, rather than some specific flagship species, to allow natural and evolutionary processes to continue without any hindrance.
(ii) Different components of BRs like landscapes, habitats, and species and land races.
(iii) Developmental activities, and resolution/mitigation of conflicts between development and conservation,
(iv) Increase in broad-basing of stakeholders, especially local people’s participation and their Training, compared to the features of scheme on Wildlife Sanctuaries and National Parks.
(v) Sustainable environment friendly development, and sustained coordination amongst different development organizations and agencies.
(vi) Research and Monitoring to understand the structure and functioning of ecological system and their mode of reaction when exposed to human intervention
Hope this gives you all the information you need.


Source: xaam.in




Gist of RBI’s Monetary Policy Developments: 2017-April to 2018-April [ Mrunal ]

How to control demand side Inflation?

Economy is working at full employment, aggregate supply meets aggregate demand [C+I+G+X-M], and general price level is established at 1 kg onions selling for Rs. 100/-
For some reason, if demand increases over supply, there will be a gap in this equilibrium, hence general prices will increase. This is (demand side) inflation. It happens when (one or more) components of the aggregate demand have increased. For example:
  • Consumption (C) could have increased because junta is getting cheap loans. Rise of nuclear family with less ‘propensity to save’. Govt is giving tax-deduction incentives to those who buy new cars & computers. OR the best of all, under Deendayal Le-Lo Suitcase Yojana (DDLJ), BPL families are given 10-10 lakh rupees in DBT.
  • Investment (I) could have increased because firms getting cheap loans or people enthusiastically buying their IPOs, shares, bonds, debentures and consequently, there is new demand for machines, factories, trucks and bulldozers.
  • Government purchase (G) could have increased because of 7th Pay commission salary hike, new cars for ministers, more man-days given in MNREGA before general election & so on.
  • Exports (X) could have increased- foreigners buying more of India’s tea, coffee and spices.
In all these scenarios, how can RBI control (demand-side) inflation?
  1. It can’t increase supply because economy is already working at full employment.
  2. It can’t prevent / reduce government expenditure.
  3. It can’t hike taxes to reduce juntaa’s shopping-spree.
  4. But, RBI can try to reduce the money supply / liquidity. Then loans will become expensive, there will be less consumption and investment. Then demand should shrink, and prices will come back to the equilibrium.

Why control deflation?

Economist William Philips gave a ‘curve’:
  • मंहगाई बढ़ेगी तो रोजगार बढ़ेगा, महंगाई कम होगी तो बेरोजगार बढ़ेगा.
  • When Inflation increases, employment will increase.
  • When inflation falls, unemployment will increase: because consumers delaying purchases with the hopes that prices will fall even more. Firms laying off workers to keep the profit level same, or because they have unsold inventories, and hence don’t need extra workers to produce more, until the demand improves.
  • Therefore, deflation is also not good for the economy.
In other words, a stable and moderate level of inflation is good for the economy. RBI tries to maintain just that- keep the CPI (all India) inflation in the range of 2-6%.
From the discussion so far it should be clear that,
How can RBI fight Deflation (fall in the prices)? How can RBI fight Inflation (rise in the prices)?
Encourage consumption / investment by making loans cheaper. Reduce consumption / investment by making the loans expensive.
For this, RBI should increase the money supply / liquidity Decrease
Such policy is called easy / cheap / Dovish  monetary policy. Tight, Dear, Hawkish monetary Policy

How to measure money supply?

So far we learn that, RBI can fight against inflation and deflation by controlling the money supply. But first RBI has to know how much money is there in the system? [तभी तो उसकी मात्रा को कम-ज्यादा कर सकते है.]
DD = demand deposit / मांग जमा (Current account, saving account); TD = time deposits / मियादी जमा (fixed deposits, recurring deposits etc.)
Indicator Component +Bank’s DD +Bank’s TD +Postoffice DD +Postoffice TD
M0 (Reserve Money, high powered money:आरक्षित निधि) Total currency in circulation NA NA NA NA
M1 (narrow money: संकीर्ण मुद्रा) Currency with junta YES NO NO NO
M2 Currency with junta Yes NO YES NO
M3 (broad money / aggregate money: विस्तृत मुद्रा) Currency with junta YES YES NO NO
M4 Currency with junta YES YES YES YES
  • In terms of liquidity: M1 > M2 > M3 > M4 (because time deposits are less liquid than demand deposits)
  • In terms of size / quantity: M1 < M2 < M3 < M4 (because M4 will have maximum maal of all types of bank & post-office deposits combined)
  • Economic Survey vol2 Ch3 gives lengthy ball by ball commentary on the growth and fall of M1 and M3 before and after demontization but such PHD has little cost:benefit for MCQs.
(MCQ) Difference between M3-M1 will provide us which figure?
  1. Public’s Time deposits held in banks and post office
  2. Public’s Demand deposits held in banks and post office
  3. Public’s Time deposits held in banks
  4. Public’s Demand deposits held in banks
h/ from the table above, it should be clear that M1+ Banks’ time deposits = M3. Therefore, M3-M1= Banks’ time deposits.

Quantitative Tools of Monetary Policy

Quantitative tools of monetary policy
Quantitative Tool Function How to use against deflation How to use against inflation?
CRR: Cash Reserve Ratio (4%)नकदी आरिक्षत निधि अनुपात
  • From their net demand and time liabilities (NDTL), banks have to keep aside that much cash as reserve.
  • They can’t loan it, invest it, buy gold or government securities from it.
  • Self-study related topic: Incremental CRR after demonetization.
Reduce it
  • Hike it, so banks have less loanable funds, they’ll be forced to raise lending rates to keep same profit margin, thereby decreasing aggregate demand’s Consumption and investment (C+I)
  • Associated topic is “Money Multiplier effect”, learn it from my lecture.
SLR (19.5%)Statutory liquidity ratio

सांविधिक नकदी अनुपात
  • From their net demand and time liabilities (NDTL), Banks have to keep that much money in liquid assets such as cash, gold, Government securities (G-Sec) and other securities approved by RBI
Same as above Same as above
LCR: HQLA
  • LCR-HQLA’s objective is to safeguard against “bank runs” (i.e. too many people simultenously rushing to withdraw deposits)
  • LCR-HQLA is and not meant for combating inflation. Still, if we had to use then, principles will be same like SLR.
  • For details of LCR-HQLA, scroll down to read the article further.
Same as above Same as above
Bank rate
  • When banks want to borrow long term loans from RBI without pledging any securities or collaterals, this is the interest rate they have pay.
  • Penalties rates for non-maintenance of CRR and SLR are linked with Bank Rate.
  • From 2012, Bank Rate = MSF.
Decrease so banks borrow cheaply and loan out cheaply, thereby increasing C+I Increase
MSFMarginal Standing Facility

सीमांत स्थायी सुविधा
  • When scheduled commercial banks want to borrow short-term funds from RBI by pledging their SLR-quota securities, this is the interest rate they have to pay.
  • MSF is linked with Repo rate. Presently MSF = repo + 25 basis points.
Decrease Increase
LAF-RepoLiquidity Adjustment Facility:

तरलता समायोजन सुविधा- रेपो दर
  • When any client of RBI (Union government, state government, banks, nonbanks) wants to borrow short-term funds from RBI by pledging G-securities, this is the interest rate they have to pay.
  • Repo rate is also called the policy rate or benchmark interest rate of India.
Decrease Increase, so bank borrow less from RBI and lend less. and in case of govenrment clients, they’ll spend less (G components of demand).
LAF-Reverse Repo rateउत्क्रम-रेपो दर.
  • Clients earn this much interest when parking their money in RBI for short term. RBI pledges G-Secs as collaterals. (जी-सिक्यु जमानत के रूप में दी जाएगी)
Decrease Increase. So, RBI’s clients feel more attracted to park their money in RBI rather than circulating it as loans.
UDF: Uncollateralized Deposit Facility
असंपार्श्विक / गैर जमानती जमा सुविधा
  • Similar to above but RBI will not pledge any G-sec as collateral. (जमानत के स्वरूप में कुछ भी नही देंगे)
  • This was proposed in Budget-2018. For more details scroll down.
The objective of UDF is to help RBI suck excess liquidity. so, not applicable in this scenario. same as above.
Open Market Operation खुले बजार में खरीद-व्-बिक्री
  • RBI buys or sells government securities / treasury bills in the open market in order to increase or decrease money supply / liquidity.
Buy : inject liquidity : cheap loans Sell G-sec to suck liquidity, thereby making the loans expensive.
MSS: Market Stabilisation Schemeबाजार स्थिरीकरण योजना
  • RBI sells G-sec, T-bill and cash management bills (CMB) to suck excess liquidity.
N/A Same as above. MSS purchase using CMB had to be done at grand-scale after demonetization, otherwise banks were flush with deposits, they might have brought down loan interest rates to 2-3%, but then juntaa will also get less deposit interest rate, which could hurt senior citizens. लों ब्याज दरे एकदम सस्ती हो जाए वो भी बेंक के बचत-ग्राहकों के लिए उपयुक्त नही..

New Quantitative tools

UDF / SDF

UDF: Uncollateralized Deposit Facility
  • So far we learned that to absorb excess liquidity using MSS or OMO-purchase or reserve report rate, RBI will need G-sec as collateral.
  • But during the demonetization, RBI faced a problem: there was excessive liquidity (in the bank deposits) but not enough G-sec to absorb it. If such excessive liquidity not removed, then lending rates will fall, people will borrow for speculative investment in gold, real-estate and sharemarket, and worst of all, if lending rates fall then deposit rates will also fall (i.e. the interest earned on savings account, fixed deposits etc) – this will hurt senior citizens. इसलिए बहुत ज्यादा तरलता व् बहुत सस्ते ब्याज दर नुक्सानकारी है.
  • Central banks in the advanced economies have solution to this. They can simply promise to pay (interest) without any ‘G-sec’ as guarantee / collateral to the other party. Then  commercial banks will park money in Central bank, excess liquidity gone, loan interest rates increase and inflation is averted. Such system is called Standing deposit facility (SDF) / Uncollateralized Deposit Facility (UDF).
  • Term SDF was used by Urjit Patel in the monetary policy of 2017-April.
  • Term UDF was used in Budget-2018.
  • Budget 2018 proposed Uncollateralized Deposit Facility for RBI, to absorb excess liquidity. Government will amend RBI act for this.
(Mock MCQ) Budget-2018 proposed an uncollateralized deposit facility with the objective of :
  1. Providing easier loans to farmers
  2. Providing easier loans to MSME without any collateral
  3. Help NABARD to refinance agriculture loans from world bank.
  4. Provide RBI with a new tool to manage excess liquidity.
h/ No need to do PHD over SDF / UDF from internet- like what will be its maturity period, how it affects the bond yields and exchange rates. If at all such technical term from monetary policy is asked, UPSC will keep other three options blatantly wrong so they can be eliminated easily- AND not because UPSC examiner is in good mood after watching Comedy Nights with Kapil, but because he has to ensure that candidates from poor families without time / money to spend 24/7 on internet research – also have chance to clear prelims.

Central Bank Liquidity

Nothing important, but term given in Eco Survey 2016-17’s volume-II. So we should learn:
At any point of time,
  1. Some banks borrow money from RBI’s repo window, say Rs.60
  2. Some banks park their money in RBI’s reverse repo window, say Rs. 40
So, NET 60 MINUS 40 = +20. It means central bank (RBI) injected liquidity in the system. If answer was a negative figure, then It’s said that RBI absorbed liquidity from the system.

Liquidity Coverage Ratio (LCR) & HQLA

BASEL-III norms mandated that banks have to keep enough amount in high quality liquid assets (HQLA) so that bank can survive a 30 days stress-test scenario. HQLA eligible assets includes:
  1. Cash, including foreign currency.
  2. Cash beyond CRR
  3. G-Sec beyond SLR
  4. Marketable securities backed by PSE, Multilateral development banks, Foreign Governments.
Within above, there is internal classification: Level1, 2A, 2B type HQLA assets. But that’s useless for UPSC prelims. What you’ve to mugup is:
  • If bank has sufficient HQLA to survive total net cash outflow for next 30 calendar days, we’ll say its liquidity coverage ratio is 1 (or 100%).
  • To help Indian banks comply with this provision, RBI began implementing LCR in gradual manner since 2015 (60%, 70% .. like that it was raised every year).
  • From 1/1/2019, banks have to keep an LCR of 100% or MORE.
  • If SLR is kept high and LCR is also implemented, then Indians banks will have less loanable funds (नंगा नहायेगा क्या और निचोडेगा क्या?) therefore, in recent times RBI has gradually reduced SLR while hiking the LCR requirement, (ताकि दोनों तरफ से बेंको को मार न पड़े.)
LCR high quality liquid assets (HQLA)
(Mock MCQ) In 2016-17, RBI has been gradually reducing SLR, to help the Banks in which area?
  1. To help banks in currency shortage post-demonetization.
  2. To help banks come out of the NPA and Twin Balance sheet problems.
  3. To increase banks’ loanable funds for PSL
  4. To help banks meet with liquidity coverage ratio (LCR) norms.
h/ Only word-association has to be done. As explained earlier, IF AT ALL UPSC asks MCQ from such technical terms, it’ll be testing your basic knowledge only.

Monetary Policy Committee (मौद्रिक निति समिति)

Any central bank has three ways to design a monetary policy
Governor should focus on Who follows this strategy?
1) Exchange rate stability Singapore & other export oriented economies.
2) Multiple Indicators such as Growth, Employment, Inflation WPI,CPI, Exchange rate stability. India till 2016-October.
3) Inflation targeting
  • This model is successful in western nations. Instead of trying to focus on multiple indicators like GDP and employment, simply focus on control inflation.
  • For this, usually Repo rate is kept at higher rate than CPI, then other things will fall in line automatically.
  • (the then Dy.Governor) Urjit Patel Committee recomended this to Governor Rajan.
  • To implement this method, RBI Act was amended in 2016 (August) with following provisions:
  • Government will decide the inflation target with consultation of RBI.
  • For 2016-2020, the inflation target is CPI (All India) 4% with spread of +/-2% (in other words keep inflation within 2-6%)
  • This target will be achieved by a statutory monetary policy Committee under the RBI Act.

Composition of RBI’s Monetary Policy Committee

RBI side Government side: nominated for four years, no reappointment
1) Dr. Urjit R. Patel: Ex-officio chairman because he’s the RBI Governor. 4) Dr. Chetan Ghate: from Indian statistical institute
2) Dr. Viral V. Acharya. Dy. Governor incharge of monetary policy dept 5) Dr. Pami Dua: Delhi school of economics
3) Dr. Michael Debabrata Patra. Executive director of RBI 6) Dr. Ravindra H. Dholakia: HoD of IIM-A’s Economics dept
  • If Committee fails to keep inflation within this range for three consecutive quarters (= 9 months) then they’ve to publish a report on why they failed, and how they’ll rectify it?
  • Committee will meet every two months to decide the RBI’s policy rate (= repo rate)
  • Committee’s decision will be binding on RBI.
  • Decision will be taken by majority vote. If there is a tie, then RBI Governor will have the casting vote.
  • By 14th day of the meeting, its minutes have to be published.
  • Government can send its messages to the Committee only in writing (this provision to ensure that no undue pressure is put on the members e.g. चुनाव आ रहे है तो आप ब्याज दर घटाकर 0% कर दो!)
 (Prelim-2017) Correct regarding the Monetary Policy Committee (MPC)?
  1. It decides the RBI’s benchmark interest rates.
  2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
  3. It functions under the chairmanship of the Union Finance Minister.
Answer Codes:
  1. 1 only
  2. 1 and 2 only
  3. 3 only
  4. 2 and 3 only
h/ If i’ve to give hint for this MCQ also, then you should go to bookmyshow dot com and book a movie ticket for 3rd June 2018.

Bi-Monthly Monetary policy updates FY: 2017-18

2017-April

I’ve covered this in my last year’s lecture. Repo rate was unchanged @6.25%. Let’s look at the policy updates after that:
RBI Repo Rate benchmark policy interest

2017-JUNE

Facts presented before the Committee: What to with policy rate (repo rate)
1st April 2017: Bharat Stage-IV emission norms came into force. Sale of vehicles down because these new model vehicles are more expensive.
  • If auto-industry starts cutting workforce, the aggregate demand could fall, leading to deflation.
  • So, RBI should reduce repo to boost vehicle loans. Although this is negative for environment but RBI’s mandate is not environment protection.
  • May-2017: Record AGRO output.
  • JUNE-2017: IMD confirms normal and well-distributed south-west (June-September) monsoon.
Wait and watch. Because inflation / deflation in the food-market is not solely dependent on record food-inflation.
State governments announcing farm loan waiver -> higher fiscal deficit -> inflation. Hike repo to avert inflation
Under GST regime, businessmens’ working capital requirement has increased because 1) whatever tax they collected from junta, it has to be deposited by 20th of the next month. 2) issues related to claiming credit / refunds of the exported goods and services. Reduce repo rate so businessmen get cheap working capital.
PM Awas Yojana (urban) can perform better IF builders and lower middle class get cheap loans. Reduce repo rate
Final Decision Repo rate unchanged @6.25%
RBI Repo Rate benchmark policy interest

2017-AUGUST

India CPI inflation
Facts presented before the Committee: What to with policy rate (repo rate)
CPI (Food inflation) was historic low, it went into negative territory. While this is a happy news for the middle-class housewives, but RBI has to control inflation between 2-6%, that means even deflation has to be fought off. Therefore, repo rate should be cut. Cheaper loans (to kissan ketchup, real fruitjuice) = more demand than supply = food prices should revert back.
Normal monsoon predicted. Food processing companies will benefit if cheap working capital available. Reduce repo rate
Recovery in the advance economies (AE). Global exports improved. Reduce repo rate so exporters can benefit.
Since 1st April 2017, BS-IV emission norms vehicles became compulsory. Since they’re more expensive, there is fall in vehicle-sales. Reduce repo rate so people get cheap bike loans and car loans, so that auto-industry can benefit.
Outcome?
  • Repo rate reduce by 25 basis point.  (0.25%)
  • New repo rate: 6.25 minus 0.25 = 6%
  • Policy corridor was narrowed to 25 basis point. Meaning
  • Repo + 0.25 = MSF
  • Repo – 0.25 = Reverse Repo
RBI Repo Rate benchmark policy interest
Other developments?
  1. RBI issued guidelines for Tri-Party repo agreement. (explained in same lecture in which I covered 2017-April policy)
  2. RBI sets up a task force on “Public credit registry”. (more in NPA article)

2017-October

Facts presented before the Committee: What to with policy rate (repo rate)
  • Vegetable prices increasing
  • Government has asked state oil companies to keep raising prices of subsidized kerosene by 25 paise every fortnight until the kerosene subsidy is eliminated.
  • International crude oil and LPG prices also rising.
ये तो बहुत चिंता का विषय है!! afterall, RBI is given sacred target to control inflation below 6% of CPI. So, better we hike the repo rate!
Commercial banks have not fully passed-on previous rate cut i.e. they’re yet to cheapen their lending rates. then better wait and watch.
Final Decision Repo rate unchanged @6%
Other developments?
  1. RBI issued guidelines for Peer to Peer (P2P) Lending. (will study under NBFC article)
  2. RBI allowed non-scheduled cooperative banks to open accounts with RBI so they don’t have to park their CRR in other scheduled banks. (not-relevant for UPSC)
  3. RBI ordered banks to give special attention to Senior citizens and PH.(not-relevant for UPSC)

2017-December

Facts presented before the Committee: What to with policy rate (repo rate)
CPI inflation is on rise again. Increase / Hike Repo rate
November 2017: GST council reduced GST from 28% to 18% on ~170 items (perhaps to appease the voters before Gujarat assembly election of December 2017).
  • By default, cheaper tax should boost consumption -> inflation -> hike repo rate to thwart it.
  • But better we wait and watch until it is actually reflected in the MRP. Because industries usually hike their ‘base price’  to profit more, instead of passing the benefit of lesser GST to the customers. e.g. chocolates
  • BEFORE: Rs.100 (base price) + 28% GST = 128/-
  • AFTER: Rs. 108 (base price) + 18% GST = Rs. 128/-
New IPOs issued in primary market. The entrepreneurs will boost construction and jobs from such share-capital.
  • Aggregate demand’s “investment (I)” component will rise. By theory, we should hike repo rate to thwart the inflation.
  • But better we wait and watch, until CPI crossed the danger zone (>6%)
WTO data says that while advanced economies (AE) recovering, global trade & export are declining due to their protectionism. Cut the repo rate. Cheap interest rate should boost local consumption.
Final Decision WAIT & WATCH कोरबे चालो. यानि की Repo rate unchanged 6%.
Other developments?

2018-FEBRUARY

Technically, this is the sixth and last bi-monthly monetary policy of the financial year 2017 – 18.
RBI Monetary Policy Trend
Facts presented before the Committee: What to with policy rate (repo rate)
Economic Survey data says: Growth rate fell from 8% in 2015 to 6.5% in 2017. ये तो बहुत चिंता का विषय है! Reduce repo rate to boost consumption and thereby production in our economy.
  • Budget documents show that the absolute figures the fiscal deficit is rising from 5.95 lakh crores (2017) to 6.24 crores in Budget-2018.
  • Economic survey also feared that deficit may rise even further before the general election of 2019 (if government announces populist schemes to appease the voters).
  • Fiscal deficit leads to inflation. Therefore, better we increase repo rate to prevent inflation.
  • Counter: Fiscal deficit led to inflation in the earlier times because of the subsidies leakage –money going into the hands of corrupt people who spend lavishly, thereby raising aggregate demand compared to the supply.
  • But, now, Aadhar-enabled authentications, and direct benefit transfer so less chances of susbidy leakage and the associated inflation.
  • another-view: Higher fiscal deficit = higher borrowing by the government = crowding out of the corporate borrowers from the credit market. (because corporates will have to offer more interest to the investors). So, better we reduce the repo rate to help industrialists.
Budget-2018 is pro-poor, pro-rural.
  • More money in the hands of poor people (working in MNREGA or receiving some Government subsidy) => more consumption => inflation, we should increase repo rate to prevent it.
  • Budget-2018 announced MSP = 1.5 x input cost. Farmers will receive more money and they’ll consume more (C)
  • Foodgrain-Merchants will be forced to offer more price to the farmers (because If farmer sells everything to FCI only, then private grain-seller will have to shut his shop!) But then merchant will increase the retail price of food-grains to keep his margin safe.
  • Prima-facie it appears that “1.5XMSP” will bring inflation in the food-grains and therefore, we should hike / increase repo rate to prevent inflation.
  • But, government yet to announce how exactly this 1.5XMSP will be implemented.
  • Until then, better wait and watch.
  • Budget-2018 increased custom duty on many items to make them expensive, and thereby encourage people to buy swadeshi items produced under the “Make in India”.
We should reduce the repo rate to help local entrepreneurs and customers
  • Advanced economies are recovering, they’re importing more crude oil and commodities.
  • OPEC cartel & Russia have already been cutting their oil-production to drive up the crude-oil prices.
This will bring inflation in India. We should hike repo rate to prevent inflation.
  • As the advanced economies are recovering, foreign investors are pulling money out of Indian market.
  • This will weaken Indian rupee, and thereby increase inflation (because imported crude oil gets more expensive).
  • It’s true that petrol-diesel don’t have very high weightage in computation of CPI, but with expensive fuel, the transport-services will get expensive, therefore CPI could rise > 6% inflation target.
  • We should hike repo rate to prevent inflation.
Final Decision?
  • WAIT & WATCH कोरबे चालो. यानि की Repo rate unchanged @6%.
  • By now it should be clear to you that real policy making is not straightforward like textbook-theory or strategy-video-game.

Other developments?

  1. RBI announced Ombudsmans for NBFCs. (more in the NBFC article)
  2. RBI observed that even though it had reduced repo rate in the past, the banks have not sufficiently reduced their loan-interest rates, because many of the loans were given under the erstwhile BASE-RATE system. (which was less efficient in transmission of monetary policy compared to the MCLR system of computing loan-interest rates). Therefore, RBI made certain technical rules for linking the base-rate loans with MCLR.
  3. Previously, RBI was providing subsidy to the banks for installation of ATM-Cash recycler machine. But as sufficient number of machines have been installed, RBI stopped the scheme.
  4. RBI tweaked certain technical rules about priority sector lending norms (sub-quota MSME service sector industries), but that is not important for UPSC.
  5. Next meeting on 4-5th April 2018.

2018-April

Technically, this is the first bimonthly monetary policy of the financial year 2018 – 19.
Facts presented before the Committee: What to with policy rate (repo rate)
Same bolbachchan continues. Crude oil price hike. Hike repo rate to fight inflation
Rice, pulse, coarse cereals – record production. But, Wheat production is lower than last year because of 1) low soil moisture 2) lower area under cultivate. But wheat-imports will suffice in worst case. Wait and watch.
GST had a transitional adverse effect on urban consumption. There is loss of output and employment in the labor-intensive unorganized sector. Reduce repo rate to boost consumption.
Private consumption is improving: in terms of number of air ticket sales, foreign tourist arrivals, sale of bikes & tractors. Wait and watch.
7th Pay commission: higher house rent allowance (HRA) raised Government Expenditure (G) and the ‘consumption’ (C). This will generate inflationary impact till middle of FY2018-19. Increase repo rate to fight inflation
“Fiscal slippage” for FY2017-18 i.e. Government crossed the fiscal-deficit target. More Fiscal deficit => inflation. So, Hike repo rate to fight inflation
Global economy recovering: if we look at ship container freight, air freight and export orders. But, intensification of a “trade war“ between USA and EU. Wait and watch.
Both crude oil and gold prices are rising.
  • Hike repo rate to fight inflation.
  • It’s not RBI’s DPSP-mandate to keep ‘gold affordable’, but as gold prices begin to rise, some investors begin speculative investment in gold- that leads to more Current account deficit -> weaker rupee. And weaker rupee = expensive crude oil= is mother of inflation.
Final Decision?
  • WAIT & WATCH कोरबे चालो. यानि की Repo rate unchanged @6%.

Other developments?

In the first monetary policy of any new financial year, RBI will announce more measures compared to other months. Same happend in April-2018:
  1. RBI deferred implementation of IndiAS accounting system for Indian commercial banks till 1/4/19. (more on this in the SEBI Kotak Panel article).
  2. BASEL-III counter cyclic capital buffer (CCCB) not required to be maintained.  If the central bank feels that after four quarters there will be economic slowdown, then they’ve to notify CCCB in advance. More under BASEL article.
  3. Derivative markets’ non-person entities need to obtain Legal Entity Identifier (LEI). More under NPA article.
  4. Payment System data must be stored in India within next 6 months. Already covered in last article.
  5. No entity regulated by RBI shall deal with Virtual-currency / cryptocurrency. Ye bhi covered in last article.
  6. RBI’s inter-departmental group formed to check desirability and feasibility to introduce a central bank digital currency. Report by end-June 2018. Ye bhi covered in last article.
  7. RBI data science lab for various big-data analytics on inflation, currency, debt, financial market intelligence etc. by Dec.2018
  8. Post-2006: Cash-in-Transit (CIT) companies and Cash Replenishment Agencies (CRAs) doing the cash-management work for the banks on outsourcing basis. But no separate law to regulate them. Hence, RBI will encourage these entities to setup their own self-regulatory organization. [similar to News Broadcasters Association (NBA) for TV-news channels.]
  9. For financial literacy, five new customized booklets will be created for Farmers, Small entrepreneurs, School children, Self Help Groups and Senior Citizens.
  10. 1969: Lead bank scheme was introduced. For each district, one bank will be designated as lead bank, and it’ll have to make efforts for financial inclusion. This scheme will be reviewed/ optimized.

Next Monetary Policy?

05-Apr-18 First Policy. Upto this, we’ve covered in this article.
06-Jun-18 Second Policy. But Prelim on 3rd June
01-Aug-18 Third Bi-monthly Monetary Policy of 2018-19
04-Oct-18 Fourth Bi-monthly Monetary Policy of 2018-19
05-Dec-18 Fifth Bi-monthly Monetary Policy of 2018-19
06-Feb-19 Sixth Bi-monthly Monetary Policy Statement for 2018-19
(Mock MCQ) Find incorrect statements about the monetary policy in India:
  1. Policy rate has been reduce only once during FY2017-18.
  2. RBI has reviews the monetary policy on monthly basis.
  3. All decisions of RBI’s monetary policy committee have been taken unanimously during 2017-18
Answer Codes:
  1. Only 1 and 2
  2. Only 2 and 3
  3. Only 1 and 3
  4. All of them
h/ RBI Monetary Policy Committee has six members to review the policy every two months. Decisions are to be taken by majority vote. If we look at the meeting minutes for FY18, usually Dr. Ravindra Dholakia (IIM-A) would want to reduce the repo rate to boost demand and employment, Whereas Michael Patra (RBI Executive Director) would want to hike to repo rate to combat inflation.
Q. Which of the following scenario merits a cut in the monetary policy rate?
  1. Fall in the stock exchange indexes.
  2. Announcement of farm-loan waiver by the Government
  3. Plummeting of IIP, CPI, export and GDP growth rate figures.
  4. None of the above.
h/ If IIP, CPI, GDP and exports are down, does it not show a trend towards deflation?

Limitations of Monetary Policy in combating inflation

  1. Monetary policy can’t control supply side issues, Fiscal deficit, leakage of Government money to informal money lenders- and their impact on the loan market.
  2. Repo borrowing is not major source of funding for Indian banks. So, changing repo will not immediately impact the bank loan rates.
  3. Even if RBI cuts repo rate, banks are not cutting lending rates due to NPA problem.
  4. These issues are discussed in depth, in my last year’s lecture video.


Source: xaam.in




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Source: xaam.in