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10th April 2021
Monetary policy review: RBI changes the way it forecasts inflation rate
The Reserve Bank of India (RBI) has released the Monetary Policy Report for the month of April 2021.
Ukrainian President urged the North Atlantic Treaty Organization (NATO) to speed up his country’s membership in the alliance.
An Iranian freighter was hit by Israel in the Red Sea in retaliation for past Iranian strikes on its vessels. The blast struck the Iranian commercial vessel MV Saviz off the coast of Djibouti.
- Unchanged Policy Rates:
- Repo Rate - 4%.
- Reverse Repo Rate - 3.35%.
- Marginal Standing Facility (MSF) - 4.25%.
- Bank Rate- 4.25%.
- GDP Projection:
- Real Gross Domestic Product (GDP) growth for 2021-22 has been retained at 10.5%.
- Inflation:
- RBI has revised the projection for Consumer Price Index (CPI) inflation to:
- 5.0% in Quarter 4 of 2020-21.
- 5.2% in Quarter 1 of 2021-22.
- 5.2% in Quarter 2 of 2021-22.
- 4.4% in Quarter 3 of 2021-22.
- 5.1% in Quarter 4 of 2021-22.
- RBI has revised the projection for Consumer Price Index (CPI) inflation to:
- Accommodative Stance:
- The RBI decided to continue with the accommodative stance as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.
- An accommodative stance means a central bank will cut rates to inject money into the financial system whenever needed.
- The RBI decided to continue with the accommodative stance as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.
- Support to Financial Institutions:
- RBI would extend fresh support of Rs. 50,000 crore to the All India Financial Institutions for new lending in Financial Year (FY) 2021-22.
- National Bank for Agriculture and Rural Development (NABARD) will be provided a Special Liquidity Facility (SLF)of Rs. 25,000 crore for one year to support agriculture and allied activities, the rural non-farm sector and Non-Banking Financial Companies (NBFCs) - Micro-Finance Institutions (MFIs).
- An SLF of Rs. 10,000 crore will be extended to the National Housing Bank for one year to support the housing sector.
- Small Industries Development Bank of India (SIDBI) will be provided Rs.15,000 crore under this facility for up to one year for funding of Micro, Small and Medium enterprises (MSMEs).
- All three facilities will be available at the prevailing policy repo rate.
- RBI would extend fresh support of Rs. 50,000 crore to the All India Financial Institutions for new lending in Financial Year (FY) 2021-22.
- Review Committee for ARC’s:
- Signalling the importance of Asset Reconstruction Companies (ARCs) to deal with bad loans, the RBI would constitute a committee to undertake a comprehensive review of the working of ARCs in the financial sector ecosystem.
- The committee will recommend suitable measures for enabling such entities to meet the growing requirements of the financial sector.
- Extension of Priority Sector Lending:
- A six-month extension to September 30,2021 for Priority Sector Lending (PSL) classification for lending by banks to NBFCs for ‘on-lending’ to sectors that contribute significantly to the economy in terms of export and employment — has been approved.
- On-lending means to lend (borrowed money) to a third party.
- This would provide an impetus to NBFCs providing credit at the bottom of the pyramid.
- A six-month extension to September 30,2021 for Priority Sector Lending (PSL) classification for lending by banks to NBFCs for ‘on-lending’ to sectors that contribute significantly to the economy in terms of export and employment — has been approved.
- Government Securities Acquisition Programme (G-SAP) 1.0:
- About:
- The RBI, for the year 2021-22, has decided to put in place a secondary market Government Security (G-sec)Acquisition Programme or G-SAP 1.0.
- It is part of RBIs Open Market Operations.
- Under the programme, the RBI will commit upfront to a specific amount of Open Market Purchases of government securities.
- The first purchase of government securities for an aggregate amount of Rs. 25,000 crore under G-SAP 1.0 will be conducted on 15th April, 2021.
- The RBI, for the year 2021-22, has decided to put in place a secondary market Government Security (G-sec)Acquisition Programme or G-SAP 1.0.
- Objective:
- To avoid volatility in the G-sec market in view of its central role in the pricing of other financial market instruments across the term structure and issuers, both in the public and private sectors
- Significance:
- It will provide certainty to the bond market participants with regard to RBI’s commitment of support to the bond market in FY22.
- The announcement of this structured programme will help reduce the difference between the repo rate and the 10-year government bond yield. That, in turn, will help to reduce the aggregate cost of borrowing for the Centre and states in FY 2021-22.
- It will enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.
- A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates.
- The slope of the yield curve gives an idea of future interest rate changes and economic activity.
- About:
- Repo and Reverse Repo Rate:
- Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Here, the central bank purchases the security.
- Reverse repo rate is the rate at which the RBI borrows money from commercial banks within the country.
- Bank Rate:
- It is the rate charged by the RBI for lending funds to commercial banks.
- Marginal Standing Facility (MSF):
- MSF is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely.
- Under interbank lending, banks lend funds to one another for a specified term.
- Open Market Operations:
- These are market operations conducted by RBI by way of sale/purchase of government securities to/from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
- If there is excess liquidity, RBI resorts to sale of securities and sucks out the rupee liquidity.
- Similarly, when the liquidity conditions are tight, RBI buys securities from the market, thereby releasing liquidity into the market.
- It is one of the quantitative (to regulate or control the total volume of money) monetary policy tools which is employed by the central bank of a country to control the money supply in the economy.
- Government Security:
- A G-Sec is a tradable instrument issued by the Central Government or the State Governments.
- It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91 day, 182 day and 364 day) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
- Inflation:
- Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
- Inflation measures the average price change in a basket of commodities and services over time.
- Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.
- Consumer Price Index:
- It measures price changes from the perspective of a retail buyer. It is released by the National Statistical Office (NSO).
- The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
Ukrainian President urged the North Atlantic Treaty Organization (NATO) to speed up his country’s membership in the alliance.
- Ukraine hopes to be invited this year to join a NATO Membership Action Plan (MAP).
- Reasons for Ukraine to Join NATO:
- Ukraine is of the opinion that joining NATO is the only way to end fighting with pro-Russia separatists.
- There is an increase in clashes and Russian military movements on the border raise fears of an escalation of theseparatist conflict in eastern Ukraine.
- Ukraine accuses Russia of massing thousands of military personnel on its northern and eastern borders as well as on the Crimean peninsula (annexed by Russia in 2014).
- Ukraine’s Western allies have rushed to its defence, with a series of statements warning Russia against taking further action.
- India did not join the Western powers’ condemnation of Russia’s intervention in Crimea and kept a low profile on the issue.
- About North Atlantic Treaty Organization (NATO):
- It is a military alliance established by the North Atlantic Treaty (also called the Washington Treaty) of 4th April, 1949, by the United States, Canada, and several Western European nations to provide collective security against the Soviet Union.
- It is headquartered at Brussels, Belgium.
- A key provision of the treaty, the so-called Article 5, states that if one member of the alliance is attacked in Europe or North America, it is to be considered an attack on all members. That effectively put Western Europe under the "nuclear umbrella" of the US.
- NATO has only once invoked Article 5, on 12th September, 2001, following the 9/11 attacks on the World Trade Center in the US.
- NATO's protection does not extend to members' civil wars or internal coups.
- As of 30th March 2021, there are 30 member states, with the Republic of North Macedonia becoming the latest member to join the alliance in 2020.
- It is a NATO programme of advice, assistance and practical support tailored to the individual needs of countries wishing to join the Alliance.
- Participation in the MAP does not prejudge any decision by the Alliance on future membership.
- Bosnia and Herzegovina is currently participating in MAP.
- Alkaloids are a huge group of naturally occurring organic compounds which contain nitrogen atom or atoms(amino or amido in some cases) in their structures.
- These nitrogen atoms cause alkalinity of these compounds.
- Well-known alkaloids include morphine, strychnine, quinine, ephedrine, and nicotine.
- The medicinal properties of alkaloids are quite diverse. Morphine is a powerful narcotic used for the relief of pain, though its addictive properties limit its usefulness. Codeine, the methyl ether derivative of morphine found in the opium poppy, is an excellent analgesic that is relatively nonaddictive.
- Poppy Straw:
- Poppy straw is the husk left after the opium is extracted from pods.
- This poppy straw also contains a very small morphine content and if used in sufficient quantities, poppy straw can give a high.
- Possession, sale, use, etc. of poppy straw is regulated by the State Governments under the State Narcotic Drugs & Psychotropic Substances Rules.
- Farmers sell the poppy straw to those licensed by the State Governments to purchase poppy straw.
- Any excess poppy straw is ploughed back into the field.
- Poppy straw is one of the narcotic drugs under the Narcotic Drugs & Psychotropic Substances Act 1985 (NDPS Act).
- Hence, anyone possessing, selling, purchasing or using poppy straw without a license or authorization or in violation of any conditions of the license is liable to prosecution under the NDPS Act.
- Current Extraction of Alkaloids:
- India currently only extracts alkaloids from opium gum at facilities controlled by the Revenue Department in the Ministry of Finance.
- This entails farmers extracting gum by manually lancing the opium pods and selling the gum to government factories.
- The Ministry has now decided to switch to new technologies, after trial cultivation by two private firms showed higher extraction of alkaloids using the Concentrated Poppy Straw (CPS). Thus, the Government is mulling the idea of using public-private partnership (PPP).
- India currently only extracts alkaloids from opium gum at facilities controlled by the Revenue Department in the Ministry of Finance.
- Partnership Model:
- Two types of Narcotic Raw Material (NRM) can be produced from opium poppy - Opium gum and Concentrate of Poppy Straw (CPS).
- So far, only opium gum has been produced in India. The Government of India has now decided that CPS production should be commenced in India.
- The various stakeholders will frame an appropriate model including public-private partnership (PPP), advise on the changes needed to the rules and laws to facilitate private investment, and recommend security measures to protect the crop and the final product.
- The firms carrying out the trials faced legal hassles in terms of getting relevant licences from the State governments to manufacture bulk alkaloids on their premises, this issue will need to be ironed out.
- As per the trials’ findings, the imported seeds of certain CPS varieties worked effectively in Indian fields and their narcotic raw material yield was much higher from imported seeds instead of those used currently.
- Some firms also cultivated CPS with hydroponic and aeroponic methods under a greenhouse environment.
- Both Hydroponics and Aeroponics are sustainable, water-conservative farming methods, differing only by the medium which is used in the growth of the plants.
- Significance of the Move:
- While alkaloid extraction from the current opium crop using the CPS was found more than opium gum, it is possible to have two or three crop cycles in one year if CPS varieties of seeds are used in an indoor greenhouse environment.
- India’s opium crop acreage has been steadily declining over the years and using the CPS extraction method is expected to help cut the occasional dependence on imports of products like codeine (extracted from opium) for medicinal uses.
- After independence, the control over cultivation and manufacture of opium became responsibility of the Central Government with effect from April, 1950.
- At present the Narcotics Commissioner along with the subordinates exercises all powers and performs all functions relating to superintendence of the cultivation of the opium poppy and production of opium.
- The Commissioner derives this power from the Narcotic Drugs & Psychotropic Substances Act 1985 and Narcotic Drugs & Psychotropic Substances Rules, 1985.
- License for manufacture of certain types of narcotic drugs and psychotropic substances as well as permits for export and import of narcotic drugs, psychotropic and controlled substances are issued with the approval and permission of the Narcotics Commissioner.
- The Government of India announces the licensing policy for cultivation of opium poppy every year, prescribing the minimum qualifying yield for issue of or renewal of licence, maximum area that can be cultivated by an individual cultivator, the maximum benefit that can be allowed to a cultivator for damage due to natural causes, etc.
- The opium poppy can be cultivated only in such tracts as are notified by the Government.
- At present these tracts are confined to three States,viz. Madhya Pradesh, Rajasthan and Uttar Pradesh.
- Mandsaur district of Madhya Pradesh and Chittorgarh and Jhalawar Districts of Rajasthan constitute about 80% of the total area cultivated.
- India is one of the few countries internationally permitted (by the United Nations Office on Drugs and Crime ) to cultivate opium poppy for export.
- Opium is unique in its therapeutic value and is indispensable in the medical world.
- It also finds use in Homeopathy and Ayurveda or Unani systems of indigenous medicines.
- The opium which is used as Analgesics, Anti-Tussive, Anti spasmodic and as a source of edible seed-oil, acts as a medicinal herb.
An Iranian freighter was hit by Israel in the Red Sea in retaliation for past Iranian strikes on its vessels. The blast struck the Iranian commercial vessel MV Saviz off the coast of Djibouti.
- The attack came as Iranian officials gathered in Vienna to negotiate the restoration of a 2015 deal Joint Comprehensive Plan of Action (JCPOA) that was designed to curb Iran’s nuclear activities.
- Red Sea:
- Location:
- The Red Sea is a semi-enclosed tropical basin, bounded by northeastern Africa, to the west, and the Arabian peninsula, to the east.
- The elongated and narrow-shaped basin extends between the Mediterranean Sea, to the north-west, and the Indian Ocean, to the south-east.
- At the northern end, it separates into the Gulf of Aqaba and the Gulf of Suez, which is connected to the Mediterranean Sea via the Suez Canal.
- At the southern end, it is connected to the Gulf of Aden, and the outer Indian Ocean, via the Strait of Bab-el-Mandeb.
- It is surrounded by desert or semi-desert areas, with no major freshwater inflow.
- Formation:
- The Red sea acquired its present shape over the past 4 to 5 million years, by slow seafloor spreading, a fact that makes it a geologically recent opening and one of the youngest oceanic zones on Earth.
- Today, the basin continues to widen at a rate of 1-2 cm per year
- Biodiversity:
- The unique habitats of the Red sea support a wide range of marine life, including sea turtles, dugongs, dolphinsand many endemic fish species.
- Coral reefs mainly extend along the northern and central coasts, and decrease in abundance towards the southern region, as coastal waters become more turbid.
- The Reason why it is called Red Sea:
- There are various theories as to how the name came about, with the most popular being a reference to the seasonal blooms of Trichodesmium erythraeum (a red-colored algae) near the water’s surface.
- Other scholars believe it is linked to the way Asiatic languages often use colors to refer to cardinal directions, with“red” referring to “south” just as the Black Sea may be referring to the north.
- Location:
- In 2015, Iran with the P5+1 group of world powers - the US, UK, France, China, Russia, and Germany agreed on a long-term deal on its nuclear programme.
- The deal was named as Joint Comprehensive Plan of Action (JCPOA) and in common parlance as Iran Nuclear Deal.
- The deal came after years of tension over Iran's alleged efforts to develop nuclear weapons.
- Iran insisted that its nuclear programme was entirely peaceful, but the international community did not believe that.
- Under the JCPOA, Iran agreed to limit its nuclear activities by stopping uranium enrichment and allowing the international agencies to inspect its nuclear facilities in return for the lifting of economic sanctions.
- However, in May 2018, the USA pulled out of the JCPOA and threatened to impose sanctions on Iran and on nations doing a significant amount of trade with Iran.
- A petition was filed in the Court, objecting to the appointment of interim CBI Director following the retirement of the regular CBI director.
- Arguments of the Petitioner:
- The government had failed to appoint a regular Director through the high-power selection committee of the Prime Minister, Chief Justice of India and Leader of Opposition.
- An interim appointment through an executive order was not envisaged in the statutory scheme of the 1946 Act (Delhi Special Police Establishment Act of 1946).
- Urged the court to direct the introduction of a mechanism to ensure that the process of selection of CBI Director is completed one or two months in advance of the retirement of the incumbent.
- In this context, the petitioner referred to the case of Anjali Bhardwaj v. Union of India (2019) - related to vacancies at Central Information Commission and State Information Commissions.
- In this case, the Supreme Court held that “it would be apposite that the process for filling up of a particular vacancy is initiated 1 to 2 months before the date on which the vacancy is likely to occur so that there is not much time-lag between the occurrence of vacancy and filling up of the said vacancy."
- About the Central Bureau of Investigation (CBI):
- The CBI was set up in 1963 by a resolution of the Ministry of Home Affairs.
- Now, the CBI comes under the administrative control of the Department of Personnel and Training (DoPT) of theMinistry of Personnel, Public Grievances and Pensions.
- The establishment of the CBI was recommended by the Santhanam Committee on Prevention of Corruption (1962–1964).
- The CBI is not a statutory body. It derives its powers from the Delhi Special Police Establishment Act, 1946.
- The CBI is the main investigating agency of the Central Government.
- It also provides assistance to the Central Vigilance Commission and Lokpal.
- It is also the nodal police agency in India which coordinates investigation on behalf of Interpol Member countries.
- The CBI was set up in 1963 by a resolution of the Ministry of Home Affairs.
- Issues in the functioning of CBI:
- Legal Ambiguity: Lack of clearly demarcated spheres of functioning and overlapping areas of influence severely comprises both the integrity and efficacy of the institution.
- Under the Delhi Special Police Establishment Act 1946, for conduct or continuance of investigation into offences committed within the territory of a state, consent of the state is crucial.
- Weak Human Resource: Massive shortage of officers at the CBI may hamper quality of investigations and increase pendency, a Parliamentary panel said in the year 2020.
- The panel observed that 789 posts in executive ranks, 77 posts of law officers and 415 posts of technical officers and staff were lying vacant.
- Lack of Adequate Investment:
- Inadequate investment in personnel, training, equipment or other support structures, adversely hampers professional discharge of duties.
- High quality research and training are crucial for maintaining an effective modern police force imparting it with the operational ability to meaningfully respond to ever changing societal needs.
- Accountability:
- In the past few decades massive strides have been made in imbibing traits of transparency and accountability into public life and institutions.
- Of equal importance is the need to maintain morale of the force by enforcing stringent internal accountability.
- Political and Administrative Interference:
- Given that the superintendence and control of the agency continues to, in large measure, lie with the executive by virtue of Section 4 of the Delhi Special Police Establishment Act 1946, the possibility of it being used as a political instrument remains ever present.
- Legal Ambiguity: Lack of clearly demarcated spheres of functioning and overlapping areas of influence severely comprises both the integrity and efficacy of the institution.
- There is a need to ensure that CBI operates under a formal, modern legal framework that has been written for a contemporary investigative agency. A new CBI Act should be promulgated that ensures the autonomy of CBI while at the same time improving the quality of supervision.
- There is a need to administratively protect CBI from political interference. For this to happen, the new Act must specify criminal culpability for government interference.
POSTED ON 10-04-2021 BY ADMIN
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