EDITORIALS & ARTICLES
28th February 2021
RBI working paper defends 4% inflation target for India
The Reserve Bank of India (RBI) in its Currency and Finance (RCF) report for the year 2020-21 has said that the current inflation target band (4% +/-2%) is appropriate for next 5 years.
- Inflation Targeting:
- It is a central banking policy that revolves around adjusting monetary policy to achieve a specified annual rate of inflation.
- The principle of inflation targeting is based on the belief that long-term economic growth is best achieved by maintaining price stability, and price stability is achieved by controlling inflation.
- Strict inflation targeting is adopted when the central bank is only concerned about keeping inflation as close to a given inflation target as possible, and nothing else.
- Flexible inflation targeting is adopted when the central bank is to some extent also concerned about other things, for instance, the stability of interest rates, exchange rates, output and employment.
- India’s Flexible Inflation Target Framework:
- The central bank and the government agreed in 2015 on a policy framework that stipulated a primary objective of ensuring price stability while keeping in mind the objective of growth.
- The Flexible Inflation Target (FIT) was adopted in 2016. This has put India on par with other nations in terms of flexible inflation targeting.
- The Reserve Bank of India Act, 1934 was amended to provide a statutory basis for a FTI framework.
- The amended Act provides for the inflation target to be set by the Government, in consultation with the RBI, once every five years.
- The FIT Framework:
- India adopted a flexible inflation targeting mandate of 4 (+/-2) percent and headline consumer price inflation was chosen as a key indicator.
- Purpose: Inflation targeting is known to bring more stability, predictability, and transparency in deciding monetary policy.
- This is because of the argument that rising prices create uncertainties and adversely affect savings and investments.
- Fixed Accountability: The framework made the RBI more accountable to explain to the government if it fails to meet the inflation targets.
- The flip side of this is such targets will restrain the RBI from taking any tight or accommodating monetary policy stance.
- RBI’s Stand (Findings of the RCF Report):
- The trend inflation has fallen from above 9% before FIT to a range of 3.8-4.3 % during FIT, indicating that 4% is the appropriate level of the inflation target for the country.
- An inflation rate of 6% is the appropriate upper tolerance limit for the inflation target.
- On the other hand, a lower bound above 2% can lead to actual inflation frequently dipping below the tolerance band.
- While, a lower bound below 2% will hamper growth, indicating that an inflation rate of 2% is the appropriate lower tolerance bound.
- During the FIT period, monetary transmission has been full and reasonably swift across the money market (trading in very short-term debt instruments) but less than complete in the bond markets.
- While there has been an improvement in transmission to lending and deposit rates of banks, external benchmarksacross all categories of loans and deposits could improve transmission.
Monetary Policy
- It is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
- In India, monetary policy of the Reserve Bank of India is aimed at managing the quantity of money in order to meet the requirements of different sectors of the economy and to increase the pace of economic growth.
- The RBI implements the monetary policy through open market operations, bank rate policy, reserve system, credit control policy, moral persuasion and through many other instruments.
Accommodative and Tight Monetary Policy
- To avoid inflation, most central banks alternate between the accommodative monetary policy and the tight monetary policy in varying degrees to encourage growth while keeping inflation under control.
- Accommodative monetary policy is adopted when central banks expand the money supply to boost the economy.
- These measures are meant to make money less expensive to borrow and encourage more spending.
- A tight monetary policy is implemented to contract economic growth.
- Converse to accommodative monetary policy, a tight monetary policy involves increasing interest rates to constrain borrowing and to stimulate savings.
Monetary Policy Committee
- It is a statutory and institutionalized framework under the Reserve Bank of India Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
- The Governor of RBI is ex-officio Chairman of the committee.
- The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (4%).
- An RBI-appointed committee led by the then deputy governor Urjit Patel in 2014 recommended the establishment of the Monetary Policy Committee.
- In the conduct of monetary policy in an open economy setting, foreign exchange reserves and associated liquidity management are key, there is a need to enhance the RBI’s sterilisation capacity to deal with surges in capital flows.
- The primary focus of FIT on price stability augurs well for further liberalisation of the capital account and eventual internationalisation of the Indian rupees.
NGT Suggests National River Rejuvenation Mechanism
Recently, the National Green Tribunal (NGT) directed the Ministry of Jal Shakti to devise an appropriate National River Rejuvenation Mechanism for effective monitoring of steps to curb pollution and for rejuvenation of all polluted river stretches across the country.
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- Assessment of the CPCB:
- Findings:
- According to the 2016-17 assessment of the Central Pollution Control Board (CPCB), the number of polluted stretches of the country's rivers has increased to 351 from 302 two years ago, and the number of critically polluted stretches — where water quality indicators are the poorest—has gone up to 45 from 34.
- Among them, 117 such river stretches are in the States of Assam, Gujarat, and Maharashtra.
- Basis of the CPCB Assessment:
- The CPCB, since the 1990s, has a programme to monitor the quality of rivers primarily by measuring Biochemical Oxygen Demand(BOD), which is a proxy for organic pollution—the higher it is, the worse the river.
- The CPCB considers a BOD less than 3 mg/l an indicator of a healthy river.
- Initiative Taken:
- The NGT had constituted a Central Monitoring Committee to prepare and enforce a national plan to make over 350 river stretches across the country pollution free as it has caused serious threat to safety of water and environment.
- Latest Direction:
- Observation:
- There has been deterioration in the quality of water in rivers in spite of the Water Act which was enacted way back in 1974 which was intended to bring about improvement.
- Establishment of NRRM:
- NGT suggested the mechanism could be called ‘National River Rejuvenation Mechanism (NRRM). NRRM may consider setting up a National, State or district environment data grid at appropriate levels as an effective monitoring strategy.
- Expansion in the Scope of NRRM:
- The process of rejuvenation of rivers need not be confined to only 351 stretches but may be applicable to all small, medium and big polluted rivers, including those dried up.
- Implementation:
- Effective measures should be taken by Chief Secretaries of all States and UTs in terms of action plans for abatement of pollution and rejuvenation of rivers.
- The Chief Secretaries are also required to personally monitor progress at least once every month and the NRRM every quarter.
- The accountability for failure to comply with the direction for payment of compensation will be of the Chief Secretaries concerned.
- Causes of Polluted River Stretches:
- Rapid urbanisation and lack of efficient waste disposal systems.
- Industrial Cities on the banks of rivers.
- Run-off from agricultural activities, etc.
- Impact of Pollution:
- The World Bank estimates that the health costs of water pollution in India equal three percent of India's GDP.
- It has also been suggested that eighty percent of all illnesses in India and one-third of deaths can be attributed to water-borne diseases.
- The danger Ganga’s polluted water poses is not only to the humans but also to the animals. Some of the important threatened species include, more than 140 fish species, 90 amphibian species, reptiles such as the Gharials, and mammals such as the South Asian River Dolphin.
- Related Constitutional Provisions:
- Article 21: The fundamental right to clean the environment, and further, pollution-free water, has been protected under the broad rubric of the right to life.
- Article 51-A (g): It mandates as a fundamental duty of every citizen of India to protect and improve the natural environment including forests, lakes, rivers and wildlife.
- Initiatives to Tackle Water Pollution:
- National Water Policy (2012):
- It aims to take cognizance of the existing situation, to propose a framework for creation of a system of laws and institutions and for a plan of action with a unified national perspective.
- Started by the Ministry of Water Resources, it highlights the importance of water for human existence as well as for economic development related activities.
- It suggests frameworks to conserve water resources through optimal, economical, sustainable and equitable means.
- National Water Mission (2010): It ensures integrated water resource management leading to water conservation, less wastage, equitable distribution forming better policies.
- National Mission for Clean Ganga (NMCG) which envisages a five-tier structure at national, state and district level to take measures for prevention, control, and abatement of environmental pollution in river Ganga.
- It aims to ensure continuous adequate flow of water so as to rejuvenate the river Ganga.
- Namami Gange Project: It integrates the efforts to clean and protect the Ganga River in a comprehensive manner.
Genetically Modified Organisms as Imported Food Crops
The Food Safety and Standards Authority of India (FSSAI) in a recent order has set 1% threshold for Genetically Modified Organisms (GMO) in food crops imported into India.
- Earlier in August 2020, FSSAI had issued the order that 24 food crops the country imports would need a ‘non-GM-origin-cum-GM-free certificate’ issued by a competent authority.
- Genetically Modified Organisms (GMOs):
- These are living organisms whose genetic material has been artificially manipulated in a laboratory through genetic engineering.
- This creates combinations of plant, animal, bacteria, and virus genes that do not occur in nature or through traditional crossbreeding methods.
- Genetically Modified Crops:
- Conventional plant breeding involves crossing of species of the same genus to provide the offspring with the desired traits of both parents.
- Genus is a class of items such as a group of animals or plants with similar traits, qualities or features.
- Bt cotton is the only Genetically Modified (GM) crop that is allowed in India. It has alien genes from the soil bacterium Bacillus thuringiensis (Bt) that allows the crop to develop a protein toxic to the common pest pink bollworm.
- Herbicide Tolerant Bt (Ht Bt) cotton, on the other hand is derived with the insertion of an additional gene, from another soil bacterium, which allows the plant to resist the common herbicide glyphosate.
- In Bt brinjal, a gene allows the plant to resist attacks of fruit and shoot borers.
- In DMH-11 mustard, genetic modification allows cross-pollination in a crop that self-pollinates in nature.
- Legal Position of GM crops in India:
- In India, the Genetic Engineering Appraisal Committee (GEAC) is the apex body that allows for commercial release of GM crops.
- Use of the unapproved GM variant can attract a jail term of 5 years and fine of Rs. 1 lakh under the Environment Protection Act, 1986.
- Regulation of Imported Crops:
- The task of regulating GMO levels in imported consumables was initially with the Genetic Engineering Appraisal Committee (GEAC).
- Its role was diluted with the enactment of the Food Safety and Standards Act, 2006 and FSSAI was asked to take over approvals of imported goods.
Same Sex Marriage
Recently, the Central Government opposed same-sex marriage in Delhi High Court stating that a marriage in India can be recognised only if it is between a “biological man” and a “biological woman” capable of producing children.
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- Petitions, seeking recognition of same sex marriages under the Hindu Marriage Act (HMA), 1955 and the Special Marriage Act (SMA), 1954, were filed in 2020.
- Centre’s Response/Argument:
- Supreme Court’s Order:
- In reading down the provision of Section 377 of the Indian Penal Code (IPC), the Supreme Court only decriminalised a particular human behaviour but neither intended to, nor did in fact, legitimise the human conduct in question.
- Societal Morality:
- There exists a “legitimate State interest” in limiting the recognition of marriage to persons of opposite sex. The considerations of “societal morality” are relevant in considering the validity of a law and it is for the Legislature to enforce such societal morality and public acceptance based upon Indian ethos.
- Not in Consonance with Existing Laws:
- The fundamental right under Article 21 is subject to the procedure established by law and it cannot be expanded to include the fundamental right for same sex marriage to be recognised under the laws which in fact mandate the contrary.
- Article 21 of the constitution guarantees the right to life. This right cannot be taken away except through a law which is substantively and procedurally fair, just and reasonable.
- Any interference with the existing marriage laws would cause complete havoc with the delicate balance of personal laws in the country.
- Sanctity of Marriage:
- Living together as partners or in a relationship with a same-sex individual is “not comparable” with the “Indian family unit concept” of a husband, wife and children, arguing that the institution of marriage has a “sanctity”.
- Legality of same-sex marriages in India:
- The right to marry is not expressly recognized either as a fundamental or constitutional right under the Indian Constitution.
- Though marriage is regulated through various statutory enactments, its recognition as a fundamental right has only developed through judicial decisions of India’s Supreme Court.
- Such declaration of law is binding on all courts throughout India under Article 141 of the Constitution.
- Important Supreme Court Decisions:
- Marriage as a Fundamental Right (Shafin Jahan v. Asokan K.M. and others 2018):
- While referring to Article 16 of Universal Declaration of Human Rights and the Puttaswamy case, the SC held that the right to marry a person of one’s choice is integral to Article 21 of the Constitution.
- Article 16 (2) in the Indian constitution provides that there cannot be any discrimination on grounds only of religion, race, caste, sex, descent, place of birth, residence or any of them.
- The right to marry is intrinsic to the liberty which the Constitution guarantees as a fundamental right, is the ability of each individual to take decisions on matters central to the pursuit of happiness. Matters of belief and faith, including whether to believe are at the core of constitutional liberty.
- LGBTQ Community Entitled to all Constitutional Rights (Navjet Singh Johar and others v. Union of India 2018):
- The SC held that members of the LGBTQ community “are entitled, as all other citizens, to the full range of constitutional rights including the liberties protected by the Constitution” and are entitled to equal citizenship and “equal protection of law”.
- The LGTBQ community needs an anti-discrimination law that empowers them to build productive lives and relationshipsirrespective of gender identity or sexual orientation and place the onus to change on state and society and not the individual.
- Once members of the LGBTQ community “are entitled to the full range of constitutional rights”, it is beyond doubt that the fundamental right to marry a person of one’s own choice has to be conferred on same sex couples intending to marry. More than two dozen countries have legalized same-sex marriage.
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