Daily Prelims Notes 14 October 2022

Daily Prelims Notes

14 October 2022

Table Of Contents

1. Karnataka hijab ban case and the split verdict of Supreme Court
2. Court of Justice of the European Union (CJEU)
3. Jammu administration rescinds order on registration of new voters
4. Article 340
5. Govt stocks dip to 5 year low amid high food inflation
6. ISRO’s Next-Gen LV may assume PSLV’s role
7. Gold prices
8. Advertising Standards Council of India (ASCI)
9. Non-deliverable forward (NDF)
10. Power Ministry opposes G7’s plan of energy transition talks with India
11. We need a forest-led COP27

1. Karnataka hijab ban case and the split verdict of Supreme Court

Context:

• Recently, the Supreme Court has delivered a split verdict on the Karnataka Hijab Ban Case.
• One of the two judges on the Bench upholded the March 15 order of the Karnataka HC validating the government’s ban, and the other set aside the HC ruling.
• With the two-judge Bench divided in its view, the matter was directed to be placed before Chief Justice of India (CJI) U U Lalit for appropriate directions.

What is split verdict:

• A split verdict is passed when the Bench cannot decide one way or the other in a case, either by a unanimous decision or by a majority verdict.
• Split verdicts can only happen when the Bench has an even number of judges.
• This is the reason why judges usually sit in Benches of odd numbers (three, five, seven, etc.) for important cases, even though two-judge Benches  known as Division Benches are not uncommon

What will happen after the split verdict:

• In case of a split verdict, the case is heard by a larger Bench.
• The larger Bench to which a split verdict goes can be a three-judge Bench of the High Court, or an appeal can be preferred before the Supreme Court.
• In the case of the hijab verdict, the CJI, who is the ‘master of the roster’, will constitute a new larger Bench to hear the matter.

The Earlier cases with a split verdict:

• In May, a two-judge Bench of the Delhi HC delivered a split verdict in a batch of petitions challenging the exception provided to marital rape in the Indian Penal Code (IPC).
• Justice Rajiv Shakdher held that the exception under Section 375 (which deals with rape) of the IPC is unconstitutional, while Justice C Hari Shankar held that the provision is valid.

What does the present SC bench said regarding the Hijab ban:

• The Two-Judge bench of Justice Hemant Gupta and  Justice Sudhanshu Dhulia hearing the Hijab Case has shown splitting views over the issue.
• Justice Hemant Gupta, upheld Karnataka’s prohibitive government order, saying apparent symbols of religious belief cannot be worn to secular schools maintained from State funds.
• Whereas Justice Sudhanshu Dhulia in his divergent views said secularity meant tolerance to “diversity”.
• Wearing or not wearing a hijab to school was “ultimately a matter of choice”. For girls from conservative families, “her hijab is her ticket to education”.

Previous Judgements of Karnataka High Court on Hijab Case:

• As per the High Court rulling, Wearing of hijab by Muslim women does not form a part of essential religious practices in Islamic faith. And it is not protected under the right to freedom of religion guaranteed under Article 25, of the Constitution of India.
• The court ruled that the prescription of school uniform does not violate either the right to freedom of speech and expression under Article 19(1) (a) or the right to privacy under Article 21 of the Constitution.
• And the restriction against wearing of hijab in educational institutions is only a reasonable restriction constitutionally permissible, which the students cannot object to.
• The court upheld the legality of the Karnataka Government’s order prescribing the wearing of uniforms in schools and pre-university colleges under provisions of the Karnataka Education Act, 1983.

2. Court of Justice of the European Union (CJEU)

Context:

• Europe’s top court in its order has said that EU companies can ban headscarfs as long as it is a general prohibition that does not discriminate against employees.
• The case was related to a Muslim woman who was told not wear a headscarf when she applied to do a six-week work traineeship at a Belgian company.

What is Court of Justice of the European Union:

• It is the chief judicial authority of the European Union and oversees the uniform application and interpretation of European Union law, in cooperation with the national judiciary of the member states
• It seats in the Kirchberg quarter of Luxembourg City, Luxembourg.

History of Court of Justice of the European Union:

• The CJEU was originally established in 1952 as a single court called the Court of Justice of the European Coal and Steel Communities.
• By 1958 it was called the Court of Justice of the European Communities.
• The General Court was created in 1988 also known as the Court of First Instance and the Civil Service Tribunal which was created in 2004.
• With the entry into force of the Treaty of Lisbon in 2009, the court system obtained its current name as Court of Justice of the European Union while the original court itself was renamed “Court of Justice”.
• The working language of the Court of Justice of the European Union is French

Composition of the Court of Justice of the European Union:

It consists of two major courts:

• The Court of Justice: It is also known as European Court of Justice (ECJ), which hears applications from national courts for preliminary rulings, annulment and appeals. It consists of one judge from each EU member country, as well as 11 advocates general.
• The General Court:- It hears applications for annulment from individuals, companies and, less commonly, national governments focusing on competition law, state aid, trade, agriculture and trade marks. Since 2020 the court is composed of 54 judges.

3. Jammu administration rescinds order on registration of new voters

Context:

• A day after issuing the order on enrolling new voters, sparking a political row in the Union Territory, Jammu district authorities have withdrawn the direction authorising tehsildars or revenue officials to issue certificate of residence to people residing in the district for more than a year to enable their registration as voters.

Why was the order given:

• The order was issued by Deputy Commissioner and District Election Officer for Jammu, AvnyLavasa.
• It was issued to benefit people residing in a particular tehsil of Jammu district for more than a year and who lacked any documentary proof of residence to get registered as voters in the ongoing special summary revision of electoral rolls in Jammu and Kashmir.

What documents were required for the registration:

• ECI prescribed various documents that could be accepted as proof of residence.
  • It include water, electricity or gas connection for at least one year;
  • Aadhaar card 
  • Current passbook of any nationalized/scheduled bank or post office;
  • Indian passport.
  • Revenue Department’s land-owning record including kisan bahi.
  • Registered rent/lease deed in case of tenants.
  • Registered sale deed if the person concerned owns the house.

The guidelines also stated that in case none of the above mentioned documents is available field verification is must. Which will be done by field verification officer appointed by the electoral registration officer.

4. Article 340

Subject :Polity

Context: Three-time Uttar Pradesh chief minister and Samajwadi Party founder Mulayam Singh Yadav passed away at a private Gurugram hospital on Monday

Article 340:

• The President may by order appoint a Commission consisting of such persons as he thinks fit to investigate the conditions of socially and educationally backward classes within the territory of India and the difficulties under which they labour and to make recommendations as to the steps that should be taken by the Union or any State to remove such difficulties and to improve their condition.
• Article 340 of the Constitution entailed egalitarian possibility that resulted in two Backward Classes commissions, the Kalelkar Commission (1953-1955) and the Mandal Commission (1978-80).
• The Kalelkar Commission didn’t yield anything.
• The mobilisation campaign for implementing the recommendations of the Mandal Commission to a “Mandal movement”. The announcement of implementing one of its recommendations, of 27% reservation for the Other Backward Classes (OBC) in the central services on August 7, 1990, was the “Mandal moment”.

5. Govt stocks dip to 5 year low amid high food inflation

Subject: Agriculture

Context :Stocks of wheat and rice with government agencies have plunged to a five-year low, even as retail cereal price inflation soared to a 105-month high in September.

Concept:

• According to data from the Food Corporation of India (FCI), wheat and rice stocks in public godowns totalled 511.4 lakh tonnes (lt) as on October 1. This was as against 816. lt a year ago and the lowest for the same date since 2017.
• For example, wheat stocks are just above the minimum buffer (three-month operational stock requirement plus strategic reserve to meet procurement shortfalls) that needs to be maintained by FCI.

What is Buffer stock?

Buffer stock refers to a reserve of a commodity that is used to offset price fluctuations and unforeseen emergencies. Buffer stock is generally maintained for essential commodities and necessities like food grains, pulses etc. In India, buffer stocking of food grains is conceptually seen as a vehicle to deliver strategic food and agricultural domestic support policies through which the government caters multiple objectives such as providing famine relief, ensuring food security to consumers and providing production incentives to farmers. The concept of buffer stock was first introduced during the IVth Five Year Plan (1969-74).

Objective of Buffer Stock?

Buffer stock of food grains in the Central Pool is maintained by the Government of India (GOI) / Central Government for:

1. Food Security: Meeting the prescribed minimum buffer stock norms for food security,
2. Welfare Schemes: Monthly release of food grains for supply through Targeted Public Distribution System (TPDS) and Other Welfare Schemes (OWS),
3. Emergency use: Meeting emergency situations arising out of unexpected crop failure, natural disasters, etc., and
4. Price Stability: Price stabilization or market intervention to augment supply so as to help moderate the open market prices.

• The Cabinet Committee on Economic Affairs fixes the minimum buffer norms on quarterly basis: i.e as on 1st April, 1st July, 1st October and 1st January of every financial year.
• In addition to buffer norms, Government of India has prescribed a strategic reserve of 30 lakh tons of wheat w.e.f. 01.07.2008 and 20 lakh tons of rice w.e.f. 01.01.2009.
• At present, Government of India prefers to use the term – Food grain stocking norms – which refers to the level of stock in the Central Pool that is sufficient to meet the operational requirement of food grains and exigencies at any point of time. Earlier this concept was termed as Buffer Norms and Strategic Reserve.
• Presently, stocking norms fixed by Government of India on 22.01.2015 comprise of:

1. Operational stocks: This is maintainedfor meeting monthly distributional requirement under TPDS and OWS.
2. Food security stocks/reserves: This is maintainedfor meeting shortfall in procurement.

• While four months requirement of food grains for issue under TPDS and OWS are earmarked as operational stocks, the surplus over that is treated as buffer stock and physically both buffer and operational stocks are merged into one and are not distinguishable.
• According to the present practice, the GOI treats the food stock over and above the minimum norms as excess stock and liquidates them from time to time through exports, open market sales or additional allocations to states. The buffer stock figures are normally reviewed after every five years

Food Stock available in the central governments’ pool is the stock held by:

1. State Government Agencies (SGAs)
2. States which are taking part in the Decentralized Procurement Scheme
3. Food Corporation of India (FCI)

Consumer Food Price Index

• It is a measure of change in retail prices of food products consumed by a defined population group in a given area with reference to a base year.
• The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation (MOSPI) started releasing Consumer Food Price Indices (CFPI) for three categories -rural, urban and combined – separately on an all-India basis with effect from May, 2014.
• Like Consumer Price Index (CPI), the CFPI is also calculated on a monthly basis and methodology remains the same as CPI.
• The base year presently used is 2012. The CSO revised the Base Year of the CPI and CFPI from 2010=100 to 2012=100 with effect from the release of indices for the month of January 2015.
• CFPI (Rural/ Urban/ Combined) is compiled as the weighted average of the Cereals and Products sub group of CPI for each of those categories – Rural/ Urban/ Combined. Modified weights of these Sub-groups within CFPI are as follows:

All India Weights of different Sub-groups within Consumer Food Price Index

• Inflation rates (on point-to-point basis i.e. August, 2014 over August, 2013), based on general Indices and CFPIs, are issued by CSO.
• Globally, food price index is being released by Food and Agriculture Organization of the United Nations. T
• The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities.
• It consists of the average of five commodity group price indices (Cereal, Vegetable Oil, Dairy, Meat and Sugar) weighted with the average export shares of each of the groups for 2002-2004.
• After the revision of Whole Sale Price Index (WPI) with the new base year 2011-12, a new “WPI Food Index” is being compiled by combining the “Food Articles” under “Primary Articles” in WPI and “Food Products” under “Manufactured Products” in WPI. Together with the Consumer Food Price Index released by Central Statistics Office, this would help monitor the price situation of food items better.

6. ISRO’s Next-Gen LV may assume PSLV’s role

Subject: Science and technology

Context: ISRO is developing Next Generation Launch Vehicle (NGLV), which will replace its ‘trusted work horse’ PSLV in the future.

Concept:

About NGLV

• ISRO’s NGLV will be a three-stage reusable heavy-lift vehicle.
• Pay load capacity will be around 10 tonnes to Geostationary transfer orbit(GTO) and twice the capacity to Low earth orbit(LEO).
• NGLV will feature semi-cryogenic propulsion for the booster stages which is cheaper and efficient.
• Potential applications will be in the areas of deep space missions, launching communication satellites, future human missions and cargo missions.
• It allows bulk manufacturing and the turnaround time is minimal.
• Till now, PSLV and GSLV are the major launch vehicles employed by the ISRO for satellite launches.

PSLV vs GSLV

• Both PSLV (Polar Satellite Launch Vehicle) and GSLV (Geosynchronous Satellite Launch Vehicle) are the satellite-launch vehicles (rockets) developed by ISRO. PSLV is designed mainly to deliver the “earth-observation” or “remote-sensing” satellites with lift-off mass of up to about 1750 Kg to Sun-Synchronous circular polar orbits of 600-900 Km altitude.
• The remote sensing satellites orbit the earth from pole-to-pole (at about 98 deg orbital-plane inclination). An orbit is called sun-synchronous when the angle between the line joining the centre of the Earth and the satellite and the Sun is constant throughout the orbit.
• Due to their sun-synchronism nature, these orbits are also referred to as “Low Earth Orbit (LEO)” which enables the on-board camera to take images of the earth under the same sun-illumination conditions during each of the repeated visits, the satellite makes over the same area on ground thus making the satellite useful for earth resources monitoring.
• Apart from launching the remote sensing satellites to Sun-synchronous polar orbits, the PSLV is also used to launch the satellites of lower lift-off mass of up to about 1400 Kg to the elliptical Geosynchronous Transfer Orbit (GTO).
• PSLV is a four-staged launch vehicle with first and third stage using solid rocket motors and second and fourth stages using liquid rocket engines. It also uses strap-on motors to augment the thrust provided by the first stage, and depending on the number of these strap-on boosters, the PSLV is classified into its various versions like core-alone version (PSLV-CA), PSLV-G or PSLV-XL variants.
• The GSLV is designed mainly to deliver the communication-satellites to the highly elliptical (typically 250 x 36000 Km) Geosynchronous Transfer Orbit (GTO). The satellite in GTO is further raised to its final destination, viz., Geo-synchronous Earth orbit (GEO) of about 36000 Km altitude (and zero deg inclination on equatorial plane) by firing its in-built on-board engines.
• Due to their geo-synchronous nature, the satellites in these orbits appear to remain permanently fixed in the same position in the sky, as viewed from a particular location on Earth, thus avoiding the need of a tracking ground antenna and hence are useful for the communication applications.
• Two versions of the GSLV are being developed by ISRO. The first version, GSLV Mk-II, has the capability to launch satellites of lift-off mass of up to 2,500 kg to the GTO and satellites of up to 5,000 kg lift-off mass to the LEO. GSLV MK-II is a three-staged vehicle with first stage using solid rocket motor, second stage using Liquid fuel and the third stage, called Cryogenic Upper Stage, using cryogenic engine.

Semi-Cryogenic Engine:

• Unlike a Cryogenic engine, a Semi Cryogenic engine uses Refined kerosene instead of liquid hydroge The liquid oxygen is used as a Oxidiser. That’s the advantage of using a Semi Cryogenic engine as it requires Refined Kerosene which is lighter than liquid fuel and can be stored in a normal temperature.
• Kerosene combined with liquid oxygen provide a higher thrust to the rocket. Refined Kerosene occupies less space, making it possible to carry more propellant in a Semi Cryogenic engines fuel compartment.
• A semi cryogenic engine is more powerful, environment friendly and cost effective as compared to a cryogenic engine.

Re usable Rockets

• The future rockets are meant to be reusable. Only a small part of the rocket would be destroyed during the mission.
• The bulk of it would re-enter the earth’s atmosphere and land very much like an airplane, and can be used in future missions.
• Reusable rockets would cut down on costs and energy, and also reduce space debris, which is becoming a serious problem because of the large number of launches.
• Fully-reusable rockets are still to be developed, but partially-reusable launch vehicles are already in use.
• ISRO has also developed a reusable rocket, called RLV-TD (Reusable Launch Vehicle Technology Demonstrator) which has had a successful test flight in 2016.

7. Gold prices

Subject: Economy

Context:

The World Gold Council has said that “gold wasn’t the crisis hedge it has often been historically, certainly when measured in US dollars”.

Details:

• Prices of gold have remained low amid high inflation, rising interest rates, and the ongoing war in Ukraine
  • Gold futures fell to their shortest net position in four years and gold ETF outflows continued.

Causes of low price of gold:

• Rate hikes by the US Federal Reserve-.
  • It leads to the dollar strengthening against major currencies making the market of gold more expensive.
  • Further rising interest leads to selling of gold, and people moving their money into fixed deposits and other avenues where returns are higher.

Will gold remain a safe haven?–Yes!!

• Value stability-Gold is traditionally seen as a strong hedge against inflation and a safe haven during times of uncertainty.
  • As its value falls or rises relatively less than equities and some other risky asset classes and thus, it preserves its value better, and has acted as a safe haven as far as capital protection is concerned.
• Acceptability and availability-gold is a generational asset and will continue to rise in the long term (because of the gap between demand and limited supply).
  • Investors should invest through sovereign gold bonds (SGBs).

Gold pricing:

• Gold is dealt with by the four types of firms in the industry–exploration or development, mining, consumers and recyclers.
• The 3 categories of consumers are industrial, jewellery producers and investors.
• Gold prices are fixed on a daily basis:
  • It is an agreement between the participants in the market to buy and sell gold at a fixed price.
  • Gold Fixing is done at London Bullion Market Association-The prices are set daily at 10:30 am GMT and 3pm GMT in US dollars.
• Types of prices-There are 2 types of prices, spot price and futures price:
  • Spot price-This is the current market price at which gold was bought or sold for immediate payment and delivery.
  • Futures price-This is the price at which the participants in a futures contract agree to transact on the date of settlement.

• Sources of pricing-
  • The spot prices are sourced at:
    • OTC markets-This is a decentralized market of securities that is not listed in an exchange.
    • Large banks and bullion traders-They buy and sell gold as part of the trading process and thus resulting in a reliable source of spot pricing for gold.
  • The Futures prices are sourced at :
    • The exchanges are the primary source of gold futures prices. The major gold exchanges are:

• TOCOM, Japan
• Shanghai Gold Exchange, China
• MCX, Mumbai
• DGCX, Dubai
• Istanbul Gold Exchange, Istanbul
• COMEX, New York
• Drivers to determine the gold rates

There are 6 fundamental drivers that help determine the gold rates. They are as follows:

• Price movements of other commodities and the demand for these commodities. Indirect pricing of the production cost.
• US and Global inflation which is driven by the rising money supply.
• Twin deficits that result from trade and growth imbalances against the US. This culminates in a fear factor.
• Activities of the Central Bank such as money printing, gold purchases and sales.
• Real interest rates in the US, compared to inflation and wages.
• Using the production or demand or inventory formula in the form of demand and supply.
• Gold pricing in India:
  • Gold in India is primarily imported by banks at an internationally determined rate.
  • Banks supply this gold to dealers after adding their fee to it.
  • The Indian Bullion Jewellers Association IBJA then gets into the act of determining prices by speaking to the ten biggest gold dealers in the country.
    • These dealers give their respective ‘buy’ and ‘sell’ quotes, depending on the rate at which they purchased gold.
    • IBJA then takes the average of these ‘buy’ and ‘sell’ quotes and determines the gold rate for a particular day based on this average. 
    • This average rate is adjusted for local taxes and a rate fixed accordingly.
    • Dealers generally arrive at their ‘buy’ and ‘sell’ rates by taking the international cost of gold and multiplying/adjusting it to the exchange value of the Rupee and adding any import duties and taxes such as VAT. Dealers ensure that they add their margin to the rates they give, keeping in mind their requirements.

8. Advertising Standards Council of India (ASCI)

Subject: Economy

Context:

The Advertising Standards Council of India (ASCI) said that the Advertising  code applies to trademarks, too.

Details:

• It aims to protect consumers from misleading claims made by companies with descriptive trademarks which may be false and dishonest.
• For instance, a descriptive mark –‘All Wool” in clothing connotes that the product comprises only wool–may not be true
• However, Companies claim registration of the trade mark is prima facie evidence of its validity and that the ASCI Code cannot restrict the use of registered trademarks.
• The ASCI Code however prohibits the use of statements or visual presentations which directly or indirectly, make untrue or dishonest claims.

The Advertising Standards Council of India

• The Advertising Standards Council of India was established in the year 1985 under Section 25 of the Companies Act, 1956.
• It has been defined as a “voluntary, self-regulatory council” which has been registered as a non-profit company.
• The ASCI team consists of a Board of Governors, members of the Consumer Complaints Council and a Secretariat.
  • The Board of the ASCI consists of a governor and 16 members, which are members of reputable firms including media agencies, advertisers and other individuals involved with the advertising business.
  • The Consumer Complaints Council is the body responsible for examining and investigating complaints from consumers and the public at large in relation to any contravention of the Code of Conduct of the News Broadcasting Associations and advertisement ethics.
• It is important to note that the ASCI is not a government body and is not responsible for formulating rules for the general public.
• Functions
  • The ASCI has adopted a self-regulating code, in its commitment to further the interests of the consumers.
  • The ASCI also invites complaints from consumers against any such unfair, untruthful and false claims and advertisements; all of such complaints are examined independently by the Consumer Complaints Council.
  • ASCI picked up advertisements of several other categories such as paints, apparel, detergents, skin care, ACs, fans, water purifiers, plywood and laminates, supplements and food – all promising Covid-related benefits,
  • It deals with complaints related to online real money gaming ads in Jan-March 2021 and  released detailed guidelines for the sector
  • It examines whether the advertisements are in violation of The Drugs and Magic Remedies Act.

Trademark:

• Trademark refers to graphical representation of goods or services to make it distinguishable from others.Trademarks distinguish the goods or services of one undertaking from those of other undertakings.
  • A trademark is typically a name, word, phrase, logo, symbol, design, image, or a combination of these elements.
  • There is also a range of non-conventional trademarks comprising marks which do not fall into these standard categories, such as those based on color, smell, or sound (like jingles).
  • A trademark cannot be offensive
• It protects owners against unfair competition, prevents damage to the reputation of the owner and consumer welfare.
• In India, trademarks are governed under Trademarks Act, 1999 ( it deals with the precise nature of rights one can acquire in respect of trademarks), under the aegis of Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce.
• The implementing body is Controller General of Patents, Designs and Trademarks
• The Madrid System for the International Registration of Marks offers trademark owners a cost effective, user friendly and streamlined means of protecting and managing their trademark portfolio internationally. India joined Madrid Protocol, 2013

9. Non-deliverable forward (NDF)

Subject: Economy

Context:

The Reserve Bank of India is asking local banks to not build additional positions in the non-deliverable forward (NDF) market to arrest the rupee’s slide

Details:

• In addition to the traditional instruments like forward and swap contracts, the Reserve Bank has facilitated increased availability of derivative instruments in the foreign exchange market.
• RBI allowed banks operating from the International Financial Services Centre Banking Units to trade in the NDF segment in June 2020 to have more control over rupee exchange rate.
  • The rupee’s decline in recent days has led to arbitrage opportunities between the onshore and offshore rates–The dollar-rupee NDF 1-month rate is 7 paisa higher than the corresponding onshore rate.
  • Eligible banks could buy spot dollars onshore and pay a 1-month premium while selling dollars in the NDF market.
  • The arbitrage increases demand for dollars onshore while providing more liquidity offshore
    • Earlier this segment was dominated by the foreign bank (over which the RBI has little influence), fuelled volatility and often led the spot rupee to drop.
• Thus, increased trading has led to a higher demand for dollars, forcing the RBI to intervene through dollar sales leading to forex decline. 

Concept:

• The Reserve Bank of India is the custodian of the country’s foreign exchange reserves and is vested with the responsibility of managing their investment.
• The market players are only banks licensed by the RBI, and the RBI. 
  • The Reserve Bank issues licences to banks and other institutions to act as Authorised Dealers in the foreign exchange market.
• Individuals and corporations cannot enter the market. They can deal only with their respective banks.
• The Reserve Bank’s exchange rate policy focuses on ensuring orderly conditions in the foreign exchange market. 
  • It closely monitors the developments in the financial markets at home and abroad. When necessary, it intervenes in the market by buying or selling foreign currencies. The market operations are undertaken either directly or through public sector banks.
• Section 40 of the RBI Act, 1934 –Transactions in foreign exchange– stipulates that the Central Government orders the “rate” at which the RBI shall buy or sell forex to banks (authorised persons).
  • This “rate”, in turn, will be governed by India’s “obligations to the International Monetary Fund .

Forex operations by Banks:

• The operations in the forex (foreign exchange) market are between the banks–The inter-bank foreign currency operations are taking place for two purposes namely: 
  • Buying and selling foreign currency on behalf of their customers as an intermediary
  • Proprietary trading (buying and selling currencies on its own account) with an intention to make money on the movement of the exchange rate.
• Most of the forex losses arise from transaction risk (exchange risk), and one of the important strategies adopted by the banks is a systematic reduction in the extent of exposure to a risk and/or the likelihood of its occurrence by limiting or restricting the operational risk on large deals.
  • Daylight limit-The highest amount of open position or exposure, the bank can expose itself at any time during the day, to meet customers’ needs or for its trading operations, is known as ‘Daylight limit’
  • Overnight limit-The highest amount of open position or exposure a bank can keep overnight when markets in its time zone are closed is known as Overnight limit.
  • This “overnight limit” and “daylight limit” is prescribed for each bank by the RBI. Even during the day, the prescribed “daylight limit” cannot be breached. The RBI enforces these limits strictly.

Non-Deliverable Forward (NDF)?

• A non-deliverable forward (NDF) is an FX exchange contract, where two parties agree to, on a date in the future, exchange currencies for the prevailing spot rate
• The difference between the NDF rate and the spot rate is the amount paid to the party who paid more of its own currency; the cash payment is most often made using U.S. dollars.
• Because NDFs are traded privately, they are part of the over-the-counter (OTC) market. The contract is drawn up and agreed upon by only the parties involved. It allows for more flexibility with terms, and because all terms must be agreed upon by both parties,
• A non-deliverable forward (NDF) is a cash-settled, and usually short-term, forward contract.

The notional amount is never exchanged, hence the name “non-deliverable.”

10. Power Ministry opposes G7’s plan of energy transition talks with India

Subject: Economy

Context–

• The G7 nations’ plan of persuading India to start negotiations on a Just Energy Transition Partnership (JETP), an initiative of the rich nations to accelerate phasing out of coal and reducing emissions has hit a road-block.
• The Power Ministry has refused to give its consent to the negotiations so far, as it argues that coal cannot be singled out as a polluting fuel, and energy transition talks need to take place on equal terms.

What is the Just Energy Transition Partnership (JETP)?

• Upon taking over the G-7 presidency for 2022, host Germany had promised to build on Glasgow’s momentum.
• JETP makes various funding options available to accelerate the phasing out of coal and reduce emissions in identified developing countries.

Approach:

• The German approach includes building not just climate partnerships, but “climate and development” alliances beyond the G-7, though largely focused on G-20 members.

Significance:

• This is significant because this approach takes into account the societal and economic development of each partner and will not try to force-feed partners a standard solution.
• That partnership—with special emphasis on the words “just” and “transition”—is about helping fund South Africa’s decarbonization by replacing coal usage with clean energy.
• At its core, the idea is to assist green transitions by making finance available from developed countries, multilateral institutions and groups of green investors.

South Africa model-

• The JETP model is expected to be on the lines of the JETP programme already launched with South Africa at the UN Climate Change Conference in Glasgow (COP26) last year.
• The countries announced a shared long-term ambition to support South Africa’s decarbonisation efforts to help meet its emission reduction targets set out in its latest Nationally Determined Contributions (NDC).
• The G7 which includes France, Germany, the UK, the US and the EU, proposed financing of $8.5 billion for South Africa through various instruments such as grants, concessional loans and investments, and risk-sharing instruments, including involving the private sector.

What is the climate deal being offered to India by G7?

• The US and Germany have proposed a G-7 partnership with India to support and fund the makeover of its energy mix from fossil fuels to carbon-neutral sources.
• India is a special invitee to this year’s summit, along with Indonesia, South Africa, Senegal and Argentina.
• Constituents of the deal: If reports of the offer are true, a critical portion of the pact will ask for-

1. reducing the number of coal-burning power plants under development,
2. the gradual closure of our coal mines.

Strong opposition-

• If the Power Ministry continues to resist, India could still get into the negotiations if the PMO decides to intervene.
• According to India’s updated NDC, it stands committed to reduce the emission intensity of its GDP by 45 per cent by 2030, from 2005 level and achieve about 50 per cent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.

11. We need a forest-led COP27

Subject: Environment

Context–

• A study published in the journal Science said earth may have already passed through five dangerous tipping points due to the 1.1°C of global heating caused by humanity to date.
• Technology has become a survival strategy for our species, but the degree of techno-determinism that exists in the strategy to reverse climate change is alarming.
• History is on the side of technological innovation.
• Norman Borlaug, for instance, ushered in the Green Revolution, which fed billions of people and increased yields.

Technological optimism–

• COP26 at Glasgow also fuelled technological optimism.
• There was an observation that every technological solution discussed at COP26 depends on just three resources:

1. nelectricity (non-emitting electricity generated by hydropower, renewables or nuclear fission),
2. carbon capture and storage (CCS)
3. Biomass

• The total demand for those resources required by the plans discussed at COP26 cannot be met by 2050.
• We currently have 4kWh/day of nelectricity per person. But the COP26 plans require 32 (range 16-48).
• We currently have 6kg of CCS per person per year, but the COP26 plans require 3,600 (range 1,400-5,700).
• We eat 100kg of plant-based food per person each year, but producing enough bio-kerosene to fly at today’s levels requires 200kg of additional harvest.
• There is no possibility that our supplies of these will be near the levels required by the plans discussed at COP26.
• Tech-centric mitigation conversations leave forest economies and subjects such as conservation and forests, which are the best carbon removal instruments, to the ideological fringes of the climate conversation.
• While there was the deforestation-ending climate commitment at COP26, the nature of the pledge was vague.
• Countries may easily attempt to achieve their ‘net zero deforestation goals’ through monoculture farming. Naturally preserved forests are 40% more effective than planted ones.

Multi-pronged, interconnected climate solutions–

• Forests shine here too. Nothing exemplifies this more than the intersection of the climate change crisis and the biodiversity crisis.
• Forests, which are home to 80% of terrestrial wildlife, are at this intersection.
• Forests absorb a net 7.6 billion metric tonnes of CO2 a year.
• A new study has found that their biophysical aspects have a tendency to cool the earth by an additional 0.5%.
• The conservation of forests, along with other nature-based solutions, can provide up to 37% of the emissions reductions needed to tackle climate change.
• The Dasgupta Review-Independent Review on the Economics of Biodiversity reports that green infrastructure (salt marshes and mangroves) are 2-5 times cheaper than grey infrastructure (breakwaters).
• Another study estimated that the annual gross carbon emissions from tropical tree cover loss between 2015 and 2017 were equivalent to 4.8 billion tonnes.
• This causes more emissions each year than 85 million cars do in their lifetime.
• In 2019, approximately 34% of total net anthropogenic greenhouse gas emissions came from the energy supply sector, 24% from industry, 22% from agriculture, forestry and other land use, 15% from transport and 6% from buildings.

Conserving natural sinks-

• The IPCC Land Report estimates that land serves as a large CO2 sink.
• There is a growing body of evidence that a large proportion of the required removals could be achieved by conserving natural sinks, improving biodiversity protection, and restoring ecosystems.
• Preserving the earth’s cyclical processes by protecting terrestrial ecosystems and natural sinks and transformative agricultural practices under the leadership of indigenous people and local communities is a far more equitable and cost-effective way of tackling the climate crisis than it is being done now.

About COP27 of UNFCCC–

• When: 7-18 November 2022
• Where: Sharm el-Sheikh, South Sinai, Egypt