Daily Prelims Notes 22 April 2022

Daily Prelims Notes

22 April 2022

Table Of Contents

1. Recent strong solar flare can hamper satellite communication
2. Earth Day 2022
3. New research about Jupiter’s moon Europa
4. Draft Battery Swapping Policy
5. Spring meeting of IMF and WB
6. FM endorse the Paris-based Financial Action Task Force’s strategic priorities for the years 2022-24
7. Special Purpose Acquisition Companies (SPACs)
8. Rising interest rates & debt fund investments
9. Share of agriculture in economy- trends

1. Recent strong solar flare can hamper satellite communication

Subject: Science & Tech

Context- There is a strong ionospheric perturbation is ongoing over India, South East Asia and the Asia-Pacific regions, according to scientists, which has caused the flare.

Concept-

• Solar flares can disrupt telecommunication and satellite-based services in India and other parts of South East Asia in the coming days predicts solar physicists.
• With a large number of sunspots likely to face Earthwards soon, the Sun might continue to send electromagnetic radiations towards the Earth.
• The Earth has been facing solar flares frequently since April 15, said the data gathered by the Centre of Excellence in Space Sciences India (CESSI), operating at the Indian Institute of Science Education and Research (IISER), Kolkata.

About Solar Flares:

• A solar flare is a sudden flash of increased brightness on the Sun, usually observed near its surface and in proximity to a sunspot group.
• Powerful flares are often, but not always, accompanied by a coronal mass
• Solar flares originate from the Sun’s active regions, like sunspots (the darker areas on the solar surface).
• These bursts of electromagnetic radiation that interfere with electromagnetic rays from satellites and telecommunication towers can last from a few minutes to some hours.
• They end up hitting GPS-based services, and space station operations — especially the sunlight side.
• High-frequency radio signals can be completely lost or rendered of poor quality due to solar flares.
• solar flares can lead to ionization in the lower ionospheric levels. Radio signals in the 3 to 30 MHz radio band are used for aviation and weather services, among others can get lost due to these flares.

About CESSI:

• The Center of Excellence in Space Sciences India (CESSI) is a multi-institutional Center of Excellence hosted by the Indian Institute of Science Education and Research (IISER) Kolkata and has been established through funding from the Ministry of Human Resource Development.
• CESSI aims to explore the Sun’s activity, generate the understanding necessary for space weather forecasting, hunt for gravitational waves, support national space science initiatives, participate in international capacity building activities and pursue public-private partnerships in space science research.
• The Center will take advantage of high-performance computing facilities, cloud computing and the high-speed National Knowledge Network grid to achieve its goals.

2. Earth Day 2022

Subject: Environment

Context- Earth Day, celebrated annually on April 22, is a reminder to protect the environment, restore damaged ecosystems and live a more sustainable life. First celebrated in 1970,  this year marks its 52nd anniversary.

Concept-

What is this year’s focus?

• This year, earthday.org has selected the theme, ‘Invest In Our Planet’.
• It explains, “This is the moment to change it all — the business climate, the political climate, and how we take action on climate. It also warns that time is short.

What is Earth Day?

• Earth Day has been celebrated since 1970.
• It was first observed in the United States, when some 20 million people took to the streets to protest against the 1969 Santa Barbara oil spill.
• Since then, the occasion has played an important role in raising awareness on other environmental issues.
• Earth Day is now globally coordinated by ORG, which is a non profit organisation. It was formerly known as Earth Day Network.
• It recognizes a collective responsibility, as called for in the 1992 Rio Declaration (Earth Summit), to promote harmony with nature and the Earth to achieve a just balance among the economic, social and environmental needs of present and future generations of humanity.
• Paris Agreement was signed on Earth Day in 2016.
• In 2009, the United Nations designated April 22 as ‘International Mother Earth Day’.

Earth Hour

• Earth Hour is the World Wildlife Fund for Nature (WWF)’s annual initiative that began in 2007.
• It is held every year on the last Saturday of March.
• It encourages people from more than 180 countries to switch off the lights from 8.30 pm to 9.30 pm as per their local time.

3. New research about Jupiter’s moon Europa

Subject: Science & Tech

Context- A team of researchers from Stanford University have said that on one of Jupiter’s moons Europa, a prime candidate for life in the solar system might have abundance of water pockets beneath formations called double ridges.

Concept-

What is the new finding?

• It is already known that Europa, whose surface is mostly solid water ice, contains water beneath it.
• The researchers are now saying that the double ridges – the formations which are most common on Europa’s surface and are similar to those seen on Earth’s Greenland ice sheet .
• They are formed over shallow pockets of water.

About Europa:

• Europa is slightly smaller than Earth’s moon and its diameter is about one-quarter that of the Earth.
• Even though Europa has a very thin oxygen atmosphere, it is considered one of the most promising places in the solar system to find present-day environments that are suitable for life beyond the Earth.
• It is also believed that underneath Europa’s icy surface the amount of water is twice that on Earth.
• NASA notes that scientists believe Europa’s ice shell is 15-25 km thick and is floating on an ocean, which is estimated to be 60-150 km deep.
• Interestingly, while its diameter is less than the Earth’s, Europa probably contains twice the amount of the water in all of the Earth’s oceans.
• NASA is expected to launch its Europa Clipper in 2024.
• The module will orbit Jupiter and conduct multiple close flybys to Europa to gather data on the moon’s atmosphere, surface and its interior.

Significance of the recent findings

• The central implication is that the shallow water pockets beneath the double ridge increase the potential habitability of the moon.
• The ice shell, which is potentially miles thick, has been a difficult prospect for scientists to sample.
• But according to the new evidence, the ice shell is believed to be less of a barrier and more of a dynamic system.
• This means that the ice shell does not behave like an inert block of ice, but rather undergoes a variety of geological and hydrological processes.
• This suggests active volcanism and thus a possibility for life.

4. Draft Battery Swapping Policy

Subject: Science & Tech

Context- The NITI Aayog has released a draft battery-swapping policy targeted at electric two- and three-wheelers as the government think tank aims to expedite large-scale adoption of EVs.

Concept-

• Under this, it has proposed offering incentives to electric vehicles (EVs) with swappable batteries, subsidies to companies manufacturing swappable batteries, a new battery-as-a-service business model, and standards for interoperable batteries, among other measures.

What is Battery Swapping?

• Battery swapping is a mechanism that involves exchanging discharged batteries for charged ones.
• This provides the flexibility to charge these batteries separately by delinking charging and battery usage, and keeps the vehicle in operational mode with negligible downtime.
• Battery swapping is generally used for smaller vehicles such as two-wheelers and three-wheelers with smaller batteries that are easier to swap, compared to four-wheelers and e-buses, although solutions are emerging for these larger segments as well.

What is BaaS?

• Battery-as-a-service (BaaS) is seen as a viable charging alternative.
• Manufacturers can sell EVs in two forms:
  • Vehicles with fixed or removable batteries and
  • vehicles with batteries on lease.
• If you buy an electric scooter with battery leasing, you do not pay for the cost of the battery—that makes the initial acquisition almost 40% cheaper.
• Users can swap drained batteries for a fully charged one at a swap station. The depleted batteries are then charged on or off-site.
• The advantages of swapping include low downtimes for commercial fleets, reduced space requirements, and lower upfront costs.
• It is also a viable solution for those who don’t have parking spots at home.

Draft Battery Swapping Policy: Key Proposals

• Rationalizing taxes on battery: The draft policy has suggested that the GST Council consider reducing the differential across the tax rates on Lithium-ion batteries and electric vehicle supply equipment.
  • Currently, the tax rate on the former is 18 per cent, and 5 per cent on the latter.
• Incentivization for swapping enabled vehicles: The policy also proposes to offer the same incentives available to electric vehicles that come pre-equipped with a fixed battery to electric vehicles with swappable batteries. The size of the incentive could be determined based on the kWh (kilowatt hour) rating of the battery and compatible EV.
• Terms of contracts for battery providers: The government will specify a minimum contract duration for a contract to be signed between EV users and battery providers to ensure they continue to provide battery swapping services after receiving the subsidy.
• Public battery charging stations: The policy also requires state governments to ensure public battery charging stations are eligible for EV power connections with concessional tariffs. It also proposes to install battery swapping stations at several locations like retail fuel outlets, public parking areas, malls, kirana shops and general stores etc.
• Tariff rationalization: It also proposes to bring such stations under existing or future time-of-day (ToD) tariff regimes, so that the swappable batteries can be charged during off-peak periods when electricity tariffs are low.
• Registration ease: Transport Departments and State Transport Authorities will be responsible for easing registration processes for vehicles sold without batteries or for vehicles with battery swapping functionality.
• Unique identification number (UIN): The policy also proposes to assign a UIN to swappable batteries at the manufacturing stage to help track and monitor them. Similarly, a UIN number will be assigned to each battery swapping station.
• Locations: The NITI Aayog has proposed that all metropolitan cities with a population of more than 40 lakh will be prioritized for the development of battery swapping networks under the first phase, which is within 1-2 years of the draft policy getting finalized.
• EV safety: To ensure a high level of protection at the electrical interface, a rigorous testing protocol will be adopted, the draft said, to avoid any unwanted temperature rise at the electrical interface.

Why hasn’t BaaS taken off yet?

• High taxes: There are economic and operational constraints. Energy service providers offering swapping solutions have to charge 18% goods and services tax (GST) for swapping, compared to 5% GST on the purchase of an EV.
• No incentives yet: Additionally, the government’s FAME-II incentives are not offered to vehicles sold with BaaS or swap station operators.
• Lack of interoperability infrastructure: While these are economic disadvantages compared to direct charging solutions, the lack of a dense and interoperable battery swap infrastructure has also hindered the roll-out.

5. Spring meeting of IMF and WB

Subject: International Relations

Section: IR

Concept:

MF Quota

Each IMF member country is assigned a quota, or contribution, that reflects the country’s relative size in the global economy. Each member’s quota also determines its relative voting power as well as its borrowing capacity. Quotas are denominated in Special Drawing Rights (SDRs),

Purpose:

General Quota Review:

A general review allows the IMF to assess the adequacy of quotas in relation to both the members’ balance of payments financing needs and the Fund’s ability to help meet those needs.It also allows for realignments in members’ quota shares to reflect changes in their relative positions in the world economy. In addition, a member may request an ad hoc quota adjustment at any time outside of a general review.

The IMF’s Board of Governors conducts general reviews of quotas at regular intervals (no more than five years apart). Any changes in quotas must be approved by an 85 percent majority of the total voting power, and a member’s own quota cannot be changed without its consent. The two main issues addressed in a general review of quotas are 

(i) the size of an overall quota increase and

(ii) the distribution of the increase among the members.

A quota formula is used to help assess members’ relative position in the world economy and it can play a role in guiding the distribution of quota increases. The current formula was agreed in 2008.

Earlier Quota Review

• On February 7, 2020, the Board of Governors (BoG) adopted a Resolution concluding the 15th General Review of Quotas, with no increase in quotas and providing guidance for the 16th  Review.Under the Resolution, the 16th Review should be completed no later than December 15, 2023.
• In 2010, the IMF’s Quota and Governance Reforms were drafted; which finally became effective in 2016.
• These reforms shifted more than 6% of the quota shares to emerging and developing countries from the US and European countries.
• Presently, India holds 2.75% of SDR quota, and 2.63% of votes in the IMF.

6. FM endorse the Paris-based Financial Action Task Force’s strategic priorities for the years 2022-24

Subject: International Relations

Section: IR

Context:

The Strategic Priorities for the FATF for 2022-24 are:

• Strengthen the FATF Global Network, FATF systems of Mutual Evaluations, Enhance International Beneficial Ownership Transparency, Increase Capabilities to more effectively recover Criminal assets, Leverage Digital Transformation, Ensure Sustainable Funding for FATF Strategic priorities
• FATF on Beneficial Ownership Transparency, the role of FATF global network in safeguarding global financial system.
• The Spring Meetings of the International Monetary Fund (IMF) and the Boards of Governors of the World Bank Group (WBG) bring together central bankers, ministers of finance and development, private sector executives, representatives from civil society organizations and academics to discuss issues of global concern, including the world economic outlook, poverty eradication, economic development, and aid effectiveness

Concept:

Financial Action Task Force

• It is an inter-governmental body established in 1989 during the G7 Summit in Paris.
• The FATF assesses the strength of a country’s anti-money laundering and anti-terror financing frameworks, however it does not go by individual cases.
• The FATF Plenary is the decision making body of the FATF. It meets three times per year.
• Its Secretariat is located at the Organisation for Economic Cooperation and Development (OECD) headquarters in Paris.
• The FATF currently has 39 members including two regional organisations — the European Commission and Gulf Cooperation Council. India is a member of the FATF.

Objectives:

• To set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

Lists under FATF:

• Grey List:
• Countries that are considered safe haven for supporting terror funding and money laundering are put in the FATF grey list.
• This inclusion serves as a warning to the country that it may enter the blacklist.
• Black List:
• Countries known as Non-Cooperative Countries or Territories (NCCTs) are put in the blacklist.
• These countries support terror funding and money laundering activities.
• The FATF revises the blacklist regularly, adding or deleting entries.

The Paris-based FATF has placed Pakistan on its grey list since June 2018 for failing to check money laundering, leading to terror financing, and was given a plan of action to complete it by October 2019. Since then, Pakistan continues to be on the FATF’s list due to its failure to comply with the FATF mandates.

7. Special Purpose Acquisition Companies (SPACs)

Subject: Economy

Section: Monetary Policy

Context

The government is reportedly considering a regulatory framework for special purpose acquisition companies (SPACs) to lay the ground for the possible listing of Indian companies through this route in the future.

Concept:

An SPAC, or a blank-cheque company, is an entity specifically set up with the objective of acquiring a firm in a particular sector.

An SPAC aims to raise money in an initial public offering (IPO) without any operations or revenues. The money that is raised from the public is kept in an escrow account, which can be accessed while making the acquisition.

If the acquisition is not made within two years of the IPO, the SPAC is delisted and the money is returned to the investors.

SPACs are mandated to return money to their investors in the event no merger is made within two years, the fineprint of several SPAC prospectuses shows that certain clauses could potentially prevent investors from getting their monies back. Historically, though, this has not happened yet.

SPACs are essentially shell companies, a key factor that makes them attractive to investors are the prominent people who sponsor them. Globally, prominent names such as former NBA star Shaquille O’Neal, tennis star Serena Williams, former TikTok CEO Kevin Mayer, Dell Technologies founder and CEO Michael Dell, billionaire and venture capitalist Vinod Khosla etc. have participated in SPACs. However, celebrity involvement in a SPAC does not mean that the investment in a particular SPAC or SPACs generally is appropriate for all investors or a good investment.

The Indian regulatory framework does not allow the creation of blank cheque companies. The Companies Act, 2013 stipulates that the Registrar of Companies can strike off a company if it does not commence operations within a year of incorporation.

Escrow accounts:

Escrow accounts are a financial instrument in which an asset or escrow money is held by a third party on behalf of 2 other parties that are in the process of completing a transaction. Escrow accounts can hold money, securities, funds, and other assets.

In simpler terms, an escrow account is a third party account where funds are kept before they are transferred to the ultimate party. It provides security against scams and frauds especially with high asset value and dispute-prone sectors like Real Estate.

Using escrow, a buyer can place their funds in a bank-based escrow account which is supervised by a third party. The third-party disburses the funds from the escrow account to the seller only after all conditions in the financial agreement between the two parties have been met. Hence, this proves to be a powerful financial instrument that removes trust-based issues in sectors like real estate.

The escrow system follows a step-by-step timeline which makes transactions speculation-free. The transacting parties can track the movement of funds and progress of the contractual commitment. Since the transactions are conducted under the due supervision of diligent professionals, buyers’ funds and sellers’ offerings remain in secure hands. Additionally, startups and emerging businesses can leverage escrow payment methods to minimize risk for their specific-use transaction cases like procurement, supply chain, professional services, etc.

8. Rising interest rates & debt fund investments

Subject: Economy

Section: Monetary Policy

Concept :

Investors who put money in debt mutual funds and other securities are worried about their returns as the Reserve Bank of India prepares to raise interest rates in the coming months to tackle inflation.

Impact debt funds?

• A rise in rates of interest-the value of debt funds and other instruments falls as an investor feels he/she can get a new debt fund with a higher interest/coupon rate and thus, won’t go for existing funds at lower interest rate or coupon rate.

Technically, debt investors will lose out when interest rates go up,as the net asset value (NAV) of debt funds decline. NAV is the total value of the debt portfolio divided by the total number of units on a particular date.When Interest rates rise,the yield or coupon rises but the value declines, bringing down the NAV.

• A fall in interest rate interest rates -the value of the bond or debt mutual fund rises. The reason is that the interest rate on old bonds remains high when compared to the new bonds or funds that are floated.

Alternatives:

• Diversified portfolio-a combination of liquid to money market funds and short-term debt funds, and/ or dynamic bond funds with low credit risks should remain the core fixed income allocation strategy.

Investment in the long term debt mutual funds- longer holding period avoiding the current turbulence.

9. Share of agriculture in economy- trends

Subject :Economy

Section: National Income

Context:

Over the last two years the share of agriculture has improved in overall GDP and the sector remained resilient despite the hit from COVID-19 pandemic. In FY 2021 the share of agriculture in overall GDP rose to 20 per cent, the levels that were last seen in FY 2004, according to the latest Economic Survey. Agriculture was the largest employer of workforce in India, the survey added.

Trends:

CMIE data from the consumer pyramid household survey shows:

• The share of agriculture in total employment has gone up from 35.3% in 2017-18 to 36.1% in 2018-19 and then to 38% in 2019-20.
• The latest PLFS report shows a sharp increase in employment in agriculture from 42.5% of the total employment in 2018-19 to 45.6% in 2019-20.
• The share of manufacturing dropped sharply from 9.4% to 7.3%,
• The share of construction in total employment shot up to 15.9% in 2020-21 from 15.4% in 2018-19 and 13.5% in 2019-20.

Sectoral share in GDP:

Sectoral share in employment in %