Daily Prelims Notes 23 May 2022

May 23, 2022
Posted by: OptimizeIAS Team
Category: DPN

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Daily Prelims Notes

23 May 2022

Table Of Contents

1. External debt of India

Subject: Economy

Section: External sector

Context:

Against India’s current external debt to GDP ratio of 20 per cent, the estimated threshold level is between 23 percent and 24 per cent of GDP, indicating space for attracting more external debt inflows of $ 90 billion- says the RBI study on ‘Growth maximizing external debt of India’.

Concept:

The total external debt crossed the pre-pandemic levels as at end-December 2020.
The external debt to GDP ratio as at end-December 2021 was 20.0 per cent.
Main factors for the rise– NRI deposits, commercial borrowings and short-term trade credit -all crossed the pre-pandemic level.
India’s external debt remained relatively immune to the global financial crisis (GFC) reflecting the resilience of commercial borrowings, the most growth-sensitive and the largest component of India’s external debt.
India attracted only $ 3.23 billion NRI deposits in FY22 as against $ 7.36 billion a year ago.
- Non-resident external rupee account (NR(E)RA) witnessed a growth of $ 3.33 billion in FY22 as against $8.84 billion last year.
- FCNR (B) deposits declined by $ 3.55 billion in FY22.

The External Debt-to-GDP ratio is the ratio between the external debt to the gross domestic product (GDP) of a country. The ratio indicates the capability of a country in repaying its external debts. A country with a low external debt-to-GDP ratio indicates that it is capable of producing and selling goods and repaying its debts without incurring further debt. Various economic and geopolitical factors such as recessions, interest rates, war, etc influence the debt account of a country.

Composition of India’s external debt

Multilateral -Multilateral institutions such as the International Development Association (IDA), International Bank for Reconstruction and Development (IBRD), Asian Development Bank (ADB) etc are regarded as multilateral creditors.
Bilateral – nations that engage in sovereign and non-sovereign arrangements such as one-to-one loan arrangements are bilateral creditors. India’s bilateral creditors are Japan, Germany, the United States, France, etc.
International Monetary Fund –loans from IMF in form of SDR
Trade Credit -It is when the loans and credits are extended for imports by overseas suppliers, banks and financial institutions to sovereign and non-sovereign entities.
Commercial Borrowings -It includes borrowings from commercial banks, financial institutions, money that is raised through issuing securitized instruments such as bonds, floating rate notes (FRN), securitized borrowing of commercial banks etc.
NRI Deposits (above one-year)
Rupee Debt
Total Long-Term Debt– is debt with an original maturity of more than one year
Short-term Debt– is defined as debt repayments on-demand or either with an original maturity of one year or even less.

External debt sustainability:

A country’s public debt is considered sustainable if the government is able to meet all its current and future payment obligations without exceptional financial assistance or going into default. External debt sustainability can be measured based on the following parameters:

Government’s debt and current fiscal revenue ratio.
The overall share of short and long-term debt in the total debt burden.
Share of concessional debt.
Foreign debt to exports ratio
Debt to GDP ratio
The share of external debt to the total debt of the country.

Concept- NRI deposit already covered in may

2. Custom Duty

Subject: Economy

Section: Fiscal Policy

Context:

To rein-in prices and preserve domestic supplies, the government today imposed stiff export duty on steel, steelmaking raw materials and intermediaries. It also waived import duty on coal.

Details:

An export duty of 15 per cent levied on steel, steelmaking raw materials and intermediaries.
Import duty cut on all grades of coal imports (coking and metallurgical coal) and
pulverized coal
Iron ore exports (for all grades and including concentrates) levied a 50 per cent duty.
A 45 per cent export duty has been levied on iron ore pellets.

Impact:

Increase competitiveness of the manufacturing and export sector and will push value-added exports.
Ease rising pricing by curbing domestic exports
Ease the logistics pressure as in some cases as the same raw material was being exported and subsequently being imported by downstream users.

Concept:

Customs Duty refers to the tax that is imposed on the transportation of goods across international borders. It is a kind of indirect tax that is levied by the government on the imports and exports of goods.

Put differently, the customs duty is a kind of fee that is collected by the customs authorities for the movement of goods and services to and from that country.

The tax that is levied for the import of products is referred to as import duty
The tax levied on the goods that are exported to some other country is known as an export duty.

The primary purpose of customs duty is to raise revenue, safeguard the domestic business, jobs, environment and industries etc. from predatory competitors of other countries. Moreover, it helps reduce fraudulent activities and the circulation of black money.

Basic structure:

Customs duty in India falls under the Customs Act 1962 and Customs Tariff Act of 1975. India’s tariff system is based on the Harmonised System of Nomenclature (HSN) of the Customs Co-operation Council.

The basic structure of import and export tariffs in India includes:

Basics Customs Duty
Additional Duty
Special additional duty
Education assessment or cess
Other state level taxes

The additional duty is applied to all imports except for wine, spirits and alcoholic beverages. Furthermore, the special additional duty is calculated on top of the basic duty and additional duty.

Types of Customs Duty in India

Customs duties are levied on almost all goods that are imported into the country. On the other hand, export duties are levied on a few items as mentioned in the Second Schedule. Customs duties are not levied on life-saving drugs, fertilizers, and food grains. Customs duties are divided into different taxes, such as:

Basic Customs Duty-This is levied on imported items that are part of Section 12 of the Customs Act, 1962. The tax rate is levied as per First Schedule to Customs Tariff Act, 1975.
Additional Customs Duty-It is levied on goods that are stated under Section 3 of the Customs Tariff Act, 1975. The tax rate is more or less similar to the Central Excise Duty charged on goods produced within India. This tax is subsumed under GST now.
Protective Duty-This is levied for the purpose of protecting indigenous businesses and domestic products against overseas imports. The rate is decided by the Tariff Commissioner.
Education Cess –This is charged at 2%, with an additional higher education cess 1%, as included in the customs duty.
Anti-dumping Duty-This is levied if a particular good is being imported is below fair market price.
Safeguard Duty-This is levied if the customs authorities feel that the exports of a particular good can damage the economy of the country.
Countervailing Duties– Duties that are imposed in order to counter the negative impact of import subsidies to protect domestic producers are called countervailing duties.
Social Welfare Surcharge (SWS)-It is a tax imposed on the value of goods including the BCD-basic custom duty- value. It is generally 10% unless the goods are exempted from this tax. Social Welfare Surcharge was introduced in the Budget 2018 is levied in place of education Cess
Integrated Goods & Services Tax (IGST)- IGST is imposed on imported goods to provide a level playing field for domestic manufacturers, who also pay an equivalent tax (Central GST + State GST or IGST) on sale of goods. IGST on imported goods can be set-off against any other GST liability in India. There are five slabs of IGST 0%, 5%, 12%, 18%, 28%.

Value of imported Goods + Basic Customs Duty + Social Welfare Surcharge = Value on which IGST is calculated

Compensation Cess-This is an additional tax that is imposed along with GST on both imported items as well as domestically manufactured items on products that are classified as notified (mostly belonging to the luxury and demerit category) E.g. Special Utility Vehicles, Cigarettes, Tobacco, Aerated Water, etc.
Customs Handling Fee-The Indian government assesses a 1% customs handling fee on all imports in addition to the applied customs duty.

3. LOU And FLCs

Subject: Economy

Section: External sector

Context:

The CBI found that Mr. Choksi’s companies were fraudulently issued 165 Letters of Undertaking (LoU). The value of 58 Foreign Letters of Credit (FLCs) were also enhanced in 2017 for payment to dummy overseas suppliers.

Concept:

What is a Letter of Undertaking (LoU)?

LoUs are used in international banking transactions. LoU is a bank guarantee under which a bank allows its customer to raise money from another Indian bank’s foreign branch in the form of short-term credit.

The loan is used to make payment to the customer’s offshore suppliers in foreign currency.
The overseas bank usually lends to the importer based on the LoU issued by the importer’s bank.
The messages are sent through SWIFT — an inter-bank messaging network for securely transmitting instructions for financial transactions.
The LoU is akin to a letter of credit or a guarantee.
An LoU involves four parties — an issuing bank, a receiving bank, an importer and a beneficiary entity overseas.

What is a ‘Letter Of Credit’?

A letter of credit is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount.

In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.

Difference between LoU and LoC

A letter of credit is more secure because it has the details of the purchase by the importer, date of issue, expiry date, the material purchase and other transaction details.
LoU does not have these details and when it is not linked to the banking system it cannot be traced like it happened with PNB.

Status:

The Reserve Bank of India in 2018 barred all lenders from issuing letters of undertaking (LOU), a form of credit guarantee.

Implication-It won’t be easy for the importers to pay their suppliers merely on the basis of guarantee letters issued by Indian banks. These letters were used by importers to borrow money from other Indian banks located offshore to pay their suppliers.

Alternatives-The RBI banned the letters of undertaking (LOU) but not the letters of credit. So, the importers can continue to raise money via letters of credit, for instance, which have more international acceptability.

4. Inflation

Subject: Economy

Section: Inflation

Context:

The world and India are witnessing a resurgence of food inflation. And with the UN Food and Agriculture Organization’s (FAO) food price index hitting new highs, it has reignited memories of the last great commodity inflation (from the mid-2000s till around 2012-13, briefly interrupted by the 2008-09 financial crisis).

Concept :

Differences between the two:

The former was a structural, demand-led inflation, driven by rising incomes and relayed dietary diversification of protein rich items i.e. the protein inflation.
Later is supply side and calorie led inflation. The Demand-pull from rising incomes isn’t strong enough and protein inflation is muted.

Concept:

Protein Inflation, a subset of food inflation,. It is defined as increase in price and demand of milk and milk products, eggs, meat, fish, edible oils, dairy and poultry products i.e. protein yielding items. It was coined by the former Reserve Bank of

India deputy governor Subir Gokarn

Calorie Inflation- a subset of food inflation. It is defined as an increase in price and demand of vegetable oil, cereals and sugar i.e. calorie yielding items.

Working:

Real incomes going up results in declining per capita consumption of cereals and sugar (which basically deliver calories) alongside growing demand for foods incorporating proteins (milk, pulses, egg, fish and meat).

5. Look Out Circulars

Subject: Polity

Section: Citizenship

Concept:

It is a notice to stop any individual wanted by the police, investigating agency or even a bank from leaving or entering the country through designated land, air and sea ports.
The immigration is tasked to stop any such individual against whom such a notice exists from leaving or entering the country.

Who can issue LOCs?

A large number of agencies which includes the Central Bureau of Investigation (CBI), Enforcement Directorate, Directorate of Revenue Intelligence (DRI), Income Tax, State police and intelligence agencies are authorized to generate LOCs.
The officer should not be below the rank of a district magistrate or superintendent of police or a deputy secretary in the Union Government.
The Bureau of Immigration (BOI) under the MHA is the only agency to generate LOCs based on requests by different agencies.
Since immigration posts are manned by the BOI officials they are the first responders to execute LOCs by stopping or detaining or informing about an individual to the issuing agency.

How are banks authorized?

The MHA in 2018 brought changes to the 2010 guidelines authorizing the chairman, managing director and chief executives of all public sector banks to generate LOCs against persons who could be detrimental to economic interests of the country.

Are individuals entitled to any remedial measures?

Many citizens have moved courts to get the LOC quashed. The MHA has asserted that “LOCs cannot be shown to the subject” at the time of detention nor can any prior intimation be provided.
As per norms, an LOC will stay valid for a maximum period of 12 months and if there is no fresh request from the agency then it will not be automatically revived.

6. Indo-Pacific Economic Framework (IPEF)

Subject: International relations

Section: International Organisation

Concept

The Indo-Pacific Economic Framework is a new kind of trade agreement that the US is seeking to push among countries of the region.
It is based on objectives around trade facilitation, standards for the digital economy and technology, supply chain resiliency, decarbonization and clean energy, infrastructure, worker standards, and other areas of shared interest.
The IPEF is not a traditional trade agreement. Rather, it would include different modules covering fair and resilient trade, supply chain resilience, infrastructure and decarbonization, and tax and anticorruption.
The IPEF will not include market access commitments such as lowering tariff barriers, as the agreement is “more of an Administrative arrangement”, and Congressional approval, which is a must for trade agreements, is not mandatory for this.
The IPEF is also seen as a means by which the US is trying to regain credibility in the region after the US withdrew from the Trans Pacific Partnership (TPP).
But IPEF may not enthuse all countries in the Indo-Pacific region equally as it comes with binding trade rules but no guarantees on market access.

India’s position

India has a problem with some of the provisions.
Amongst these are the prohibition / restrictions on cross-border data flows and data localization requirements, including for financial services; the prohibition of the levying of customs duties on digital products distributed electronically; promotion of the interoperability of privacy rules and related enforcement regimes.

7. Supreme Court allows export of iron ore from key mines in Karnataka

Subject: Geography

Section: Minerals Section

Context: The Supreme Court recently lifted the ban imposed on iron ore export from mines of Ballari, Chitradurga, and Tumakuru districts in Karnataka and allowed miners to sell ore through direct sale.

8. Specialty steel PLI scheme deadline may be extended

Subject: Science

Section: Msc

SPECIALTY STEEL

Specialty steels also referred to as alloy steel contains additional alloyed materials that deliver special properties to the final product.
Specialty steels are engineered to provide superior performance under specific conditions. Various stainless-steel alloys are included among common specialty steels.
What are the benefits of specialty steels?
- The benefits of specialty steels include:
- High corrosion resistance
- Targeted resistance to high and/or low temperatures
- Easily fabricated
- Dimensional stability and strength
- Non-magnetic
- Sterile and hygienic
- Well suited for special applications
- Lighter weight
Specialty steel is used for parts or manufacturing and maintenance components in various applications, from automobiles and other transportation equipment essential in modern society to daily home appliances and smartphone and other precision equipment.

9. Sustaining FDI

Subject: Economy

Section: External sector

Benefits of FDI:

Economic development stimulation:

FDI can stimulate a target country’s economic development and create a more conducive environment for companies, the investor, and stimulate the local community and economy.

Easy international trade:

Countries usually have their own import tariffs, which makes trading rather difficult. A lot of economic sectors usually require presence in the international markets to ensure sales and goals are met. FDI makes all of these international trade aspects a lot easier.

Employment and economic boost:

FDI creates new jobs and more opportunities as investors build new companies in foreign countries. This can lead to an increase in income and more purchasing power to locals, which in turn leads to an overall boost in targeted economies.

Tax incentives:

Of course — taxes. Foreign investors receive tax incentives that are very beneficial regardless of your selected field of business. Everybody loves a tax write-off.

Development of resources:

The development of human capital resources is a big advantage of FDI. The skill gained by the workforce through training increases the overall education and human capital within a country. Countries with FDI are benefiting by developing their human resources all while maintaining ownership.

Resource transfer:

Foreign direct investment allows for resource transfers and the exchanges of knowledge, technologies, and skills.

Reduced costs:

Foreign direct investment can reduce the disparity between revenues and costs. With such, countries will be able to make sure that production costs will be the same and can be sold easier.

Increased productivity:

The facilities and equipment provided by foreign investors can increase a workforce’s productivity in the target country.

Increase in a country’s income:

Another big advantage of foreign direct investment is the increase of the target country’s income. With more jobs and higher wages, the national income normally increases which promotes economic growth. Large corporations usually offer higher salary levels than what you would normally find in the target country, which can lead to an increment in income.

10. Jagannath Temple

Subject: History

Section: Art and Culture

The temple is believed to be constructed in the 12th century by King AnatavarmanChodaganga Deva of the Eastern Ganga Dynasty.
Jagannath Puri temple is called ‘YamanikaTirtha’ where, according to the Hindu beliefs, the power of ‘Yama’, the god of death has been nullified in Puri due to the presence of Lord Jagannath.
This temple was called the “White Pagoda” and is a part of Char Dham pilgrimages (Badrinath, Dwaraka, Puri, Rameswaram).
There are four gates to the temple- Eastern ‘Singhdwara’ which is the main gate with two crouching lions, Southern ‘Ashwadwara’, Western ‘VyaghraDwara and Northern ‘Hastidwara’. There is a carving of each form at each gate.
In front of the entrance stands the Arunastambha or sun pillar, which was originally at the Sun Temple in Konark.
Jagannath PuriYatrais the most famous Vaishnavite rituals observed in India and abroad.
On the occasion, devotees pray to three deities – Lord Jagannath, Lord Balabhadra and Lordess Subhadra

11. New FIR against former NRC chief for ‘allowing doubtful voters to enlist names’

Subject: Polity

Section: Constitution

Content:

D Voters is a category of voters in Assam whose citizenship has been doubtful (due to lack of citizenship credentials in form of supporting documents) or is under dispute.
Foreigner Tribunal set up under Foreigner Tribunals order 1964 determines once status as D voters and such persons can’t hold voter I-card.
Category was introduced in 1997 when the Election Commission of India (ECI) was revising the state’s voter list in the wake of huge immigration from Bangladesh.
While ‘D’ voters continue to remain on Assam’s electoral roll, they cannot vote in an election unless their case is decided by a Foreigners’ Tribunal.
They have not been defined in the Citizenship Act, 1955 or the Citizenship Rules of 2003.

12. Rare springtime annual meeting of the World Economic Forum (WEF)

Subject: International relations

Section: International body

Context: 100 CEO’s visit WEF

Concept :

The World Economic Forum is the International Organization for Public-Private Cooperation.
The Forum engages the foremost political, business, cultural and other leaders of society to shape global, regional and industry agendas.
It was established in 1971 as a not-for-profit foundation and is headquartered in Geneva, Switzerland. It is independent, impartial and not tied to any special interests.
The WEF is mostly known for its annual meeting at the end of January in Davos, a mountain resort in the eastern Alps region of Switzerland. The meeting brings together some 3,000 paying members and selected participants – among which are investors, business leaders, political leaders, economists, celebrities and journalists – for up to five days to discuss global issues across 500 sessions.

Reports by WEF –

Global Human Capital Index
Global Information Technology Report
Travel and Tourism Competitiveness Report
Global Competitiveness Report
Global Enabling Trade Report
Global Energy Architecture Performance Index Report
Global Environment Performance Index
World Power Language Index
Inclusive Development Index
Global Gender Gap Index
Global Risk Report
Energy Transition Index
Future of Jobs Report
Global Manufacturing Index

13. Network planning group (NPG)

Subject: Polity

Section: Governance

Infrastructure projects, entailing investment of over₹500 crore, would now route through the network planning group (NPG) constituted under the PM Gati Shakti initiative with the Finance Ministry issuing the necessary instructions and creation of the national masterplan digital platform.
NPG consists of heads of the network planning wing of respective infrastructure ministries and it will assist the empowered group of secretaries (EGOS), which is headed by the cabinet secretary. EGOS consists of secretaries of 18 ministries as members and Head of Logistics Division, under the DPIIT, as member convener.
The PM Gati Shakti plan was announced last year with an aim to break departmental silos and bring in more holistic and integrated planning and execution of projects with a view to addressing the issues of multi-modal and last-mile connectivities.