Daily Prelims Notes 8 January 2021

January 8, 2021
Posted by: OptimizeIAS Team
Category: DPN

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Daily Prelims Notes 8 January 2021

By

Santosh Sir

All 6 Prelims qualified

4 CSE Mains qualified

If I can do it, you can too

Table Of Contents

1. FIAT MONEY

Subject: Economics

Context: There are parallels between bitcoin and gold. Both are the opposite of fiat money—i.e., their value is independent of any controlling authority—and both have a limited stock of supply.

Concept:

Fiat money is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it.
The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it as is the case for commodity money.
Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies.

Fiat Money vs Legal Tender

Fiat money has no intrinsic value, while legal tender is any currency declared legal by a government.
Governments can issue fiat currency and make it legal tender by setting it as the standard for debt repayment.
The benefit of fiat money is that it gives central banks greater control over the economy, but governments can print too much money and create hyperinflation.
The U.S. dollar , Indian Rupee etc are both fiat money and legal tender.

2. SPECTRUM AUCTIONS

Subject: Economy

Context: Department of Telecommunications (DoT) said on Wednesday (January 6) that auctions for 4G spectrum in the 700, 800, 900, 1,800, 2,100, 2,300, and 2,500 MHz bands will begin from March 1. Licence holders have until February 5 to submit their applications.

Concept:

The last spectrum auctions were held in 2016, when the government offered 2,354.55 MHz at a reserve price of Rs 5.60 lakh crore(only 40% of the spectrum was sold out).
The need for a new spectrum auction has arisen because the validity of the airwaves bought by companies is set to expire in 2021.
The government plans to sell spectrum for 4G in the 700, 800, 900, 1,800, 2,100, 2,300, and 2,500 MHz frequency bands.
The reserve price of all these bands together has been fixed at Rs 3.92 lakh crore for the upcoming auctions. Depending on the demand from various companies, the price of the airwaves may go higher, but cannot go below the reserve price.
Deferred payment plan : Bidders for the sub-1 GHz bands of 700, 800 and 900 MHz can opt to pay 25 per cent of the bid amount now, and the rest later.
In the above-1 GHz bands of 1,800, 2,100, 2,300, and 2,500 MHz frequency bands, bidders will have to pay 50 per cent upfront, and can then opt to pay the rest in equated annual instalments.
The successful bidders will, however, have to pay 3 per cent of Adjusted Gross Revenue (AGR) as spectrum usage charges, excluding wireline services.

What is Spectrum Auction ?

Energy travels in the form of waves known as electromagnetic waves, these waves differ from each other in terms of frequencies, and this whole range of frequencies is called the spectrum.
In Telecom, like TV, radio and GPRS, electromagnetic waves of different wavelengths are used, they are divided into bands based on frequencies.
In telecommunication
A spectrum auction is a process whereby a government uses an auction system to sell the rights (licences) to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources.
Spectrum auctions makes use of natural resources for revenue raising and ensuring economic development.

Adjusted Gross Revenue

Adjusted Gross Revenue (AGR) is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT).
It is divided into spectrum usage charges and licensing fees, pegged between 3-5 percent and 8 percent respectively.
As per DoT, the charges are calculated based on all revenues earned by a telco – including non-telecom related sources such as deposit interests and asset sales.

3. CREATION OF LEGISLATURE FOT UT

Subject : Polity

Concept :

Article 239 A(1) of the Indian Constitution states that a Parliament through law can enact a body that can function as a Legislature for the Union Territory of Puducherry consisting of:
elected or partly elected or partly nominated persons,
or can make a body consisting of the Council of Ministers,
or can create both of these with the constitutional powers and functions vested to the Parliament.
This provision was not part of the Constitution of India, 1950. It was inserted by the Constitution (Fourteenth Amendment) Act, 1962.

Special Provisions with respect to Delhi

They are added by Constitution (69th Amendment) Act, 1991,
Special provisions are enshrined for the creation of Legislature under Article 239 AA of the Constitution with regards to Delhi.
Clause (2)(a) of Article 239 AA further also states that a Legislative assembly will be formed in the NCT of Delhi whose members will be selected by the process of direct election from territorial constituencies.
The total number of members, the reservation of the members of the Scheduled Castes, the division of National Capital Territory into territorial various constituencies.
The basis for dividing NCT of Delhi into constituencies and all other such matters relating to the functioning of the Legislative Assembly are under the direct supervision and control of the Parliament as stated in Clause (2)(b) of Article 239AA.
The Legislative Assembly is also empowered to make laws for matters listed in the State List and the Concurrent List except Land , Law & Order ( Entries 1, 2 & 18 of the State List).

4. FIRST ADVANCE ESTIMATES

Subject : Economics

Context : Pulled down by a sharp contraction in the services, manufacturing and mining sectors, India’s gross domestic product (GDP) will contract 7.7 per cent in the current financial year as against a growth of 4.2 per cent in the previous fiscal.

Concept :

National Statistical Office has released the first advance estimates for India’s GDP for the year 2020-21.
The estimates will be based on the growth numbers of the first two quarters of the current fiscal as well as other higher frequency data.
The data is typically released one month ahead of the presentation of the Union budget.
Prior to 2017, the first advance estimate used to be released in the last week of January as the budget was presented on 28 February.
However, since 2017, the data has been released in the first week of January to help the government prepare its budget presented on 1 February.

First Advance Estimates and their significance

The First Advance Estimates (FAE) extrapolate a variety of data, such as the Index of Industrial Production (IIP), the financial performance of listed companies, first advance estimates of crop production etc., for the first 7 to 8 months to arrive at the annual figure.
The significance of the FAE is that this is the final bit of official data before the government presents its next Budget.
The sector-wise Estimates are obtained by extrapolation of indicators like-

IIP of first 7 months of the financial year,

financial performance of Listed Companies in the Private Corporate sector available upto quarter ending September, 2019

1st Advance Estimates of Crop production,

accounts of Central & State Governments, information on indicators like Deposits & Credits, Passenger and Freight earnings of Railways, Passengers and Cargo handled by Civil Aviation, Cargo etc., available for first 8 months of the financial year.

5. DISQUALIFICATION UNDER 10TH SCHEDULE

Subject : Polity

Context : The Supreme Court will examine if those disqualified under the Tenth Schedule of the Constitution for defection be barred from re-contesting by-elections in the remaining term of the House to which they were elected.

Concept :

The Tenth Schedule was inserted in the Constitution in 1985 by the 52nd Amendment Act.
It lays down the process by which legislators may be disqualified on grounds of defection by the Presiding Officer of a legislature based on a petition by any other member of the House.
The decision on question as to disqualification on ground of defection is referred to the Chairman or the Speaker of such House, and his decision is final.
The law applies to both Parliament and state assemblies.

Disqualification:

If a member of a house belonging to a political party:
Voluntarily gives up the membership of his political party, or
Votes, or does not vote in the legislature, contrary to the directions of his political party. However, if the member has taken prior permission, or is condoned by the party within 15 days from such voting or abstention, the member shall not be disqualified.
If an independent candidate joins a political party after the election.
If a nominated member joins a party six months after he becomes a member of the legislature.

Exceptions under the law:

Legislators may change their party without the risk of disqualification in certain circumstances.
The law allows a party to merge with or into another party provided that at least two-thirds of its legislators are in favour of the merger.
In such a scenario, neither the members who decide to merge, nor the ones who stay with the original party will face disqualification.

Decision of the Presiding Officer is subject to judicial review:

The law initially stated that the decision of the Presiding Officer is not subject to judicial review.
This condition was struck down by the Supreme Court in 1992, thereby allowing appeals against the Presiding Officer’s decision in the High Court and Supreme Court.
However, it held that there may not be any judicial intervention until the Presiding Officer gives his order.

6. EQUALISATION LEVY

Subject : Economy

Context : government had moved an amendment in the Finance Bill 2020-21 imposing a 2 per cent digital service tax (DST) on trade and services by non-resident e-commerce operators with a turnover of over Rs 2 crore.

Concept :

It effectively expands the scope of equalisation levy that was applied to digital advertising services only till last year.
The new levy came into effect from April 1. E-commerce operators are obligated to pay the tax at the end of each quarter.
The USTR analysis has identified 119 companies likely subject to India’s DST, of which 86 (72 per cent) are US companies, followed by China and the UK with 7 companies each, France with 6 companies, and Japan with 5.

Equalisation Levy

Government introduced vide Budget 2016, the equalisation levy to give effect to one of the recommendations of the BEPS (Base Erosion and Profit Shifting) Action Plan.
Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient. The two conditions to be met to be liable to equalisation levy:
The payment should be made to a non-resident service provider;
The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.
Currently, not all services are covered under the ambit of equalisation Levy. The following services covered:
Online advertisement;
Any provision for digital advertising space or facilities/ service for the purpose of online advertisement;
Now , Government has expanded its scope to all Digital Trade and Services.

BEPS (Base Erosion and Profit Shifting)

Base erosion and profit shifting refers to the phenomenon where companies shift their profits to other tax jurisdictions, which usually have lower rates, thereby eroding the tax base in India.

7. TRADE BARRIERS, TPR , MFN

Subject : Economy

Context : The US, China and the European Union (EU) have come down heavily on India for its “rising trade barriers and restrictive investment policies” at the Geneva-based World Trade Organization (WTO).

Concept :

According to the official, the US has said that since India’s last TPR, which took place in 2015, New Delhi has increased the country’s average ‘Most Favoured Nation’ (MFN) tariff rate to 17.6 per cent in 2019 from 13.5 per cent in 2015.

Trade Policy Review :

The TPR is an important mechanism under the WTO’s monitoring function and involves a comprehensive peer-review of a member country’s trade and economic policies.
It is being carried out under the aegis of WTO’s General Council, its highest decision-making body.

Most Favoured Nation (MFN) tariff

MFN tariffs are what countries promise to impose on imports from other members of the WTO, unless the country is part of a preferential trade agreement. In other words, MFN rates are the highest rates that WTO members charge one another.

Non – Tariff Trade Barriers

A nontariff barrier is a way to restrict trade using trade barriers in a form other than a tariff.
Nontariff barriers include quotas, embargoes, sanctions, and levies.
As part of their political or economic strategy, some countries frequently use nontariff barriers to restrict the amount of trade they conduct with other countries.

Types of Nontariff Barriers

Licenses : Countries may use licenses to limit imported goods to specific businesses. If a business is granted a trade license, it is permitted to import goods that would otherwise be restricted for trade in the country.
Example : Sanitary and Phytosanitary measures and other technical barriers etc
Quotas : Countries often issue quotas for importing and exporting both goods and services. With quotas, countries agree on specified limits for products and services allowed for importation to a country.
Embargoes : Embargoes are when a country–or several countries–officially ban the trade of specified goods and services with another country.
Sanctions : Countries impose sanctions on other countries to limit their trade activity. Sanctions can include increased administrative actions–or additional customs and trade procedures–that slow or limit a country’s ability to trade.
Voluntary Export Restraints : Exporting countries sometimes use voluntary export restraints. Voluntary export restraints set limits on the number of goods and services a country can export to specified countries.

Tariff Barriers

Tariffs are a type of protectionist trade barrier that can come in several forms.
Tariff barriers can include a customs levy or tariff on goods entering a country and are imposed by a government. Free trade agreements seek to reduce tariff barriers.
While tariffs may benefit a few domestic sectors, economists agree that free trade policies in a global market are ideal.
Tariffs are paid by domestic consumers and not the exporting country, but they have the effect of raising the relative prices of imported products.
Specific Tariffs :A fixed fee levied on one unit of an imported good is referred to as a specific tariff. This tariff can vary according to the type of good imported.
For example, a country could levy a $15 tariff on each pair of shoes imported, but levy a $300 tariff on each computer imported.
Ad Valorem Tariffs : This type of tariff is levied on a good based on a percentage of that good’s value. An example of an ad valorem tariff would be a 15% tariff levied by Japan on U.S. automobiles.
Anti – Dumping Duty : An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
Dumping is a process wherein a company exports a product at a price that is significantly lower than the price it normally charges in its home (or its domestic) market.
Countervailing Duties : They are applicable when a foreign government provides subsidies or assistance to a local industry. This can be in the form of low-rate loans, tax exemptions, or indirect payments.
The assistance provided enables these suppliers and manufacturers to potentially export and sell the goods for less than domestic companies.

8. LIBERALIZED MSME AEO PACKAGE

Subject : Government Schemes

Context : Central Board of Indirect Taxes and Customs, CBIC has taken a new initiative to introduce its flagship Liberalised MSME AEO Package.

Concept :

In order to attract MSMEs to become Authorised Economic Operators, AEOs and avail the various benefits, the CBIC has relaxed the compliance criteria provided the MSMEs have a valid certificate from their line-Ministry.
The relaxed requirements allow MSMEs who have filed minimum 10 Customs clearance documents in one year and who have a clean compliance record over 2 years to apply for the scheme.
The CBIC commits to take a decision on an application for grant of AEO status within only 15 days from electronic submission of complete documents for AEO Tier T1.
Additional benefits, like further reduction in Bank Guarantee requirements, have been introduced for MSMEs and will be expanded subsequently.

Authorised Economic Operators Programme

AEO is a programme under the aegis of the World Customs Organization (WCO) SAFE Framework of Standards to secure and facilitate Global Trade.
AEO is a voluntary compliance programme.
It enables Indian Customs to enhance and streamline cargo security through close cooperation with the principle stakeholders of the international supply chain viz.importers, exporters, logistics providers, custodians or terminal operators, custom brokers and warehouse operators.
Under this programme, an entity engaged in international trade is approved by Customs as compliant with supply chain security standards and granted AEO status & certain benefts.
For Example , Direct Port Delivery of imported containers, Direct Port Entry of their Export Containers, high level of facilitation in customs clearance , exemption from Bank guarantees, priority for refund or rebate or duty Drawback, as well as a Client Relationship Manager at the customs port as a single point of interaction.

About WCO

The World Customs Organization (WCO), established in 1952 as the Customs Co-operation Council (CCC) is an independent intergovernmental body whose mission is to enhance the effectiveness and efficiency of Customs administrations.
WCO is the only international organization with competence in Customs matters and can rightly call itself the voice of the international Customs community.
The WCO has divided its Membership into six Regions. Each of the six Regions is represented by a regionally elected Vice-Chairperson to the WCO Council.

9. SECTION 301 INVESTIGATIONS

Subject : International Relations

Context : Digital services taxes adopted by India, Italy and Turkey discriminate against U.S. companies and are inconsistent with international tax principles, the U.S. Trade Representative’s office said.

Concept :

USTR, releasing the findings of its “Section 301” investigations into the digital taxes, said it was not taking specific actions at this time, but “will continue to evaluate all available options.”

About 301 Probe

Section 301 of the Trade Act of 1974 provides the United States administration with the authority to enforce trade agreements, resolve trade disputes, and open foreign markets to U.S. goods and services.
The law also provides the United States to impose trade sanctions on foreign countries that either violate trade agreements or engage in other unfair trade practices.
The law states that when negotiations to remove the offending trade practices fail, the United States may take action to raise import duties on the foreign country’s products as a means to rebalance lost concessions.
The list of products on which the United States raises import duties is called a “retaliation list.”
The USTR carefully chooses the products to be included on retaliation to minimize the adverse impact on U.S. consumers, firms, and workers.

10. WORLD FOOD PRICE INDEX

Subject : International Report

Context : World food prices rose for a seventh consecutive month in December, with all the major categories, barring sugar, posting gains last month, the United Nations food agency said.

Concept :

The Food and Agriculture Organization’s (FAO) food price index averaged 107.5 points last month versus 105.2 in November.
It consists of the average of five commodity group ( vegetable oil ,sugar, cereals,dairy and meat ) price indices weighted by the average export shares of each of the groups over 2014-2016.

Food and Agriculture Organisation (FAO)

Established in 1945, the Food and Agriculture Organisation (FAO) has its headquarters in Rome, Italy.
It was founded with a goal to provide food security for everyone and assure that people will have access to high-quality food in sufficient quantities to achieve a healthy lifestyle.
Every year, the FAO publishes a number of major ‘State of the World’ reports related to food, agriculture, forestry, fisheries and natural resources.