Daily Prelims Notes 6 May 2022

Daily Prelims Notes

6 May 2022

Table Of Contents

1. Lending Rate
2. Liquidity overhung
3. Section 148 of the IT Act
4. Direct Seeding of Rice (DSR)
5. Jog Development Projects
6. ‘Diktat calling for storage of user data may face backlash’
7. What is Shigella, the bacteria that killed a girl after she ate shawarma in Kerala?
8. WHO pegs the global death toll from Covid-19 at 14.9 million

1. Lending Rate

Subject: Economy

Section: Monetary Policy

Context:

Close on the heels of the Reserve Bank of India’s decision to hike the policy repo rate and cash reserve ratio, banks have started hiking lending rates with ICICI Bank and Bank of Baroda (BoB) kicking off the exercise.

Details:

• Bank of Baroda has hiked repo-linked lending rate (RLLR) by 40 basis points to 6.9 per cent.
• Bank of India and Central Bank of India also raised RLLR by 40 basis points to 7.25 per cent.
• Several banks announced deposit rate hikes across multiple tenor baskets for retail customers.

Cause:

Hike in Repo Rate- As per an October 2019 circular from RBI, banks linked their retail loans to external benchmark lending rates (EBLR). As a result, most banks have adopted the repo rate as their benchmark. As banks borrow money from the RBI at the repo rate, any change in the repo rate affects the lending rate of banks.

Impact of Repo Rate hike:

• Monthly installments (EMIs) on home, vehicle and other personal and corporate loans are likely to go up, due rise in lending rate.
• Deposit rates, mainly fixed term rates, are also set to rise.
• Reduce liquidity and inflation
• Reduce growth and increase unemployment

Repo rate linked Lending rate:

Banks offer loans at a certain rate of interest. If this interest rate is linked to the repo rate, it is called repo linked lending rate (RLLR).

From 1st October 2019 onwards, all the new floating retail loans interest rates like personal loans, education loans, car loans, home loans etc., sanctioned by the financial institutions got linked to the external benchmark wherein one of the benchmarks is the central bank’s repo rate. Each and every bank has its own RLLR, which keeps differing every time the RBI revises its repo rate.

RLLR = RBI’s repo rate + Margin/spread charged by the bank

Banks may address RLLR by other terms, such as EBLR (External Benchmark Linked Rate), RBLR (Revised Repo Rate Lending Rate) etc.

The margin or spread that the bank charges stays the same for all the loan applicants. However, based on the RBI circular, banks have the permission to charge their borrowers risk premium. The risk premium that the banks charge to the borrower is based on their risk analysis considering a particular applicant and differs from one applicant to another.

MCLR linked lending rate:

The marginal costs of the funds-based lending rate (MCLR) is an internal benchmark that determines the interest rate on loans based on the marginal cost of funds, loan tenure premium, operating costs, and the Cash Reserve Ratio (CRR).

MCLR = Rate of interest offered by the bank on one-year term deposit + tenure premium + CRR + operating costs. 

MCLR linked interest rates get affected whenever the repo rate is revised by the RBI. Banks can increase or decrease the MCLR depending upon the changes in the repo rate.

Before the introduction of MCLR in 2016, banks did not use to consider the repo rate for base calculations. They relied on CASA (Current accounts and Savings accounts) for calculating the lending rates. MCLR was the first attempt to link the repo rate to the loan interest rates closely.

However, it has been observed that borrowers are often late in receiving the benefits of repo rate cuts in the form of lower interest due to time lag in implementing these changes. As a result, the entire benefit of repo rate cuts might not pass on to a borrower in the MCLR linked interest rate format.

Why has RLLR replaced MCLR?

• RLLR based loans were introduced by RBI to make sure that the loan applicants have accessibility to a completely transparent benchmark. 
• Quicker rate cuts transmission plays a major role among many applicants to opt for the RLLR option instead of MCLR.

2. Liquidity overhung

Subject: Economy

Section: Monetary Policy

Context:

Dominance of ample system level surplus liquidity, resulting in a large liquidity increase in the net RBI

Cause:

• Credit to government -The increase in the net RBI credit to the government could be on account of large monetary accommodation to the government in terms of Ways and Means Advances (WMA).
• Increase in net foreign currency assets– RBI buys forex in return of domestic currency.

Impact:

• WACR>SDR-Weighted average call money rate (the operating target of the monetary policy) moving below the standing deposit facility rate (which is the floor in the LAF corridor to absorb liquidity).

Normally the rate for short-term lending remains above the long term lending rate.

Concept:

Operating Procedure of the Monetary Policy:

The operating procedure of monetary policy is guided by the objective of aligning the operating target of monetary policy – the WACR (weighted average call rate) – to the repo rate through active liquidity management, consistent with the stance of monetary policy.

The MPC sets the Flexible Inflation Targeting Framework in India. As enjoined by the RBI Act, the decision of the MPC on the policy rate has to be operationalised by the RBI so that it alters the spending behaviour of economic agents and, in turn, achieves the RBI’s mandate on inflation and growth.

Challenge for an efficient operating procedure:

• minimize the transmission lag from changes in the policy rate to the operating target – a variable that can be controlled by monetary policy actions – rapidly and efficiently;
• ensure that changes in the operating target are transmitted as fully as feasible across the interest rate term structure in the economy.

Procedure:

• The weighted average call rate (WACR) – which represents the unsecured segment of the overnight money market and is best reflective of systemic liquidity mismatches at the margin – is explicitly chosen as the operating target of monetary policy in India.
• An interest rate corridor – the liquidity adjustment facility (LAF) – has been defined since May 2011 by the interest rate on the marginal standing facility (MSF) as the upper bound (ceiling), the fixed overnight reverse repo rate as the lower bound (floor) and the policy repo rate in between.
• The framework aims at setting the policy repo rate based on an assessment of the current and evolving macroeconomic situation, and modulation of liquidity conditions to anchor money market rates at or around the repo rate.
• The LAF corridor effectively defines the operating procedure of monetary policy. Once the policy repo rate is announced, liquidity operations are conducted to keep the WACR closely aligned to the repo rate.

3. Section 148 of the IT Act

Subject: Economy

Section: Fiscal Policy

Context:

The Supreme Court on Wednesday held that the reassessment notices issued under the unamended Section 148 of the Income Tax Act on or after April 1, 2021, will not be deemed to be invalid just because they were issued under the old law. These notices will be deemed as show-cause notices issued to the respective assesses under the new Section 148A of the Act.

Concept:

Section 148 of the IT Act, granted the I-T officers the power to reopen past tax assessments, if they had ‘reason to believe’ that certain income had escaped assessment.

The Finance Act, 2021, introduced section 148A which streamlined the procedure and better protected the interest of the taxpayers.  It provided that before a re-assessment notice can be issued the I-T officer shall conduct an enquiry with the prior approval of senior officials – in other words – the concept of ‘reason to believe that income had escaped assessment’ stood diluted. Further it provided an opportunity to the taxpayer of being heard and called upon the I-T officer to take into cognisance the reply given by the taxpayer

But between April 1 and June 30, 2021, I-T officers issued reassessment notices under the old provision, which was challenged by taxpayers.’

4. Direct Seeding of Rice (DSR)

Subject: Agriculture

Section: Irrigation

Context: The Punjab government recently announced Rs 1,500 incentive per acre for farmers opting for Direct Seeding of Rice (DSR), which is known for saving water.

How much water is required to grow one kg rice?

• Paddy is non-shelled rice that farmers grow and sell in mandis and then after milling paddy rice is prepared.
• According to the studies by Punjab Agriculture University (PAU), Ludhiana, around 3,600 litres to 4,125 litres of water is required to grow one kg rice depending upon the paddy variety.
• Long duration varieties consume more water. In Punjab, 32% of the area is under the long duration (around 158 days) paddy varieties, and the rest comes under paddy varieties that take 120 to 140 days to grow.

How much water can DSR help save?

• According to an analysis by the PAU, DSR technique can help save 15% to 20% water.
• In some cases, water saving can reach 22% to 23%.
• With DSR, 15-18 irrigation rounds are required against 25 to 27 irrigation rounds in traditional methods.

What is dsr technology?

• In DSR, the pre-germinated seeds are directly drilled into the field by a tractor-powered machine.
• There is no nursery preparation or transplantation involved in this method.
• Farmers have to only level their land and give one pre-sowing irrigation.

Traditional methods of rice transplantation

• In transplanting paddy, farmers prepare nurseries where the paddy seeds are first sown and raised into young plants.
• The nursery seed bed is 5-10% of the area to be transplanted.
• These seedlings are then uprooted and replanted 25-35 days later in the puddled field.

Benefits of DSR technology:

• DSR (direct seeding of rice) does not require a puddling process as well as stagnant water in the field at least for three weeks after sowing.
• DSR can solve labour shortage problems because like the traditional method it does not require a paddy nursery and transplanting of 30 days old paddy nursery into the main puddled field. With DSR, paddy seeds are sown directly with machine.
• DSR offers avenues for ground water recharge as it prevents the development of hard crust just beneath the plough layer due to puddled transplanting
• It matures 7-10 days earlier than the puddle transplanted crop, therefore giving more time for management of paddy straw.
• Research trials and farmers’ field surveys have indicated that yield yieldin DSR, are one to two quintals per acre higher than puddled transplanted rice.

5. Jog Development Projects

Subject: Geography

Section: Mapping

Context:

Karnataka’s Forest Department, which was supportive of the Jog falls Development Projects and had recommended ‘in principal approval’ of environmental clearance for a five-star hotel, suffered a setback with the Centre questioning whether any environmental impact study has been carried out.

About the project

• Karnataka had submitted a proposal seeking diversions of 0.8536 hectares of forest land in Nadavada Talakalale village in Sagar taluk for the five-star hotel in lieu of the existing PWD guest house.
• The hotel was in addition to development of other facilities in the Jog Falls area.

Concerns about the project:

• The Ministry of Environment, Forests and Climate Change (MoEF&CC) has pointed out that the proposed development is amidst the fragile ecosystem of the Western Ghats.
• It has sought to know whether any environmental study has been conducted about the impact, and any precautionary measures have been incorporated in the proposed activities.
• The MoEF& CC also referred to a set of objections filed by Living Earth Foundation (LEAF), a Bengaluru-based environmental research and advocacy organisation.
• The LEAF had written to the MoEF& CC that forest clearance sought was for a 5-star hotel, but the project was not a mere standalone hotel. It entails development of Jog Falls as a tourist destination by constructing retail outlets, view decks, Central Island and landscape work, a ropeway, a grand entrance and a dedicated transit hub.
• For the purpose of obtaining Forest and Environmental Clearance, the project plan has been broken into several components, and statutory clearances have been sought in a piecemeal manner in a deliberate attempt to portray minimal impact by each component of the project plan.
• All the components of the project involve significant amounts of construction on forest land within the Eco Sensitive Zone of the newly expanded Sharavati Valley Lion Tailed Macaque Sanctuary.
• LEAF also stated that the increase in footfalls to the area throws up additional challenges like water consumption, increase in wet and dry waste, additional vehicular traffic and emission, lighting in the forest area due to vehicles, and no study had been conducted on their impact on wildlife.

What is Environmental Impact Assessment?

• EIA is an important process for evaluating the likely environmental impact of a proposed project. It is a process whereby people’s views are taken into consideration for granting final approval to any developmental project or activity. It is basically a decision-making tool to decide whether the project should be approved or not.
• The EIA process involves:
  • Screening: this stage decides which projects need a full or partial assessment study.
  • Scoping: this stage decides which impacts are necessary to be assessed. This is done based on legal requirements, international conventions, expert knowledge and public engagement. This stage also finds alternate solutions.
  • Assessment & evaluation of impacts and development of alternatives: this stage predicts and identifies the environmental impacts of the proposed project and also elaborates on the alternatives.
  • EIA Report: in this reporting stage, an environmental management plan (EMP) and also a non-technical summary of the project’s impact is prepared for the general public. This report is also called the Environmental Impact Statement (EIS).
  • Decision making: the decision on whether the project is to be given approval or not and if it is to be given, under what conditions.
  • Monitoring, compliance, enforcement and environmental auditing: monitoring whether the predicted impacts and the mitigation efforts happen as per the EMP.

6. ‘Diktat calling for storage of user data may face backlash’

Subject: Science and Technology

Section: IT

Context – ‘The Ministry of Electronics and Information Technology’s (MeitY) new policy guidelines to virtual private network (VPN) service providers’.

Concept: VPN is used to hide location as well as encrypt information being transferred between the senders to receiver. This could be the data of an enterprise sent over cloud network and storage, or two individuals exchanging files.

Current guidelines:

• MeitY new directions to virtual private network (VPN) service providers to store data of Indian users for up to five years, may move to oppose the policy.
• The policy suggests that details, including user name, e-mail address, phone numbers, and IP addresses, among other data, need to be stored for at least five years.
• Data centre companies and cryptocurrency exchanges, too, need to collect and store user data by
• The Indian Computer Emergency Response Team (CERTIn), which works under MeitY.
• Additionally, VPN companies will have to regularly report the cases around the 20 cyber security vulnerabilities listed by CERT-In in its previous directions.

What is a VPN?

• A virtual private network, or VPN, is an encrypted connection over the Internet from a device to a network.
• The encrypted connection helps ensure that sensitive data is safely transmitted. It prevents unauthorized people from eavesdropping on the traffic and allows the user to conduct work remotely.
• VPN technology is widely used in corporate environments.
• As it is totally disconnected from the rest of the web, it is a secure system. The network can be used safely by the government, companies, and military to utilise system resources.

How does a virtual private network (VPN) work?

• A VPN extends a corporate network through encrypted connections made over the Internet. Because the traffic is encrypted between the device and the network, traffic remains private as it travels.
• An employee can work outside the office and still securely connect to the corporate network. Even smartphones and tablets can connect through a VPN.

Is VPN traffic encrypted?

• Yes, traffic on the virtual network is sent securely by establishing an encrypted connection across the Internet known as a tunnel.
• VPN traffic from a device such as a computer, tablet, or smartphone is encrypted as it travels through this tunnel. Offsite employees can then use the virtual network to access the corporate network.

Protocols of VPN

To build stable networks, there are many distinct VPN protocols are used. Some protocols of this kind are listed below

• IPsec (IP security)
• PPTP (Point to Point Tunneling Protocol)
• L2TP (Layer 2 Tunneling Protocol)
• SSL (Secure Sockets Layer)
• TLS (Transport Layer Security)

7. What is Shigella, the bacteria that killed a girl after she ate shawarma in Kerala?

Subject: Science and Technology

Section: Disease

Context: ‘Food poisoning is fairly common and can occur in a range of situations which may be fatal if not treated on time’

Concept:

What is Shigella?

• Shigella infection, also called shigellosis, is a condition that affects your digestive system.
• It is a bacterium that belongs to the enterobacter family — a group of bacteria that reside in the intestine, not all of which cause disease in humans. It mainly affects the intestine and results in diarrhoea, sometimes bloody, stomach pain, and fever.

 What are the causes of Shigella?

• According to the US Centres for Disease Control and Prevention (CDC), the infection spreads easily as it takes only a small number of bacteria to make someone ill.
• It is a food- and water-borne infection and can happen when someone consumes contaminated food, unwashed fruit or vegetables.
• By direct or indirect contact with the excrement of the patient.
• Swimming or taking bath in contaminated water.

 How widespread is Shigella infection?

• Shigellosis is not a very common infection. We usually see infections like typhoid and cholera because of contaminated foods.Appear to be exacerbated during pregnancy and in children under five years of age, and in those with weakened immune systems.

 Types of Shigella bacteria that affect humans —

1.     Shigella sonnei
2.     Shigella flexneri
3.     Shigella boydii a
4.    Shigella dysenteriae (Causes the most severe disease because of the toxin it produces.)

Treatment Management of Shigella

Infection does not generally kill unless the patient has a weak immune system or the pathogen is resistant to the antibiotics that are prescribed.

It is a very treatable condition; if a patient reaches the hospital on time they can effectively be treated using IV antibiotics,

Risks associated with Shigella

• When the antibiotics do not work because the bacteria are resistant to them.
• Shigella produces a lot of toxins that can affect all other organs. So, if the bacteria continue to proliferate in the body even after giving the antibiotics, it will continue to produce toxins, which can then affect the kidney, cause seizures, lead to multi-organ failure, and shock, and even turn fatal.
• The mortality of the infection is less than 1%

Preventives measure

• To prevent a Shigella infection, it is the same as that of any other food- and water-borne infection.
• Wash your hands thoroughly before and after a meal.
• Wash your hands properly after a bowel movement.
• Ensure the water that you drink is clean and the fruits and vegetables are fresh.
• Visit the doctor and follow the instructions and medications as prescribed.

8. WHO pegs the global death toll from Covid-19 at 14.9 million

Subject: International relations

Context: India is among the top countries accounting for excess deaths

Concept:

The World Health Organization has estimated the global death toll associated with Covid at 14.9 million, more than double the reported number between January 2020 and December 2021.

And India, with an estimated 4.7 million deaths in this period, featured among the top 20 countries accounting for 80 per cent of the excess mortality.

The estimated global and Indian death toll was higher than the numbers reported to the WHO at 5.4 million and 4,81,000 for the period.

India, though, had pushed back on the data and methodology of the WHO in estimating the overall toll.

Response of India to WHO

WHO has released the excess mortality estimates without adequately addressing India’s concerns.

India had also informed WHO that in view of the availability of authentic data published through the Civil Registration System (CRS) by Registrar General of India (RGI), mathematical models should not be used for projecting excess mortality numbers for India

In past consultations with the WHO,

India had questioned the reliance on Global Health Estimates (2019) to arrive at India’s final toll and the classification of the country under Tier II, indicating countries where mathematical modelling estimates were used due to the absence of consistent data.

Global Health Estimates (2019)

WHO’s Global Health Estimates (GHE) provide the latest available data on death and disability globally, by region and country, and by age, sex and cause. The latest updates include global, regional and country trends from 2000 to 2019 inclusive. By providing key insights on mortality and morbidity trends, these estimates are a powerful tool to support informed decision-making on health policy and resource allocation.

About WHO –

• The World Health Organization (WHO) is a specialized agency of the United Nations responsible for international public health.
• The WHO Constitution states its main objective as “the attainment by all peoples of the highest possible level of health”.
• Headquartered in Geneva, Switzerland, it has six regional offices and 150 field offices worldwide.
• It is an inter-governmental organization and works in collaboration with its member states usually through the Ministries of Health.
• The WHO provides leadership on global health matters, shaping the health research agenda, setting norms and standards, articulating evidence-based policy options, providing technical support to countries and monitoring and assessing health trends.
• A publication, the World Health Report, provides assessments of worldwide health topics.

Its role in public health –

• providing leadership on matters critical to health and engaging in partnerships where joint action is needed;
• shaping the research agenda and stimulating the generation, translation, and dissemination of valuable knowledge;
• setting norms and standards and promoting and monitoring their implementation;
• articulating ethical and evidence-based policy options;
• providing technical support, catalysing change, and building sustainable institutional capacity; and
• monitoring the health situation and assessing health trends.
• CRVS (civil registration and vital statistics) to provide monitoring of vital events (birth, death, wedding, divorce).

Governance –

• World Health Assembly
  • The World Health Assembly (WHA) is the legislative and supreme body of WHO.
  • Based in Geneva, it typically meets yearly in May.
  • It appoints the director-general every five years and votes on matters of policy and finance of WHO, including the proposed budget.
  • It also reviews reports of the executive board and decides whether there are areas of work requiring further examination.
• Executive Board
  • The Assembly elects 34 members, technically qualified in the field of health, to the executive board for three-year terms.
  • The main functions of the board are to carry out the decisions and policies of the Assembly, to advise it, and to facilitate its work.
• Director-General
  • The head of the organization is the director-general, elected by the World Health Assembly.
  • The term lasts for five years, and Directors-General are typically appointed in May, when the Assembly meets.

How WHO is funded?

• WHO gets its funding from two main sources: Member States paying their assessed contributions (countries’ membership dues), and voluntary contributions from Member States and other partners.
• Assessed contributions (AC) are a percentage of a country’s Gross Domestic Product (the percentage is agreed by the United Nations General Assembly). Member States approve them every two years at the World Health Assembly. They cover less than 20% of the total budget.
• The remainder of WHO’s financing is in the form of voluntary contributions (VC), largely from Member States as well as from other United Nations organizations, intergovernmental organizations, philanthropic foundations, the private sector, and other sources.
• Core voluntary contributions (CVC)
  • Core voluntary contributions are fully unconditional (flexible), meaning WHO has full discretion on how these funds should be used to fund the programmatic work of the Organization.
  • These represent 3.9% of all voluntary contributions.

Mandatory Assessed Contributions, 2020 in $ millions –