Daily Prelims Notes 1 February 2023
- February 1, 2023
- Posted by: OptimizeIAS Team
- Category: DPN
Daily Prelims Notes
1 February 2023
Table Of Contents
- Economic Survey: Key Takeaways
- PM CARES Fund administered like PM’s National Relief Fund, HC told
- Promoting International Trade In Rupee To Help Reduce Currency Volatility
- Shipbuilding industry can bolster ‘Aatmanirbhar Bharat’, says Survey
- Global Climate Finance
- Adani Enterprises FPO subscribed 1.1 times; HNIs, QIBs to the rescue
- Decriminalisation of adultery doesn’t apply on armed forces: SC
- Rare earth elements and critical minerals
- Capex-led growth
- Foreign Exchange Reserve
- Plan in place to eradicate invasive plant species from Kerala’s wildlife habitat
1. Economic Survey: Key Takeaways
Subject: Economy
Section: National Income
Concept:
- On 31 January, the government tabled the Economic Survey 2022-23. The Survey laid out the outlook for India’s growth, inflation and unemployment in the coming years.
Economic Survey
- The Economic Survey of India is an annual report released by the Finance Ministry.
- It details the state of the economic performance of the country in the past year.
- The survey highlights macroeconomic figures and economic progress of the country.
- It also mentions the possible economic challenges that India might face in future and suggests measures to overcome them.
- The survey is prepared by the Economic Division of the Department of Economic Affairs in the Ministry of Finance under the supervision of the Chief Economic Advisor of India (CEA).
- The Economic Survey of India is presented every year a day before the Union Budget is announced.
- This year’s survey was presented by the CEA V Anantha Nageswaran, after being tabled by Finance Minister in the parliament.
Economic Survey 2023: Key Takeaways
GDP growth :
- The Survey said India’s growth estimate for FY23 is higher than for almost all major economies.
- It projected the economy to grow by somewhere between 6% -6.8%, depending on global factors in 2023-24, with 6. 5% a baseline expectation.
- Despite global uncertainties and slowing world economy, India’s growth is supported by solid domestic demand and a pickup in capital investment.
- India’s projected growth rate, that too without the advantage of a base effect, is a reflection of India’s underlying economic resilience.
- Indian economy in 2022-23 has nearly:
- recouped what was lost,
- renewed what had paused, and
- re-energised what had slowed during the pandemic and since the conflict in Europe.
- The survey also highlighted few downside risks which might affect the growth:
- Low demand for Indian exports due to poor global growth may widen India’s trade deficit and make the rupee depreciate.
- Also, sustained monetary tightening (higher interest rates) may drag down economic activity in FY24.
Inflation
- The RBI has projected headline inflation at 8% in FY23, outside its comfort zone of 2% -6%.
- The Survey sounded optimistic about the inflation levels and trajectory as both wholesale and retail inflation are on the descending slope.
- However, any re-emergence of Covid-19 situation in China or a reversal of slump in commodity prices poses risks to the inflation trajectory going ahead.
Unemployment
- The Survey said employment levels have risen in the current financial year.
- It pointed to the Periodic Labour Force Survey (PLFS), which showed that urban unemployment rate for people aged 15 years and above declined from 9.8% in the quarter ending September 2021 to 7.2% one year later.
- The Survey also underlined that the fall in unemployment rate is accompanied by an improvement in the labour force participation rate.
Capital expenditure (capex) target
- Capital expenditure has started to stimulate private investment, and the budget target of ₹7.5 lakh crore for the current fiscal year is expected to be met.
- Strong domestic demand and a pickup in capital investment will support the country’s growth trajectory in FY24.
- There is an expectation of a recovery in private capex, driven by improved balance sheets, resurging credit, and the crowding in from public capex.
- The survey said that the government’s thrust on capex, particularly in the infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs, has longer-term implications for growth.
- PM Gati Shakti has additionally assisted in accelerating infrastructure development.
Foreign Direct Investment (FDI) inflows
- Due to India’s rapid economic growth and enhanced business environment, FDI into the nation is anticipated to increase in the upcoming months.
- According to data from the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflows into India decreased by 14% to USD 26.9 billion over the period from April to September this fiscal.
Current Account Deficit (CAD)
- The need for careful monitoring of the current account deficit, which could continue to grow due to elevated global commodity prices, was emphasised.
- The country’s current account deficit increased to 4.4% of GDP in the quarter ending in September from 2.2% of GDP during the April-June period (RBI Data).
- Rupee likely to remain under depreciation pressure
- The pressure on the Indian rupee’s depreciation may continue as a result of the export market’s slowing and the subsequent expansion of the current account deficit.
Suggestions given by Survey
- The Survey has called for:
- entirely dismantling the LIC (licensing, inspection and compliance) regime to accelerate economic growth,
- harnessing women power (nari shakti),
- renewed focus on energy security and energy transition, education and skilling, administrative reforms.
- The survey sought determined efforts to make public sector asset monetisation scheme successful, besides addressing (by states) of the power sector issues.
- The Survey has also placed sufficient emphasis on fiscal consolidation, which it notes is critical for low interest rates in the long term.
2. PM CARES Fund administered like PM’s National Relief Fund, HC told
Subject: Schemes
Concept:
- The Prime Minister’s Office (PMO) has told the Delhi High Court that the PM CARES Fund is administered in a similar pattern as that of the Prime Minister’s National Relief Fund (PMNRF) as both are chaired by the Prime Minister.
- The PMO has held that the PM CARES Fund, which was created in 2020 in the wake of the COVID pandemic, cannot be considered a government fund as the donations to it do not flow into the Consolidated Fund of India.
- The PMO has further added that the PM CARES Fund has been created as a “Public Charitable Trust,” and no third-party information can be parted with irrespective of its status.
- Petitions have been filed in the courts of India seeking to declare the PM CARES Fund a “State” under the Constitution and also to declare PM CARES as a “public authority” under the Right to Information (RTI) Act.
About PM CARES Fund:
- The Prime Ministers Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) was created on 28 March 2020, following the COVID-19 pandemic in India.
- It was created for combating, and containment and relief efforts against the coronavirus outbreak and similar pandemic like situations in the future.
- It has been registered as a Public Charitable Trust.
Objectives:
- To provide assistance and relief to all the affected persons in the event of any calamity, disaster, public health emergency or any other emergency of any kind that may be either natural or man-made.
- Creation as well as upgradation of any pharmaceutical facilities, funding a research, creation or upgradation of any necessary infrastructure, healthcare support or any other kind of support.
Composition of the Trust:
- Prime Minister is the ex-officio Chairman of the PM CARES Fund.
- Minister of Defence, Minister of Home Affairs and Minister of Finance, Government of India are ex-officio Trustees of the Fund.
- The Trust Deed of the Fund gives the Chairman of the Board of Trustees, i.e. the Prime Minister, the power to nominate three Trustees to the Board of Trustees.
Contributions:
- The fund consists entirely of voluntary contributions from individuals/organizations and does not get any budgetary support.
- The contributions to the Fund can be from any individuals or any organizations including companies, other charitable institutions, associations, etc.
- PM CARES Fund allows option for Micro donation, one can donate as low as Rs 10 in the PM CARES Fund.
- Donations to PM CARES Fund would qualify for 80G benefits for 100% exemption under the Income Tax Act.
- Donations to PM CARES Fund will also qualify to be counted as Corporate Social Responsibility (CSR) expenditure under the Companies Act, 2013.
- It has also got exemption under the FCRA. This enables PM CARES Fund to accept donations and contributions from individuals and organizations based in foreign countries.
3. Promoting International Trade In Rupee To Help Reduce Currency Volatility
Subject : Economics
Concept :
- Promoting international trade in the domestic currency will help in protecting the rupee from volatility and reduce cost of doing business in the global markets, Economic Survey said on Tuesday.
INR as International Currency
- The Survey highlights that efforts are underway to promote international trade settlement in Indian Rupees.
- International settlement in rupee acquires significance against the backdrop of the US Federal Reserve aggressively hiking the policy rates and its hawkish stand.
- Once these initiatives gain traction, dependence on foreign currency would potentially reduce, making the economy less vulnerable to external shocks.
- In July 2022, the Reserve Bank of India (RBI) issued a circular permitting an additional arrangement for invoicing, payment, and settlement of exports/imports in Indian Rupees (INR) to promote the growth of global trade with emphasis on exports from India and to support the increasing interest in the global trading community in INR as an international currency.
- The framework involves invoicing of exports and imports in INR, market-determined exchange rates between the currencies of the trading partner countries, and settlement through special Rupee Vostro accounts opened with authorised dealer banks in India.
- The Survey states that the framework is significant as this could largely reduce the net demand for foreign exchange and could assist Indian exports in getting advance payments in Indian Rupees from overseas clients.
- It mentions that in the longer terms this could promote Indian rupees as an International currency once the rupee settlement mechanism gains traction.
Special Rupee Vostro accounts
- The settlement of trade transactions under this arrangement shall take place in INR.
- In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, Authorised Dealer banks in India have been permitted to open Rupee Vostro Accounts.
- For settlement of trade transactions with any country, AD banks in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country.
- In order to allow settlement of international trade transactions through this arrangement, it has been decided that:
- Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier.
- Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
- Use of Surplus Balance: The Rupee surplus balance held may be used for permissible capital and current account transactions in accordance with mutual agreement. The balance in Special Vostro Accounts can be used for:
- Payments for projects and investments.
- Export/Import advance flow management
- Investment in Government Treasury Bills, Government securities, etc. in terms of extant guidelines and prescribed limits, subject to FEMA and similar statutory provision.
Vostro account:
- Vostro is a Latin word that translates to “your,” as in “your account.”
- A vostro account is an account a correspondent bank holds on behalf of another bank.
- A vostro account is established to enable a foreign correspondent bank to act as an agent or provide services as an intermediary for a domestic bank.
- Vostro account services include executing wire transfers, performing foreign exchange transactions, enabling deposits and withdrawals, and expediting international trade.
- For example, if a Spanish life insurance company approaches a U.S. bank to manage funds on the Spanish life insurer’s behalf, the account is deemed by the holding bank as a vostro account of the insurance company.
- From the foreign correspondent bank’s point of view, the funds held on behalf of other banks are referred to as vostro accounts and are denominated in the local currency.
- From the perspective of domestic banks, the funds deposited at correspondent banks are referred to as nostro accounts.
- Nostro accounts are denominated in the foreign currency of the correspondent bank.
4. Shipbuilding industry can bolster ‘Aatmanirbhar Bharat’, says Survey
Subject: Economy
Section: National Income
Concept:
- Identifying the shipbuilding industry as a strategically important industry for its role in energy security, national defence, and the development of the heavy engineering industry, the Economic Survey,2022-23 noted that it has the potential to increase the contribution of the industry and the services sector to the national GDP.
- Based on international shipbuilding statistics, if one takes a conservative Marginal Consumption to GDP Ratio (MCGR) of 0.45 for the shipbuilding sector, the investment multiplier would be approximately 1.82.
- For example, an injection of approximately ₹1.5 lakh crore in naval ship_building projects would accrue a circulation of ₹ 2.73 lakh crore in the shipbuild_ing sector due to the multi_plier effect,” the survey said.
Investment Multiplier
- Investment multiplier is an important part of economic theories suggested by notable economist John Maynard Keynes.
- According to this concept, in the event of an increase in the investment activities either public or private which can be in the form of private consumption spending, government spending in an economy, there is a corresponding increase in the Gross Domestic Product (GDP) of the economy by a value more than the amount invested.
- In simple words, investment multiplier refers to the increase in the aggregate income of the economy as a result of an increase in the investments done by the government in the form of new projects.
- The size of the investment multiplier is determined by the decisions of the households in an economy in the areas of spending (which is known as marginal propensity to consume) or saving (known as marginal propensity to save).
- The multiplier can be represented by the following formula,
- K = ΔY / ΔI
- Where,
- ΔY = Increase in GDP or National Income
- ΔI = Increase in Investment
- Marginal Propensity to Consume (MPC)
- It measures the proportionate rise in the consumption with increase in income or we can say it measures the proportion of extra pay that is spent on consumption of goods and services rather than saving it.
- Marginal Propensity to Consume or MPC is dependent on the income level. It may vary with the income levels and it can be seen that the MPC is lower at higher income levels.
- MPC can be calculated by determining the change in consumption divided by the change in income.
- Marginal propensity to save (MPS)
- It is used by economists in order to quantify the relationship between changes in income and changes in savings. It refers to the proportion of a raise in pay that a consumer saves rather than uses for consuming goods and services.
- It is calculated by simply dividing the change in savings by the change in income.
- A larger MPS indicates that small changes in income lead to large changes in savings, and vice-versa.
Subject : Environment
Section: Climate Change
Concept :
- For India to meet its international “obligations” on curtailing greenhouse gas emissions, it must have access to “ontime” climate finance, technology, and access to critical minerals.
- Advanced economies ought to set examples of policy and “behavioural changes” that work in their countries and only then could they be emulated in developing countries, the Economic Survey said on Tuesday in a dedicated chapter on climate change.
Global Climate Finance
- It refers to local, national, or transnational financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change.
- The UNFCCC, Kyoto Protocol, and the Paris Agreement call for financial assistance from Parties with more financial resources (Developed Countries) to those that are less endowed and more vulnerable (Developing Countries).
- This is in accordance with the principle of “Common but Differentiated Responsibility and Respective Capabilities” (CBDR).
- In COP26, new financial pledges to support developing countries in achieving the global goal for adapting to the effects of climate change were made.
- New rules for the international carbon trading mechanisms agreed at COP26 will support adaptation funding.
USD 100 Billion Target – Climate finance
- In 2009, at the UNFCCC COP15 (held in Copenhagen), the developed country parties, to achieve meaningful mitigation actions and transparency on implementation, jointly set a target of USD 100 billion a year by 2020 to address the needs of developing countries.
- The climate finance goal was then formally recognized by the UNFCCC Conference of the Parties at COP16 in Cancun.
- At COP21 in Paris, Parties extended the $100 billion goals through 2025.
- After COP26 there was a consensus that developed nations will double their collective provision of adaptation finance from 2019 levels by 2025, in order to achieve this balance between adaptation and mitigation.
Financial Framework
- To assist the provision of climate financing, UNFCCC established a financial framework to give financial resources to developing nation Parties.
- The finance structure also supports the Kyoto Protocol and the Paris Agreement.
- It specifies that the financial mechanism’s operation can be entrusted to one or more existing international entities, since the Convention’s entrance into force in 1994, the Global Environment Facility (GEF) has acted as the financial mechanism’s operating institution.
- Parties established the Green Climate Fund (GCF) at COP 16 in 2010 and designated it as an operating entity of the financial mechanism in 2011.
- The financial mechanism reports to the COP, which determines its policies, programme priorities, and financing eligibility criteria.
- Other Funds:
- In addition to providing guidance to the GEF and the GCF, Parties have established two special funds—
- Special Climate Change Fund (SCCF)
- Least Developed Countries Fund (LDCF),
- Both are managed by the GEF—and the Adaptation Fund (AF) established under the Kyoto Protocol in 2001.
- At the Paris Climate Change Conference in 2015, the Parties agreed that the operating entities of the financial mechanisms – GCD, GEF, SCCF and the LDCF, shall serve the Paris Agreement.
6. Adani Enterprises FPO subscribed 1.1 times; HNIs, QIBs to the rescue
Subject : Economy
Section: Capital Market
Concept :
- On the last day of Adani Enterprises’ follow-on public offer, the issue was home and dry with the total book getting subscribed 1.1 times, aided by qualified institutional buyers and high net-worth individuals.
- Despite the damaging allegations made by short-seller hedge fund Hindenburg Research, which wiped out a considerable portion of promoter Gautam Adani’s wealth and the group’s market capitalisation, the company’s confidence that the FPO would go through was justified.
- QIB subscription at 161 lakh shares was 1.26 times of the offer for that category.
- Subscriptions from non-institutional investors were 3.3 times, while within that those bidding for amounts above ₹10 lakh put in bids that were nearly 5 times of the shares on offer.
Qualified Institutional Buyers
- Qualified Institutional Buyer is a purchaser of securities that is financially sophisticated and is legally recognized by security market regulators to need less protection from sellers than most members of the public.
- Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets.
- Qualified Institutional Buyer shall mean:
- Public financial institution as defined in section 4A of the Companies Act, 1956;
- Scheduled commercial banks;
- Mutual funds;
- Foreign institutional investor registered with SEBI;
- Multilateral and bilateral development financial institutions;
- Venture capital funds registered with SEBI.
- Foreign Venture capital investors registered with SEBI.
- State Industrial Development Corporations.
- Insurance Companies registered with the Insurance Regulatory and Development Authority (IRDA).
- Provident Funds with minimum corpus of Rs.25 crores
- Pension Funds with minimum corpus of Rs. 25 crores
- These entities are not required to be registered with SEBI as QIBs.
- QIBs must be either domestic or foreign institutions.
- Individuals are not permitted to be QIBs, regardless of their level of wealth or financial sophistication.
7. Decriminalisation of adultery doesn’t apply on armed forces: SC
Subject: Polity
Section: Msc
Concept:
- Armed forces would be at liberty to initiate disciplinary proceedings against officers and personnel for adultery notwithstanding that the Supreme Court had decriminalised the offence in 2018.
- On Tuesday, a five-judge constitution bench clarified that in the judgment on September 27, 2018, the SC was concerned only with the validity of Section 497 of the IPC and Section 198(2) of the CrPC dealing with adultery, and had “no occasion whatsoever to consider the effect” with respect to the Army, Navy and Air Force Acts.
Armed Forces Tribunal
- It is a military tribunal in India.
- It was established in 2009 under the Armed Forces Tribunal Act, 2007.
- The act was passed on the basis of recommendation of 169th Law Commission Report and various Supreme Court directives.
- Powers and functions:
- To adjudicate Disputes and complaints with respect to commission, appointments, enrolments and conditions of service in respect of persons subject to the Army Act, 1950, The Navy Act, 1957 and the Air Force Act, 1950.
- Composition:
- Each Bench comprises of a Judicial Member and an Administrative Member.
- Judicial Members are retired High Court Judges.
- Administrative Members are retired Members of the Armed Forces who have held the rank of Major General/ equivalent or above for a period of three years or more or Judge Advocate General (JAG), who have held the appointment for at least one year.
- Who can be a chairperson?
- The person holding the office of chairperson of AFT must have been either a retired judge of Supreme Court or a Retired chief justice of high court.
- Exceptions:
- Paramilitary forces including the Assam Rifles and Coast Guard are outside the tribunal’s purview.
- AFT is considered to be a criminal court with respect to Indian Penal Code, and Code of Criminal Procedure.
- Appeals against the decision of the AFT can be taken only in Supreme Court. High Courts are not allowed to entertain such appeals.
8. Rare earth elements and critical minerals
Subject :Geography
Section : Economic Geography
Context: Rare earth elements and critical minerals will be next geopolitical battleground: Economic Survey
More on the News:
- REE and CM are essential for generating renewable energy (RE). The problem is that they are produced in a few countries and processed in even fewer countries.
- A globally synchronised energy transition to non-fossil fuels might be difficult to pull off if adequate REE and CM are not available. That would leave fossil fuel-based assets stranded for many countries’ economies.
- Survey pointed out while the demand for CMs is set to increase because of the global preference and emphasis towards RE, the global CM supply chain is highly concentrated and unevenly distributed. The skewed distribution of resources poses a supply risk in the face of its enhanced demand.
- A carefully crafted multi-dimensional mineral policy would reduce our dependence and address the problems for the future. The country has resources of nickel, cobalt, molybdenum, and heavy REEs, but further exploration would be needed to evaluate the quantities of their reserves.
- There is a need to create strategic mineral reserves along the lines of strategic petroleum reserves to ensure a continuous supply of minerals. Also, policies should consider investing in internal research including technological innovation for mineral exploration and processing and the development of Recycling, Reusing, and Repurposing (R3) technologies
Rare earth Elements:
- These are a set of 17 chemical elements in the periodic table, specifically the 15 lanthanides plus scandium (Atomic Number 21) and Yttrium (Atomic Number 39).
- Lanthanide series comprises the 15 metallic chemical elements with atomic numbers 57 through 71, from lanthanum through lutetium.
- Scandium and yttrium are considered rare-earth elements because they tend to occur in the same ore deposits as the lanthanides and exhibit similar chemical properties, but have different electronic and magnetic properties.
- Cerium (AN 58) is the most abundant rare earth metal.
- Their colour ranges from Shiny Silver to Iron Gray. They are soft, malleable, ductile and usually reactive, especially at elevated temperatures or when finely divided.
- Its application ranges from Civilian (smartphones, laptops, petroleum refining catalysts) to military including nuclear applications. Rare minerals that are essential to electric vehicles, wind turbines and drones.
- China has the largest reserve (37 percent), followed by Brazil and Vietnam (18 percent each), Russia (15 percent), and the remaining countries (12 percent). Deng Xiaoping said once, The Middle East has oil and China has rare earth.
- Why these elements called as RARE?
- There is no shortage of rare earths. But their extraction is difficult (Requires high skill, Capital intensive, Environmental issues).
Critical Minerals
- Critical minerals are elements that are the building blocks of essential modern-day technologies, and are at risk of supply chain disruptions.
- These minerals are now used everywhere from making mobile phones, computers to batteries, electric vehicles and green technologies like solar panels and wind turbines.
- Based on their individual needs and strategic considerations, different countries create their own lists.
- However, such lists mostly include graphite, lithium, cobalt, rare earths and silicon which is a key mineral for making computer chips, solar panels and batteries.
- Aerospace, communications and defence industries also rely on several such minerals as they are used in manufacturing fighter jets, drones, radio sets and other critical equipment.
Why is this resource critical?
- As countries around the world scale up their transition towards clean energy and digital economy, these critical resources are key to the ecosystem that fuels this change.
- Any supply shock can severely imperil the economy and strategic autonomy of a country over-dependent on others to procure critical minerals.
- But these supply risks exist due to rare availability, growing demand and complex processing value chain.
- Many times the complex supply chain can be disrupted by hostile regimes, or due to politically unstable regions.
- They are critical as the world is fast shifting from a fossil fuel-intensive to a mineral-intensive energy system.
Subject :Economy
Section : Fiscal Policy
Context: Capex-led growth to bring back animal spirits, help manage debt levels: Economic Survey.
More on the News:
- Survey said the government’s thrust on capex, particularly in the infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs, has longer-term implications for growth.
- Central to the government’s growth optimism in FY24 is the expectation of a recovery in private capex, driven by improved balance sheets, resurging credit, and the crowding in from public capex.
- Growth is expected to be brisk in FY24 as a vigorous credit disbursal, and capital investment cycle is expected to unfold in India with the strengthening of the balance sheets of the corporate and banking sectors.
- While on the one hand, capital expenditure strengthens aggregate demand and crowds-in private spending in times of risk aversion; it also enhances the longer-term supply-side productive capacity
Capital expenditures
- Capital expenditures are the ones that create some liability/asset for the government. These include loans to public enterprises, loans to States, Union Territories and foreign governments and acquisition of valuables.
- They are long-term investments of huge amount of money for acquiring long-term assets like manufacturing equipment. Such assets acquired provide income-generating value over a period of years.
- Hence, the cost of such assets is recovered through year-by-year depreciation over the productive life of the asset. In essence, the expenditure which is done for initiating current, as well as the future economic benefit, is actually capital expenditure.
- Capital expenditure includes money spent on the following:
- Acquiring fixed and intangible assets
- Upgrading an existing asset
- Repairing an existing asset
- Repayment of loan
Significance of capital expenditure:
- Multiplier effect– Capex has the maximum multiplier effect (change in rupee value of output with respect to a change in rupee value of expenditure). This multiplier effect works through expansion of ancillary industries and services and job creation.
- Labour productivity– On the supply side, Capex can facilitate labour productivity.
- Macroeconomic stabilizer– Capital expenditure is an effective tool for countercyclical fiscal policy and acts as a macroeconomic stabiliser.
- Revenue generation– Capital expenditure leads to the creation of assets are long-term in nature and allow the economy to generate revenue for many years and boost operational efficiency.
- Liability reduction– Along with the creation of assets, repayment of loan is also capital expenditure as it reduces liability.
- Economic growth – Government capex catalyses private investment, increases production capacity thereby speeding up economic growth which in turn creates a lot more jobs.
- Crowding-in of investment: It is a phenomenon that occurs when higher government spending leads to an increase in economic growth and therefore encourages firms to invest due to the presence of more profitable investment opportunities. The crowding-in effect is observed when there is an increase in private investment due to increased public investment, for example, through the construction or improvement of physical infrastructures such as roads, highways, water and sanitation, ports, airports, railways, etc.
Subject : Economy
Context: India has sufficient forex reserves to finance CAD and intervene in forex market: Eco Survey
Findings in Economic Survey:
- India’s forex reserves, as on January 20, stood at $573.727 billion.
- The country recorded a current account deficit of 3 per cent of GDP in H1 FY23
- Reason for rising CAD
- Sharp increase in the merchandise trade deficit.
- Current Account Balance stems from a swift recovery driven mainly by domestic demand and, to a lesser extent, by exports.
- It have added to the domestic inflationary pressures besides widening the CAD.
- Global commodity prices may have eased but are still higher compared to pre-conflict levels. They have further widened the CAD, already enlarged by India’s growth momentum.
- The survey underscored that the scenario of subdued global growth presents two silver linings – oil prices will stay low, and India’s CAD will be better than currently projected. The overall external situation will remain manageable.
- As of end-November 2022, India was the sixth largest foreign exchange reserves holder in the world according to data compiled by the IMF.
- The import coverage of foreign currency reserves has declined since the pre-pandemic levels in most emerging market economies; however, that of India has increased from 95 per cent in Q4 2019 to 96.5 per cent in Q3 2022.
- There is a cost involved in holding them and they are subject to diminishing returns. The costs borne by an economy for holding FER include the opportunity cost, in terms of the difference between domestic and foreign borrowing rates and loss due to the value reduction in the denominated FER.
- The survey points out that it examines the social cost of FERs and finds that the income loss to most developing countries amounts to close to one per cent of GDP.
Foreign Exchange Reserve:
- Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
- It needs to be noted that most foreign exchange reserves are held in US dollars.
India’s Forex Reserve include:
- Foreign Currency Assets
- Gold reserves
- Special Drawing Rights
- Reserve position with the IMF
- Foreign Currency Assets:
- FCAs are assets that are valued based on a currency other than the country’s own currency.
- FCA is the largest component of the forex reserve. It is expressed in dollar terms.
- The FCAs include the effect of appreciation or depreciation of non-US unitslike the euro, pound and yen held in the foreign exchange reserves.
- Gold Reserves:
- Gold occupies a special position in the foreign reserves of central banks as it is widely stated to beheld for reasons of diversification.
- Moreover, the unique property of gold is believed to be its ability to enhance the credibility of the central bank when it holds adequately and this has been proved time and again.
- Special Drawing Rights:
- The SDR is an international reserve asset, created by the International Monetary Fund (IMF) in 1969to supplement its member countries’ official reserves.
- The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
- The value of the SDR is calculated from a weighted basket of major currencies, including the US dollar, the euro, Japanese yen, Chinese yuan, and British pound.
- The interest rate on SDRs or (SDRi)is the interest paid to members on their SDR holdings.
- Reserve Position in the International Monetary Fund:
- A reserve tranche position implies a portion of the required quota of currency each member country must provide to the IMF that can be utilized for its own purposes.
- The reserve tranche is basically an emergency account that IMF members can access at any time without agreeing to conditions or paying a service fee.
Significance of rising forex reserves:
- The rising forex reserves give comfort to the government and the RBI in managing India’s external and internal financial issuesat a time of major contraction in economic growth.
- It serves as a cushion in the event of a crisis on the economic front, and is enough to cover the import bill of the country for a year.
- The rising reserves have also helped the rupee to strengthen against the dollar. The foreign exchange reserves to GDP ratio is around 15 per cent.
- Reserves will provide a level of confidence to markets that a country can meet its external obligations, demonstrate the backing of domestic currencyby external assets, assist the government in meeting its foreign exchange needs and external debt obligations and maintain a reserve for national disasters or emergencies.
11. Plan in place to eradicate invasive plant species from Kerala’s wildlife habitat
Subject: Environment
Section: Biodiversity
Context: Senna spectabilis poses a severe threat to natural forests and should be removed using a threefold approach for large trees, large saplings, and small saplings.
More on the News:
- The Nodal Centre for Biological Invasions (NCBI) at the Kerala Forest Research Institute (KFRI) has come out with a management plan to eradicate Senna spectabilis, the exotic invasive plant that is posing a severe threat to the State’s wildlife habitat.
- The management plan stipulates that there should not be an attempt to kill the trees before a detailed reforestation programme and the resources for implementing it are in place.
- This involves developing an adequate number of large-sized saplings of native trees, identification of nucleus sites where the planting is to be made, and the provision for manpower.
- Once the resources and material for landscape restoration are ready, the invasive species has to be removed using a threefold approach for large trees, large saplings, and small saplings.
- Debarking large trees:
- The large trees need to be debarked from breast height downwards (1.3 m above ground level), including the collar part of the tree. Once done, the trees should be visited once a month to remove the new growth across the debarked area.
- Once the trees start to dry up, their soil seed bank will become active and a large number of plantlets will sprout. Manpower should be made available to remove the sprouting plantlets. The next is the larger saplings which can be uprooted using specially designed weed pullers.
- The third is the removal of small plantlets which need to be removed mechanically. It is important to make sure that the pulled-out saplings are dried without any contact with soi Planting of large saplings of native tree species should start along with or before the start of Senna removal.
- The large trees would take a minimum of 18 months to completely dry up after debarking.
Senna spectabilis
- Senna spectabilis is a plant species of the legume family (Fabaceae)native to South and Central America.
- They are often grown as ornamental plants due to their bright yellow flowers that bloom during the summer months.
- They are also known as golden wonder tree, American cassia, popcorn tree, Cassia excelsa, golden shower tree or Archibald’s cassia.
- The plant has become an invasive alien species in parts of Africa such as Kenya, Malawi, Tanzania and Uganda, and also in South India after it was introduced for resources such as firewood as well as to help combat deteriorating ecosystems affected by deforestation and desertification.
- Currently, spectabilis is overtaking native tree species of forestry ecosystems worldwide because of its ability to grow quickly.