Daily Prelims Notes 1 September 2020

September 1, 2020
Posted by: OptimizeIAS Team
Category: DPN

Table Of Contents

Subject: Economy

Context:

According to data released by the National Statistical Office, India’s GDP growth rate contracted by 23.9% for the April to June quarter.

Concept:

The contraction reflects the severe impact of the COVID-19 lockdown, which halted most economic activities, as well as the slowdown trend of the economy even pre-COVID-19.
Economists expect this to contribute to a contraction in annual GDP this year, which may be the worst in the history of independent India.
The Indian economy is in a deeply vicious cycle, where demand is contracting so heavily, while the capacity to neutralise this contraction has also contracted equally because of the tax revenue contraction.
Last contraction of the economy occurred in 1979-80, when GDP shrank 5.2%. There have been four other instances of minor contraction between 1965-68, and 1972-73.
India is among the worst in countries severely impacted by the Covid-19pandemic, an analysis of GDP number across major economies has shown.
While China, which many believe to be the epicentre of the Covid-19 outbreak, announced a surprise 3.2 per cent growth in its GDP during this quarter compared to the same period last year, others like the UK and Germany witnessed a contraction. For the April-June period, the UK took a 20.4 per cent hit in its GDP, while Germany experienced a “record” 10.1 per cent contraction.

2. Rare RetaiChola era inscription

Subject: History

Context:

A rare inscription dating back to the RenatiChola era has been unearthed in a remote village of Kadapa district of Andhra Pradesh

Concept:

The inscription was written in archaic Telugu, which was readable in 25 lines — the first side with 11 lines and the remaining on the other side.
It was assigned to the 8th Century A.D., when the region was under the rule of the Chola Maharaja of Renadu.
The inscription seems to throw light on the record of a gift of six marttus (a measuring unit) of land gifted to a person Sidyamayu, one of the Brahmins serving the temple at Pidukula village

3. Liquidity infusion by RBI

Subject: Economy

Context:

The Reserve Bank of India (RBI) has announced measures, including two more tranches of ‘Operation Twist’ aggregating Rs 20,000 crore and term repo operations aggregating Rs 1 lakh crore in September
RBI has also decided to allow banks to hold fresh acquisitions of statutory liquidity ratio (SLR) securities acquired from September 1, 2020, under Held-To-Maturity (HTM) up to an overall limit of 22 per cent of net demand and time liabilities (NDTL) up to March 31, 2021

Concept:

Operation Twist

The tool essentially aims at changing the shape of the yield curve (hence the name — twist) through simultaneous buying and selling of long- and short-term government bonds.
In India, at first, the RBI put through its version of Operation Twist by buying ₹10,000 crore worth of 10-year government bonds while selling four shorter-term government bonds adding up to the same value.
The intent is to moderate high long-term interest rates in the market and bring them closer to the repo rate.
History of Operation Twist: In 1961, the John F Kennedy administration proposed a solution to revive the weak economy through lower longer-term interest rates while keeping short-term interest rates unchanged. This initiative is now known as ‘Operation Twist’ which was employed by the US Fed.

Yield Curve:

A yield curve is a graph of interest rate on all government bonds ranging from the short-term debt (one month) to long-term debt (could be high as 30 years).
Typically, the short term bond has lower interest rate compared with the long-term bond reflecting the higher perceived risk of the latter. Hence a graph of the interest rate of the short-term bond and longer-term will be an increasing line chart. This in technical parlance is called an upward sloping curve.

Term repo operations

The LTRO is a tool under which the central bank provides one-year to three-year money to banks at the prevailing repo rate, accepting government securities with matching or higher tenure as the collateral.
While the RBI’s current windows of liquidity adjustment facility (LAF) and marginal standing facility (MSF) offer banks money for their immediate needs ranging from 1-28 days, the LTRO supplies them with liquidity for their 1- to 3-year needs.
LTRO operations are intended to prevent short-term interest rates in the market from drifting a long way away from the repo rate.

Statutory liquidity ratio (SLR)

Apart from Cash Reserve Ratio (CRR), banks have to maintain a stipulated proportion of their net demand and time liabilities in the form of liquid assets like cash, gold and unencumbered securities.
Treasury bills, dated securities issued under market borrowing programme and market stabilisation schemes (MSS), etc also form part of the SLR.
Banks have to report to the RBI every alternate Friday their SLR maintenance, and pay penalties for failing to maintain SLR as mandated.

4. Pangong Tso

Subject: Geography

Context:

Indian Army thwarted an attempt by China to change the status quo near the Line of Actual Control (LAC) by deploying its troops to a previously un-deployed area on the southern bank of the Pangong Tso Lake in eastern Ladakh.

Concept:

Pangong Tso is an endorheic lake (landlocked) that is partly in India’s Ladakh region and partly in Tibet.
Nearly two-thirds of the lake is controlled by China, with just about 45 km under Indian control. The LAC, running north-south, cuts the western part of the lake, aligned east-west.
Situated at an elevation of about 4,270 m, it is a nearly 135-km long, narrow lake — 6 km at its widest point — and shaped liked a boomerang
The lake’s water, while crystal clear, is brackish, making it undrinkable. The lake freezes during the winter, allowing some vehicular movement on it as well

5. Stimulus

Subject: Economy

Context:

The official estimates of GDP data for April-June revealing the extent of damage the pandemic on the economy which necessitates the second round of fiscal stimulus targeted at the poor.

Concept:

Economic stimulus is action by the government to encourage private sector economic activity by engaging in targeted, expansionary monetary or fiscal policy based on the ideas of Keynesian economics.
Economic stimulus is commonly employed during times of recession.
Policy tools often used to implement economic stimulus include lowering interest rates, increasing government spending, and quantitative easing, to name a few.

6. Baltic states

Subject: IR

Context:

Baltic states issue travel ban on Belarus President Lukashenko

Concept:

Baltic states, northeastern region of Europe containing the countries of Estonia, Latvia, and Lithuania, on the eastern shores of the Baltic Sea

7. Agriculture GDP, LaNina

Subject: Economy/ Geography

Context:

April-June 2020 is the third straight quarter where the country’s farm sector output has grown at a higher rate than overall GDP in “real” terms

Concept:

The latest quarterly estimates of GDP released by the National Statistical Office (NSO) shows that the gross value added (GVA) from agriculture, forestry & fishing grew by 3.4 per cent at constant prices in April-June 2020 over April-June 2019.
This was as against a 22.8 per cent year-on-year decline in overall real GVA for the quarter.
GVA is basically GDP net of all indirect taxes and subsidies on goods and services.
With the southwest monsoon rainfall being 9.8 per cent above normal during June-August and kharif acreages 8.6 per cent higher than last year – the probability of a developing ‘La Nina’ bodes well for the coming rabi crop as well – agricultural growth is set to be buoyant in the rest of the fiscal as well.

ENSO:

ENSO is one of the most important climate phenomena on Earth due to its ability to change the global atmospheric circulation, which in turn, influences temperature and precipitation across the globe.
Though ENSO is a single climate phenomenon, it has three states, or phases, it can be in. The two opposite phases, “El Niño” and “La Niña,” require certain changes in both the ocean and the atmosphere because ENSO is a coupled climate phenomenon.
El Niño: A warming of the ocean surface, or above-average sea surface temperatures (SST), in the central and eastern tropical Pacific Ocean. Over Indonesia, rainfall tends to become reduced while rainfall increases over the tropical Pacific Ocean. The low-level surface winds, which normally blow from east to west along the equator (“easterly winds”), instead weaken or, in some cases, start blowing the other direction (from west to east or “westerly winds”).
La Niña: A cooling of the ocean surface, or below-average sea surface temperatures (SST), in the central and eastern tropical Pacific Ocean. Over Indonesia, rainfall tends to increase while rainfall decreases over the central tropical Pacific Ocean. The normal easterly winds along the equator become even stronger.

Neutral: Neither El Niño or La Niña. Often tropical Pacific SSTs are generally close to average.

8. Priority Sector Lending Certificates

Subject: Economy

Concept:

Priority Sector Lending Certificates (PSLCs) are instruments that enable banks to achieve their priority sector lending targets without actually disbursing loans to sectors outside their comfort zone.
PSL certificates allow banks sitting on surplus loans to a priority sector to sell certificates to banks that haven’t met their targets, pocketing a sizeable fee for this trade. The said loans however do not change hands.
The RBI mandates banks to lend a minimum of 40 per cent of their total loans to priority sectors such as agriculture, education, social housing, and micro enterprises.
Aside from the overall target, banks are also required to meet sub-targets within this, such as 18 per cent towards agriculture (8 per cent for small and marginal farmers), 7.5 per cent for micro enterprises and 10 per cent for weaker sections.
While banks almost always meet the overall target, keeping up with the sub-targets was getting difficult for banks with limited expertise in certain sectors. Also, banks were sceptical about operating out of their niche, fearing poor loan judgments and dents to their profits.
Earlier, in the event of a shortfall in any specific category, banks had to make good this shortfall by either buying out such priority sector loans from other banks or had to pay a penalty to the Rural Infrastructure Development Fund (RIDF).
However, from April 2016 onwards, the RBI launched an online trading platform — the PSLC platform — to allow banks to trade in PSLCs to meet the sectoral sub-targets. Rather than offering fresh loans, banks were only required to hold PSLCs reflecting lending by others.

9. Core sector

Subject: Economy

Context:

According to data released by the Commerce and Industry Ministry, ‘fertiliser’ was the only core sector industry to record an increase in July at 6.9 per cent (1.5 per cent in July 2019).

Concept:

All the other segments reported a contraction in July — steel (-16.4 per cent), refinery products (-13.9 per cent), cement (-13.5 per cent), natural gas (-10.2 per cent), coal (-5.7 per cent), crude oil (-4.9 per cent) and electricity (-2.3 per cent).
The eight core industries included are- Coal, Crude oil, Natural Gas, Petroleum refinery products, Fertilizer, Cement, Steel, and Electricity generation.
These eight industries comprise 40.27% of the weight of the items included in the Index of Industrial Production.
These industries have a major impact on general economic activities and also industrial activities. They significantly impact most other industries as well. The core sector represents the capital base of the economy