Daily Prelims Notes 12 August 2024

Daily Prelims Notes

12 August 2024

Table Of Contents

1. Inflation Targeting and Monetary Policy Committee (MPC) Debates
2. Overview of the Google Monopoly Antitrust Case and Its Impact on Consumers
3. Allegations Against SEBI Chief Madhabi Puri Buch and the Adani Group
4. Cold War nuke tests light up problem with present-day climate models
5. How Centre’s Clean Plant Programme plans to boost production of fruits
6. Tungabhadra Reservoir crest gate washed away; flood alert issued

1. Inflation Targeting and Monetary Policy Committee (MPC) Debates

Sub: Eco

Sec: Monetary Policy

Repo Rate Debate:

• The repo rate has remained at 6.5% for an extended period, leading to a significant difference of opinion within the Monetary Policy Committee (MPC).
• Arguments for Rate Reduction: Proponents argue that high interest rates hamper investment by making capital more expensive. However, there is no substantial evidence to support this claim, as historical data shows that high rates have not hindered borrowing, nor have extremely low rates boosted borrowing.
• Consumer Price Index (CPI) and Food Products:
  • The CPI is heavily weighted towards food products, which are not significantly influenced by interest rates.
  • There is a suggestion to overhaul the index composition by reducing the weightage of food products, potentially leading to lower headline inflation.
• Core Inflation:
  • Core inflation excludes food and fuel items, and with current core inflation at about 3%, this strengthens the argument for cutting the repo rate.
  • Industry favors lower interest rates and often supports the emphasis on core inflation over headline inflation.
• RBI Governor’s Stance on Headline Inflation:
  • The RBI Governor has clarified that food inflation cannot be ignored, as it can influence core inflation, which in turn affects headline inflation.
  • Globally, central banks generally target headline inflation rather than core inflation.
• Historical Analysis of Core and Non-Core Inflation:
  • Over the last 14 years, the average inflation in India was 5.9%, with core inflation averaging 5.8% and non-core inflation at 6%.
  • Core inflation has been above 4% for 89% of the months and above 5% for 61% of the time. In contrast, food inflation shows more volatility, being below 4% about 31% of the time and above 6% almost half the time.
• Price Volatility:
  • Food inflation is subject to supply shocks, which cause significant price volatility. In contrast, core inflation is more stable, as companies rarely reduce the prices of goods and services.
• Inflation Target and Band:
  • The median value of core inflation is around 5.1%, while non-core inflation is 5.7% and headline inflation is 5.4%.
  • There is a case for revising the inflation target from 4% to around 5% with a narrower band of 100 basis points (bps) instead of the current 200 bps.
  • The current band of 50% on either side of the 4% target is considered wide and difficult to interpret for the markets, suggesting a narrower band could be more effective.

2. Overview of the Google Monopoly Antitrust Case and Its Impact on Consumers

Sub: Eco

Sec: National Income and Indian economy

• Background of the Case:
  • Google lost a major antitrust case on August 5, 2023, brought against it by the U.S. Department of Justice (DOJ).
  • The DOJ aimed to prove that Google held a monopoly in the web search and advertising sectors.
  • The 10-week-long trial saw testimonies from high-profile tech leaders, including Google CEO Sundar Pichai and Microsoft CEO Satya Nadella.
  • The lawsuit accused Google of using its dominant position in the search engine market to eliminate competition and maintain a monopoly, specifically through exclusive deals with handset makers.
• Ruling by the Court:
  • U.S. District Judge Amit Mehta ruled that Google was a monopolist and had acted to maintain its monopoly, violating Section 2 of the Sherman Act.
  • Google’s search dominance was largely attributed to exclusive distribution agreements with browser developers, mobile device manufacturers, and wireless carriers, ensuring that Google was the default search engine.
  • In 2021, Google spent more than $26 billion on these exclusive contracts.
  • The court found that Google had charged supra-competitive prices for general search text ads, allowing it to earn monopoly profits.
  • However, the court also ruled in favor of Google on certain aspects, determining that it did not have monopoly power in the search advertising market and was not liable for actions related to its advertising platform.
• Impact of Monopolistic Practices on Consumers:
  • Monopolies can harm consumer experience by forcing rivals out of the market, giving the dominant company the power to abuse customers due to limited alternatives.
  • Such companies lose the incentive to continuously improve the quality of their products.
  • The court noted that Google’s indifference to quality degradation was a risk, as the company believed it would not lose search revenue even if the quality of its search product was reduced. This is indicative of monopoly power.
• Response from the U.S. DOJ:
  • The DOJ hailed the ruling as a victory for internet users in the U.S.
  • Attorney General Merrick B. Garland stated that the ruling is a historic win, emphasizing that no company is above the law.
  • The DOJ is also collaborating with the U.S. Federal Trade Commission (FTC) to address antitrust concerns involving other large tech players like Microsoft, OpenAI, and Nvidia.
• What Happens Next?
  • Google plans to appeal the ruling.
  • Both parties, Google and the DOJ, have been asked to find a remedy before meeting with Judge Mehta on September 9. The remedy could range from breaking up Google to ending its exclusive deals with mobile makers.
  • If the exclusive deals end, handset makers could lose billions of dollars received from Google to pre-load its search engine. This could disincentivize companies like Apple from developing a rival search engine.
  • The DOJ is also pursuing another antitrust trial against Google, focused on its ad technology.

Monopoly

• Monopoly refers to a market structure where a single company or entity exclusively controls a particular product or service, dominating the entire market with little to no competition.
• Key Characteristics of a Monopoly:
  • Single Seller: The monopolist is the sole provider of the good or service.
  • No Close Substitutes: The product or service offered by the monopolist has no close substitutes, making it unique in the market.
  • High Barriers to Entry: There are significant obstacles preventing other firms from entering the market, such as high startup costs, legal restrictions, or control over essential resources.
  • Price Maker: The monopolist has the power to set prices, as they face no competition. Consumers have no alternative but to pay the price set by the monopolist.

Factors Behind the Generation of a Monopoly

• Control of Key Resources:
• Government Regulation and Licensing:
• Economies of Scale:
• Technological Superiority:
• Network Effects:
• Aggressive Business Tactics:
• Natural Monopoly:
• Brand Loyalty:
• Intellectual Property Rights:

Detection of Variation in Nitrogen Use Efficiency Among Rice Varieties by Biotechnologists

• Study Overview:
  • Biotechnologists discovered significant variation among popular rice varieties in India regarding their ability to utilize nitrogen efficiently.
  • This discovery is critical for developing newer rice varieties that can use less nitrogen while maintaining high yields, leading to reduced dependency on imported fertilizers and lowering nitrogen-linked pollution.
• Nitrogen Use Efficiency (NUE):
  • NUE refers to the yield of a crop relative to the amount of nitrogen (both natural and artificial) available to it.
  • The study identified that the best-performing rice varieties had NUEs five times higher than the least efficient varieties. However, a high NUE does not necessarily translate to the highest yields, which are often preferred by farmers.
• Impact of Poor NUE:
  • Cereals, particularly rice, consume two-thirds of all urea in India. Poor nitrogen use efficiency results in the wastage of nitrogen fertilizers worth approximately ₹1 trillion annually in India and over $170 billion globally.
  • Nitrogen fertilizers are a major source of nitrous oxide and ammonia pollution in the air, as well as nitrate/ammonium pollution in water, impacting health, biodiversity, and contributing to climate change.
• Agricultural Focus and Challenges:
  • Historically, the focus of Indian agriculture has been on increasing yield, especially during the Green Revolution. This approach led to increased use of synthetic fertilizers, resulting in more wastage and pollution.
  • Despite India having tens of thousands of rice varieties, only a few are extensively studied as part of agricultural research. To develop crops with better NUE and yields, a broader approach is required.
• Future Directions and Biotechnological Improvements:
  • Some improvements in NUE can be achieved through better fertilizer formulations, legume-based crop rotations, and improved crop management practices.
  • However, there is now an urgent need to focus more on improving the crop itself using biotechnology. This will help develop rice varieties that are both high-yielding and have improved NUE.

3. Allegations Against SEBI Chief Madhabi Puri Buch and the Adani Group

Sub: Eco

Sec: Monetary Policy

• Allegations by Hindenburg Research:
  • Hindenburg Research, a U.S.-based short-seller, alleged that SEBI Chief Madhabi Puri Buch and her husband held investments in offshore funds connected to the Adani Group.
  • These funds were allegedly used for trading in shares of the Adani Group, raising concerns about a potential conflict of interest.
• Buch’s Denial:
  • Buch denied the allegations as baseless, asserting that her investments were made in 2015, before her tenure at SEBI.
  • She emphasized that all necessary disclosures have been diligently followed.
• Details of the Allegations:
  • Hindenburg claims that the Buchs invested in a sub-fund of the Global Opportunities Fund, allegedly used by Adani Group associates.
  • In 2017, Buch’s husband reportedly became the sole operator of the account, and in 2018, Buch sought to redeem the entire investment.
  • The fund’s asset manager clarified that the Buchs’ holdings were less than 1.5% of the fund’s total inflow and that the fund did not invest in Adani shares.
• Adani Group’s Response:
  • The Adani Group dismissed the allegations, labeling them as “red herrings” meant to malign their reputation.
  • The group emphasized that their overseas holding structure is fully transparent.
• Political Repercussions:
  • India’s opposition parties have used the allegations to demand a parliamentary investigation, particularly concerning the ongoing SEBI inquiry into the Adani Group.
  • The Congress party called for an inquiry to ensure that all conflicts of interest are eliminated in SEBI’s investigation.
• Historical Context:
  • In January 2023, Hindenburg released a report accusing the Adani Group of improper use of tax havens and stock manipulation, leading to a significant sell-off in Adani shares.
  • The current allegations are seen as an extension of the previous concerns raised against the Adani conglomerate.

What is Sebi, and what are its functions?

• The Securities and Exchange Board of India, or Sebi, is expected to protect investor interests, promote the development of the securities market, and regulate it under the Sebi Act, 1992
• Sebi has the authority to make rules, enforce them, and also adjudicate disputes under the Sebi Act, Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996, the Companies Act, 2013 and others.
• Sebi works for the development and regulation of the securities market in India, ensuring investor protection through awareness programmes, financial literacy initiatives, and addressing investor grievances.
• Sebi also works on global securities standards as part of the International Organization of Securities Commissions (IOSCO).

Offshore funds

Offshore funds are investment funds that are established outside of an investor’s home country. These funds are typically domiciled in a jurisdiction with favorable tax laws, regulatory environments, and confidentiality policies. Offshore funds can include various types of investments, such as mutual funds, hedge funds, private equity funds, and exchange-traded funds (ETFs).

Key Features of Offshore Funds:

• Location:
  • Offshore funds are typically based in countries or regions known as tax havens, such as the Cayman Islands, Bermuda, Luxembourg, Mauritius, and the British Virgin Islands. These locations offer favorable tax treatment and flexible regulatory environments.
• Tax Efficiency:
  • One of the primary reasons for establishing offshore funds is to take advantage of tax benefits. Investors may be able to defer taxes on gains until they repatriate the funds or benefit from lower tax rates in the offshore jurisdiction.
• Confidentiality:
  • Offshore jurisdictions often have strict confidentiality laws, which can provide privacy for investors. This can be particularly appealing to high-net-worth individuals and institutional investors who want to keep their investments private.
• Regulatory Flexibility:
  • Offshore funds may be subject to less stringent regulations compared to onshore funds. This can provide fund managers with greater flexibility in terms of investment strategies, leverage, and the types of assets they can hold.
• Access to Global Markets:
  • Offshore funds provide investors with opportunities to diversify their portfolios by investing in global markets, including emerging markets, real estate, commodities, and other alternative assets.
• Investment Strategies:
  • Offshore funds are often associated with complex and sophisticated investment strategies, such as arbitrage, derivatives trading, and other forms of active management. These strategies can offer higher returns but also come with higher risks.

4. Cold War nuke tests light up problem with present-day climate models

Sub: Sci

Sec: Nuclear energy

Context:

• A study by an international team of researchers, recently published in the journal Science, suggests plants absorb more carbon dioxide from the atmosphere than expected and also store it for a shorter duration, before releasing it into their surroundings.

Findings

• The researchers investigated the remains of nuclear bomb tests the U.S. and the Soviet Union conducted in the 1960s (cold war era) using climate models.
• Relics of the Cold War: The explosions sprayed radioactive material around the planet, including a lot of it in the atmosphere.
• One of them was carbon-14, an isotope also called radiocarbon.
  • Its atom’s nucleus has two neutrons more than in the nucleus of the more common carbon-12.
  • Radiocarbon is naturally found in minute quantities, but the nuclear bomb tests steadily deposited more and more of it in the atmosphere.
• In 1963, Cold War powers signed the Limited Test Ban Treaty (LTBT) that prohibited nuclear testing over land, air, and under water.
• The atmospheric radiocarbon concentration stopped increasing beyond this year.

How Radiocarbon affects plants?

• Often, radiocarbon bonds with oxygen to form CO₂.
• Plants, trees, and other vegetation absorb this CO₂during photosynthesis to produce food and, ultimately, energy.

Carbon stored in Plants

• Plants absorb CO₂from the atmosphere during photosynthesis and use it to make glucose. A plant consumes some of the glucose, and some it stores as starch in its leaves.
• In this process, some carbon is also lost when the plant exhales CO₂as it respirates.
• Scientists don’t have a direct way to measure the rates at which vegetation loses and gains carbon. But they have been able to use satellite data to estimate how much carbon vegetation around the world hosts.
• The researchers behind the new study used climate models to estimate the amount of carbon stored in vegetation around the planet in a year.
• Previous studies had shown this value to be at least 43–76 billion tonnes of carbon per year worldwide.
• But new study says it could be around 80 billion tonnes per year, with most of the carbon being stored in leaves and finer roots, i.e., the non-woody parts of the plant.

‘The whole system is cycling faster’

• If the higher value of 80 billion tonnes per year is accurate, plants must also be shedding their carbon sooner than thought.
• The whole system of carbon cycling faster than we thought before, says the team.

Radioactive representation

• scientists say that radiocarbon needs to be better represented in climate predictions.

5. How Centre’s Clean Plant Programme plans to boost production of fruits

Sub: Schemes

Sec: Agri

Context:

• The Union Cabinet has approved the Clean Plant Programme (CPP), aimed at increasing the yield and productivity of horticulture crops in India.
• It also targets to enhance the quality of fruit crops across the nation.
• The Clean Plant Programme is set to significantly boost India’s horticultural sector while aligning with Mission LiFE and the One Health initiatives. It will promote sustainable and eco-friendly agricultural practices and reduces dependence on imported planting materials. This programme will be a crucial step toward establishing India as a leading global exporter of fruits and driving transformative change across the sector.
• This programme will be implemented by the National Horticulture Board in association with Indican Council of Agricultural Research (ICAR).

How will the CPP work?

• The programme has three main components geared towards helping farmers obtain virus-free, high-quality planting material:
  1. Development of nine Clean Plant Centers (CPCs) which will provide disease diagnostics and therapeutics, create mother plants to be sent to nurseries, and quarantine all domestic and imported planting materials intended for commercial propagation and distribution;
  2. Enhancement of infrastructure, including the development of large-scale nurseries to facilitate the efficient multiplication of clean planting material – the mother plants obtained from the CPCs will be multiplied in nurseries and distributed to farmers;
  3. Creation of regulatory and certification process to ensure thorough accountability and traceability in the production and sale of planting material.

Key Benefits of the Clean Plant Programme (CPP):

Farmers: The CPP will provide access to virus-free, high-quality planting material, leading to increased crop yields and improved income opportunities.

Nurseries: Streamlined certification processes and infrastructure support will enable nurseries to efficiently propagate clean planting material, fostering growth and sustainability.

Consumers: The initiative will ensure that consumers benefit from superior produce that is free from viruses, enhancing the taste, appearance, and nutritional value of fruits.

Exports: By producing higher-quality, disease-free fruits, India will strengthen its position as a leading global exporter, expanding market opportunities and increasing its share in the international fruit trade.

The Programme will prioritize affordable access to clean plant material for all farmers, regardless of their landholding size or socioeconomic status.

The Programme will actively engage women farmers in its planning and implementation, ensuring their access to resources, training and decision-making opportunities.

The Programme will address the diverse agro-climatic conditions across India by developing region-specific clean plant varieties and technologies.

What is the need for the CPP?

• India is the second largest producer of fruits and vegetables in the world after China.

• India is also a major importer and exporter of fresh fruits. In the financial year 2023-24, India exported fresh fruits worth $1.15 billion, while it imported fruits worth $2.73 billion.
• With the rising consumption of fruits in the country, demand has specifically increased for planting materials of foreign apples, and “exotics” such as avocado and blueberry.
• At present, the process of importing plants is very cumbersome, with imported plants having to be kept in quarantine for two years.
• The CPCs will cut this period down to six months, and thus make it easier for farmers to access disease free and genuine planting material for horticultural crops in India.

6. Tungabhadra Reservoir crest gate washed away; flood alert issued

Sub: Geo

Sec: Indian Physical Geo 

Context:

• A crest gate of the Tungabhadra reservoir, near Hospete, in Vijayanagara district of Karnataka was washed away recently, raising fears of floods downstream.

Details

• After the chain link of crest gate 19 was broken and the gate was washed away in the current, the remaining 32 crest gates were opened to reduce the pressure on the broken gate. The discharge gradually increased and reached one lakh cusecs on Sunday morning.
• Prohibitory orders were issued to prevent people from venturing into the reservoir and the river’s banks.
• Several monuments at the World Heritage Site of Hampi are likely to be flooded if the slipway discharge crosses 2 lakh cusecs.

Tungabhadra Reservoir/Dam

• Tungabhadra dam also known as Pampa Sagar is a multipurpose dam built across Tungabhadra River in Karnataka.
• The Tungabhadra reservoir, along with the Mullaperiyar dam in Kerala, holds the unique distinction of being the only two reservoirs in India that were built using a combination of mud and limestone materials.

Tungabhadra River

• Largest tributary of river Krishna
• The river Tungabhadra derives its name from two streams viz., the Tunga, about 147 km (91.6 miles) long and the Bhadra, about 178 Km (110.9 miles) long which rise in the Western Ghats. The river after the influence of the two streams near Shimoga, runs for about 531 Km (330 miles) till it joins the river Krishna at Sangamaleshwaram in Andhra Pradesh. It runs for 382 Km (237 miles) in Karnataka, forms the boundary between Karnataka and Andhra Pradesh for 58 Km (36 miles) and further runs for the next 91 Km (57 miles) in Andhra Pradesh. The total catchment area of the river is 69,552 Sq Km (26,856 Sq miles) up to its confluence with Krishna and it is 28,177 Sq Km (10,880 Sq miles) up to Tungabhadra Dam.
• It is influenced chiefly by the South-West monsoon.
• It is a perennial river but the summer flows dwindle to as low as 2.83 to 1.42 cumec (100 to 50 cusec).
• Major tributaries are Bhadra, Vedavati, Tunga and Varda
• The ancient name of the river was Pampa, and it finds mention in the Ramayana. The river is considered sacred by Hindus.
• Hampi, a UNESCO World Heritage site is located on the banks of the river.
• Virupaksha temple is also located on the banks of river Tungabhadra.