Daily Prelims Notes 17 April 2024

Daily Prelims Notes

17 April 2024

1. What is Israel’s multi-layered air defense system, which helped thwart Iran’s attacks?

Subject: Science and tech

Sec: Defence

Context:

• Israel’s multi-layered air defense system has defended the country from a major attack, with Iran launching over 300 armed drones and long-range missiles launched towards it on Saturday night (April 13).

How does the Israeli air defense system work?

• Israel’s air defense system is meant to provide multi-layered defenses against a range of aerial threats, which includes aircraft, cruise and ballistic missiles as well as unmanned aerial vehicles (UAVs). 
• While cruise missiles fly at a low distance from the ground, ballistic missiles follow a parabolic trajectory.
• It includes systems such as Arrow 2 and Arrow 3, David’s Sling (Stunner), Iron Dome, Patriot Advanced Capability-2, PAC-3 and advanced fighter jets operated by the country’s air force.
• They are designed to counter specific threats and are integrated to work in tandem to provide a full-proof protection from projectiles.

What are the components of Israel’s defense system?

• The Arrow system is a family of anti-ballistic missiles, capable of intercepting long-range missiles.
• Developed in collaboration with the US, Arrow-2 can intercept ballistic missiles within the atmosphere.
• Arrow-3 has the capability of intercepting missiles outside the Earth’s atmosphere and it was employed to intercept long-range missiles launched by the Houthi militia in Yemen. The Houthis are believed to be backed by Iran.
• The David’s Sling (or Stunner) is Israel’s medium-range air defense system, which can intercept cruise missiles, ballistic missiles, and aircraft. With a range of 300 kilometers, it also has an advanced phased-array radar for easier detection.
• The Iron Dome is Israel’s indigenous short-range air defense system which can intercept rockets, artillery shells, and mortar bombs.
• With a 70 kilometer range, it has been effectively shooting down short-range threats such as rockets launched by Hamas.
• The US-made Patriot PAC-2 and PAC-3 are air defense systems that can intercept a range of missiles and target aircraft and drones.
• Counted as among the oldest air defense systems, they were employed during the First Gulf War in 1991 for intercepting Scud missiles launched by Iraq.
• The F-16 and F-35 fighter jets play a major role in air defense, being equipped with air-to-air missiles.
• Additionally, Israel is developing the Iron Beam to intercept incoming threats with laser technology.
• It is yet to be fully operational.

How has Israel responded to the Iranian attack?

• Israel’s air defense targets projectiles at the terminal stage, which is when they are about to strike.
• Air defense systems can also target projectiles at the source or when it is in transit. Ballistic missiles are easier to track since they have a standard parabolic trajectory, as compared to cruise missiles which can fox air defense systems due to their maneuverability.
• Israel deployed its air defense and its allies’ fighter jets were pressed into action to intercept incoming projectiles from different locations.
• The US military forces helped Israel take down several Iranian drones and missiles, while the UK’s Royal Air Force also helped shoot down drones launched by Iran. French jets from an air base in Jordan intercepted Iranian drones and missiles over Jordan’s air space.

2. Reforms needed in the voting process

Subject: Polity

Sec: Elections

Context:

• The Supreme Court has decided to hear petitions seeking 100% cross-verification of the Voter Verifiable Paper Audit Trail (VVPAT) slips with the vote count as per Electronic Voting Machines (EVMs).

What is the history of the voting process?

• In the first two general elections of 1952 and 1957, a separate box was placed for each candidate with their election symbol.
• Voters had to drop a blank ballot paper into the box of the candidate whom they wanted to vote for.
• Thereafter from the third election, the ballot paper with names of candidates and their symbols was introduced with voters putting a stamp on the candidate of their choice.

When were Electronic Voting Machines (EVMs) first introduced?

• The EVM was introduced on a trial basis in 1982 in the Assembly constituency of Paravur in Kerala.
• They were deployed in all booths during the Assembly elections of Tamil Nadu, Kerala, Puducherry and West Bengal in 2001.
• The Supreme Court in various judgments has upheld the validity of using EVMs in elections.
• In the 2004 general elections to the Lok Sabha, EVMs were used in all 543 constituencies.
• In Subramanian Swamy versus Election Commission of India (2013), the Supreme Court ruled that a paper trail is an indispensable requirement for free and fair elections.
• The 2019 elections had EVMs backed with 100% VVPAT in all constituencies.

What are international practices?

• Many western democracies continue to have paper ballots for their elections. 
• Countries like England, France, The Netherlands and the U.S. have discontinued the use of EVMs, for national or federal elections, after trials in the last two decades.
• In Germany, the Supreme Court of the country declared the use of EVMs in elections as unconstitutional in 2009.
• Some countries like Brazil, however, use EVMs for their elections. 
• Among our neighbors, Pakistan does not use EVMs. 
• Bangladesh experimented in a few constituencies in 2018 but reverted to paper ballots for the general elections in 2024.

What are the features of EVMs?

• EVMs bring significant benefits to the electoral process. 
• First, the EVM has virtually eradicated booth capturing by limiting the rate of vote casting to four votes a minute and thus significantly increasing the time required for stuffing false votes.
• Second, invalid votes that were a bane of paper ballots and also a bone of contention during the counting process have been eliminated through EVMs.
• Third, considering the size of our electorate which is close to one billion, the use of EVMs is eco-friendly as it reduces the consumption of paper.
• Finally, it provides administrative convenience for the polling officers on the day of the poll and has made the counting process faster and error-free.
• There are mechanisms to uphold the integrity of EVM and VVPAT processes. 
• These include random allocation of EVMs to booths before polls; conduct of a mock poll to display the correctness of EVMs and VVPAT before commencement of the actual poll; and the serial number of EVMs along with total votes polled shared with agents of candidates to verify the same at the time of counting of votes.

What have been the concerns raised by activists about EVMs?

• Despite its advantages, there have been doubts raised about the functioning of EVMs by various political parties and civil society activists from time to time.
• The most repeated allegation is that EVMs are susceptible to hacking as it is an electronic device.
• The ECI has time and again clarified that it is a standalone device like a calculator with no connectivity to any external device and hence free from any kind of external hack.
• The sample size for matching of the EVM count with VVPAT slips at present is five per assembly constituency/segment.
• This is not based on any scientific criteria and may fail to detect defective EVMs during counting.
• The present process also allows for booth-wise polling behavior to be identified by various parties that can result in profiling and intimidation.

What can be the way forward?

• The 100% use of VVPAT has enabled the voters to verify that their votes are ‘recorded as cast’. 
• 100% match of EVM count with VVPAT slips would be unscientific and cumbersome.
• The sample for matching of EVM count and VVPAT slips should be decided in a scientific manner by dividing each State into large regions as suggested by experts.
• In case of even a single error, the VVPAT slips should be counted fully for the concerned region and form the basis for results.

3. Gopi Thotakura to be the first Indian space tourist: What is space tourism?

Subject: Science and tech

Section: Space

Context:

• Entrepreneur and pilot Gopi Thotakura is set to become the first Indian to venture into space as a tourist on the NS-25 mission of Blue Origin — a company founded by Jeff Bezos, who is also the founder of Amazon.

More on news:

• According to media reports, in 2023, the space tourism market was valued at $848.28 million. 
• It is expected to grow to $27,861.99 million by 2032.
• Thotakura would be the second Indian to go into space.
• The first one was Wing Commander Rakesh Sharma, who flew to the Salyut 7 space station on a Soviet spacecraft in 1984.
• In September 2021, Space X’s Falcon 9 took four passengers to an altitude of 160 km where they spent three days orbiting the Earth.

What is space tourism?

• Space tourism is essentially a section of the aviation sector which seeks to provide tourists with the opportunity to become astronauts and experience space travel for recreational, leisure, or business purposes.
• There are two main types of space tourism, sub-orbital and orbital. 
• The sub-orbital spacecraft takes passengers just beyond the Kármán line — it lies nearly 100 kilometers above our heads and is considered to be the boundary between Earth’s atmosphere and outer space.
• The passengers get to spend a few minutes in outer space and then come back to Earth.
• The NS-25 mission, which Thotakura is a part of, is a sub-orbital mission. 
• Thotakura and his other crew members will be taken to outer space via New Shepard, a fully reusable suborbital launch vehicle developed specifically for space tourism by Blue Origin.
• The orbital spacecraft, on the other hand, takes passengers much further than the Kármán line. 
• Usually, passengers can spend from a couple of days to more than a week at an altitude of nearly 1.3 million feet.

What are the challenges?

• Currently, space tourism is expensive. 
• A passenger generally has to pay at least a million dollars to reach outer space. 
• This amount is out of reach for almost everyone.
• Several studies have pointed out that space tourism may lead to environmental damage as rockets emit gaseous and solid chemicals directly into the upper atmosphere.
• Soot emissions from rocket launches are far more effective at warming the atmosphere compared to other sources.
• Safety is also a concern when it comes to space tourism.
• Despite high safety standards, a total of 676 people have flown into space and 19 of them have died, as of November 2023.
• This means that approximately 3% of astronauts died during their space flight which is quite a high fatality rate.

4. Nine years after the green panel’s directions, the Yamuna floodplain is yet to be demarcated

Subject: Geography

Sec: Physical geo

Context:

• The physical demarcation of the Yamuna River’s floodplain in Delhi, which is essential for identifying and protecting this sensitive ecosystem, remains incomplete despite explicit court orders.

Details:

• Illegal constructions on the floodplain have increased since the NGT’s 2015 ruling.
• The encroachment on the Yamuna River’s floodplain has been escalating since the 1990s, with illegal colonies and various developmental projects like the Commonwealth Games Village, Yamuna Bank Metro Station, and Delhi Secretariat being built on the floodplain. 

Yamuna floodplain:

• The Yamuna floodplain was designated as a protected area free from construction in the Delhi Masterplan of 1962.
• The Central Ground Water Authority in 2000 also notified the floodplains as ‘protected’ for groundwater management.
• The South Asia Network on Dams, Rivers and People (SANDRP) in 2020 found large parts of the Yamuna floodplains and riverbed were “grossly abused” due to lax implementation: 23 bridges including rail, road, metro and barrages have been built; there was a bridge at every 800m.

‘Maili se Nirmal Yamuna (From Dirty to Clean Yamuna) Revitalisation Plan, 2017:

• Launched by the National Green Tribunal (NGT) in response to a 2015 judgement.
• Aimed at restoring the floodplain by March 31, 2017.
• Despite this initiative and the NGT’s stern warning about potential severe environmental disasters, the Delhi Development Authority (DDA) failed to meet the deadline for physically demarcating the entire floodplain and banned any construction in the demarcated areas, indicating continued non-compliance with environmental protections.

Delhi floods:

• After the severe floods of 2023, the National Green Tribunal (NGT) initiated action by forming a committee led by the Chief Secretary to address the issues of floodplain encroachment and demarcation in Delhi.
• This action was similar to directives issued eight years prior.
• The committee failed to meet this timeline citing difficulties such as inadequate maps and poor coordination between the Delhi Development Authority (DDA) and the Revenue Department.
• The NGT mandated a new flood risk measure for demarcation, instructing that the floodplain should be mapped considering a 100-year flood risk instead of the previous 25-year standard. This adjustment means a significantly larger area will now need to be designated as floodplain, complicating the demarcation process further.

Yamuna River:

• Yamuna River (also known as Jumna), is the major tributary of the Ganges River. 
• Origin: It rises in the high Himalaya, in the Yamunotri Glacier.
• Course: 
  • The 1,376 km long Yamuna flows solely through India, crossing three states: Uttarakhand, Uttar Pradesh and Haryana.
  • After rising in the high Himalayas, it flows in a southerly direction swiftly through the Himalayan foothills and, exiting Uttarakhand, onto the Indo-Gangetic Plain, along the border between Uttar Pradesh and Haryana state to the west. The Eastern and Western Yamuna canals are fed from the river at that point.
  • The Yamuna then passes Delhi, where it feeds the Agra Canal.
  • South of Delhi, and now wholly within Uttar Pradesh, it turns southeastward.
  • Near Prayagraj (Allahabad), after a course of about 855 miles (1,376 km), the Yamuna joins the Ganges (Ganga) River. The confluence of the two rivers is an especially sacred place to Hindus and is the site of annual festivals as well as the Kumbh Mela, which is held every 12 years.
• Tributaries:
  • Near Dehradun, the capital city of Uttarakhand, the Yamuna is joined by its biggest tributary, the Tons River.
  • The Chambal River is Yamuna’s biggest tributary on the right.
  • Other important tributaries of the Yamuna include the Hindon, Sarda and Giri rivers on the right and Betwa and Sindh on the left.

South Asia Network on Dams, Rivers and People (SANDRP)

• Started in 1998
• SANDRP is an informal network working on issues related to rivers, communities and large-scale water infrastructure like dams: their environmental and social impacts, their performance and issues related to the governance of rivers and dams.
• SANDRP work focuses on outreach, awareness generation, dissemination and advocacy. To take this work forward, your comments and suggestions are welcome.

Source: TH

5. NOAA, ICRI confirm fourth global mass coral bleaching event in 2023-2024

Subject: Geography

Sec: Oceanography

Context:

• The National Oceanic and Atmospheric Administration’s Coral Reef Watch (CRW) and the International Coral Reef Initiative (ICRI) have confirmed the fourth global mass coral bleaching event occurring between February 2023 and April 2024, impacting corals in 53 countries across five ocean basins.

Details:

• This event marks the second mass coral bleaching in the last decade, following a similar event from 2014 to 2017, and coincides with record ocean heat observed in 2023 and 2024.
• About 25% of all marine species rely on coral reefs at some point in their life cycle. The death of corals from bleaching affects these species and can lead to altered ecosystem dynamics as other organisms like algae take over.

What are Coral reefs?

• Corals are marine invertebrates or animals not possess a spine.
• Each coral is called a polyp and thousands of such polyps live together to form a colony, which grows when polyps multiply to make copies of themselves.
• Corals share a symbiotic relationship with single-celled algae called zooxanthellae.
• The algae provide the coral with food and nutrients, which they make through photosynthesis, using the sun’s light.
• In turn, the corals give the algae a home and key nutrients. The zooxanthellae also give corals their bright colour.
• Australia’s Great Barrier Reef is the world’s largest reef system stretching across 2,300 km.
• It hosts 400 different types of coral and gives shelter to 1,500 species of fish and 4,000 types of molluscs.

Coral Bleaching:

• Coral Bleaching happens when hard corals experience stress in their environment due to changes in temperature, pollution or high levels of ocean acidity.
• Under stressed conditions, the zooxanthellae or food-producing algae living inside coral polyps start producing reactive oxygen species, which are not beneficial to the corals.
• So, the corals expel the colour-giving zooxanthellae from their polyps, which exposes their pale white exoskeleton, giving the corals a bleached appearance.
• This also ends the symbiotic relationship that helps the corals to survive and grow.
• Factors contributing to the threat to coral reefs include increased sea surface temperatures, marine heatwaves, ocean acidification, and pollution.

Impact of rising sea-surface temperature:

• The World Meteorological Organization (WMO) reported that 2023 was the hottest year on record for both the atmosphere and oceans. Marine heatwaves affected nearly one-third of the global ocean daily in 2023.
• El Nino conditions, which began in July 2023, exacerbate sea warming and have historically been linked to periods of mass coral bleaching.
  • El Nino is the warmer-than-normal phase of the El Nino Southern Oscillation (ENSO) phenomenon in the equatorial Pacific Ocean.
  • It is generally responsible for higher-than-normal temperatures on the surface of seas in most of the global ocean basins.
  • During La Nina, which is the colder-than-normal phase of the ENSO, the exact opposite happens.
• Localised coral bleaching events have also been witnessed in recent La Nina years, showing the growing impact of general oceanic warming. This happened in the Great Barrier Reef, the largest coral reef off the coast of Australia, in 2020 and 2022, both La Nina years.
• Coral bleaching events are predicted to increase in frequency and severity, potentially becoming an annual occurrence by 2040-2050 according to recent climate models.
• The importance of long-term data on coral reef conditions was emphasized by experts, highlighting the need for continued monitoring and potentially innovative interventions to aid recovery and conservation efforts.

About the International Coral Reef Initiative (ICRI):

• Launched in 1994 by Australia, France, Japan, Jamaica, the Philippines, Sweden, Britain and the United States.
• Its members now include 45 countries that represent three-quarters of the world’s coral reefs.
• India is also a member country of this initiative.
• It is a global partnership between Nations and organizations which strives to preserve coral reefs and related ecosystems around the world.
• Its decisions are not binding on its members.
• The work of ICRI is regularly acknowledged in United Nations documents, highlighting the Initiative’s important cooperation, collaboration and advocacy role within the international arena.
• Objectives
  • Encourage the adoption of best practices in the sustainable management of coral reefs and associated ecosystems
  • Build capacity
  • Raise awareness at all levels on the plight of coral reefs around the world.

Source: DTE

6. Three new fish species spotted using tools in the Laccadive Sea

Subject: Environment

Sec: species in news

Context:

• Researchers have discovered that three fish species in the Laccadive Sea, off the southwest coast of India, demonstrate tool use, a cognitive behaviour previously considered rare among aquatic animals.

Details:

• The species, Jansen’s wrasse (Thalassoma jansenii), checkerboard wrasse (Halichoeres hortulanus), and moon wrasse (Thalassoma lunare), use coral structures as anvils to crack open the hard shells of sea urchins to access the edible parts inside.
• This finding marks the first documented instance of tool use for the Jansen’s and checkerboard wrasses, and a novel observation of the moon wrasse employing tools in the wild.
• This research contributes to the expanding evidence of tool use among animals, challenging the notion that such behaviours are less likely in species perceived as ‘less intelligent’, like fish.

Why do fish need tools?

• Researchers studying the burrowing sea urchin (Echinostrephus molaris) off the western coast of Kavaratti, Lakshadweep, inadvertently discovered that certain fish species use tools to prey on these urchins.
  • E. molaris like most sea urchins is covered in an armour of spines. It also has a hard skeleton called a test that protects its internal organs, making it difficult for fish with unspecialised mouth parts to prey on it.
• The sea urchins, which erode reef structures by digging burrows, have a hard external skeleton and spine armour that protect them from most predators.
• To identify natural predators that could help regulate the urchin population, researchers set up underwater cameras on the reef. These cameras captured footage of Jansen’s wrasse, checkerboard wrasse, and moon wrasse using nearby coral as anvils to break open the tough urchin shells, similar to cracking a walnut.
• This tool use was mostly recorded autonomously by the cameras, although some instances were observed directly by the researchers.

How did the wrasses use tools?

• The three species of wrasses studied—Jansen’s wrasse, checkerboard wrasse, and moon wrasse—exhibit specialized tool-using behaviours to consume burrowing sea urchins, despite not having specialized mouthparts like the archer fish, which uses water jets to hunt. The wrasses face two main challenges: navigating the sea urchin’s venomous spines and breaking through its hard external shell (test).
  • To address these challenges, the wrasses first skillfully flip the urchin to expose its softer, less spiny underside. They then pick up the urchin in their jaws and use nearby hard coral as an anvil. By striking the urchin against the coral, they first remove the dangerous spines and then crack open the hard shell.
• This method allows the wrasses to access and consume the edible parts inside the urchin.
• Through these actions, the wrasses effectively use the coral reef as a multifunctional tool to manage the physical barriers presented by their prey.

Why does finding matter?

• The discovery of tool use among three species of wrasses in the Labridae family underscores an intriguing pattern observed in a limited number of fish species globally.
• While tool use has been documented in about 18 fish species, all from the Labridae family, these species demonstrate varied prey preferences, methods of handling prey, and geographic distributions.
• This raises questions about why such tool-use behaviours are predominantly found within this specific family. Is it related to brain size, similar to observations in primates, or is it due to a lack of sufficient observations in other fish families?
• The findings from this study highlight the importance of continued and rigorous natural observations.
• As researchers spend more time observing marine environments, they increasingly encounter tool-use behaviours among fish, often serendipitously.
• Documenting these behaviours is vital for understanding broader ecological and evolutionary questions, such as fish habitat use, the development of animal intelligence, and dynamics in predator-prey relationships. 
• This research not only contributes to our understanding of fish behaviour but also emphasizes the need for comprehensive documentation to enhance our knowledge of marine life.

7. Impact of Imported Inflation on Goods and services

Subject: Economy

Sec: Inflation

Imported inflation refers to the increase in prices of goods and services within a country caused by a rise in the price or cost of imports into that country.

Effect on Local Prices:

A rise in input costs for producers, due to higher import costs, leads them to increase the prices they charge local customers. This rise in prices for imported goods can boost inflation within the economy.

Factors Affecting Imported Inflation:

Fall in the Rupee (Currency Depreciation):

• The depreciation of a country’s currency is a significant factor in imported inflation.
• When a currency depreciates, it means more local currency is needed to purchase foreign currency for imports.
• This leads to higher costs for imported goods, translating to higher prices for consumers.
• For instance, a rise in interest rates in Western countries can cause the rupee to depreciate, increasing import costs for India.

Rise in Import Costs (Even without Currency Depreciation):

• Increased international prices of commodities like crude oil can raise import costs.
• This rise in costs for imported raw materials or goods can lead to inflation in sectors reliant on imports.

Cost-Push Inflation Concept:

• Imported inflation is a form of cost-push inflation, where rising costs of inputs lead to higher prices of final goods and services.

Critics’ View on Imported Inflation:

• Input Costs vs. Consumer Prices:
  • Critics argue that the idea that rising import costs lead to higher inflation is flawed.
  • They suggest that while businesses may raise prices when costs rise, it’s ultimately consumer demand that determines prices.
  • Prices of final goods and services are set based on what consumers are willing to pay, not just the cost of inputs.
• Imputation of Value:
  • Austrian economist Carl Menger’s concept, elaborated in 1871, explains this process.
  • Value is imputed backward from final consumer goods to the inputs used to produce them.
• Currency Depreciation and Demand:
  • Even when a currency depreciates, leading to higher import costs, it reflects a change in nominal demand for imports.
  • The rise in import costs due to currency depreciation is seen as a reflection of higher consumer demand for imported goods.

Conclusion:

• While imported inflation is influenced by factors such as currency depreciation and rising import costs, its impact on local prices ultimately depends on consumer demand.
• The relationship between input costs, currency values, and final consumer prices is complex, with consumer demand playing a central role in determining the prices of goods and services within an economy.

Imported Inflation in India

Definition:

• Imported inflation occurs when the general price level rises in a country due to the increase in prices of imported goods and commodities.
• In India, two significant contributors to imports are Crude Oil and Gold, and their price increases can lead to a rise in the country’s import bill.

Factors Affecting Imported Inflation:

• Crude Oil Prices:
  • The global outlook for crude oil prices is expected to affect India’s imported inflation.
  • Dull global growth prospects may keep crude oil prices stable, reducing the impact on imported inflation.
• Gold Prices:
  • Higher demand for gold can push its prices higher, impacting India’s import bill and potentially leading to imported inflation.
• Currency Depreciation:
  • When the domestic currency, like the Indian Rupee, depreciates against foreign currencies, it raises the rupee cost of imported items.
  • For instance, a 20% depreciation of the rupee against the US dollar means that the cost of imported products also increases by the same proportion.

In conclusion, imported inflation in India is influenced by various factors such as changes in global commodity prices, currency depreciation, and geopolitical events. The depreciation of the rupee against foreign currencies can lead to higher costs for imported goods, potentially impacting inflation within the country.

8. Topic no. 21 – China industrial overcapacity has peaked as global demand picks up: EIU

Subject: Economy

Sec: MSC

Peak in Overcapacity: The Economist Intelligence Unit (EIU) suggests that China’s overall manufacturing overcapacity has peaked. This comes as global demand rises, especially in consumer sectors.

• Outlook on Capacity Growth: A slowdown in investment by firms, influenced by lower profitability, is expected to lead to slower capacity growth.
• Consumer Sectors and Overcapacity: Chinese electronics and other consumer goods sectors are experiencing some overcapacity, but this is seen as temporary. The EIU predicts a cyclical upturn in global retail sales for 2024.
• Industries with Most Overcapacity:
  • Steel, Cement, Construction Machinery: These sectors face overcapacity due to a structural contraction in demand linked to China’s prolonged property market slump.
• Milder Overcapacity Pressure in Other Sectors:
  • Electrical Machinery (Batteries, Solar Panels): Overcapacity pressure is less severe.
  • Automotive Sector, Pharmaceuticals: These sectors also have milder overcapacity challenges.
• Outlook for 2024:
  • Capacity utilization and profitability are expected to remain below pre-pandemic levels throughout 2024.
  • Sectors like solar, batteries, and wind turbines might see excess supply in parts of the supply chain with yet-to-materialize demand.
• Factors Influencing Overcapacity:
  • Optimistic Forecasts: Producers increased supply based on optimistic forecasts following China’s 2020 carbon neutrality target announcement by President Xi Jinping and Europe’s 2022 energy crisis.
• Trade Tensions:
  • Rising competitiveness of Chinese products, especially in strategic sectors, could lead to continued trade tensions.
  • Protectionist moves by other countries, particularly in sectors like electric vehicles, might persist.

Concerns raised by US

• Risk of Global Economic Resilience:
  • US Treasury Secretary Janet Yellen warned that Beijing’s subsidies for industries like solar, electric vehicles (EVs), and batteries could threaten global economic resilience.
  • She expressed concerns about China’s “overcapacity” resulting from significant government support, which could lead to a surplus of cheap goods in global markets.
• Effects of Overcapacity:
  • Yellen highlighted that overcapacity can result in large volumes of exports at depressed prices, affecting sectors worldwide.
  • It could also lead to an overconcentration of supply chains, posing a risk to global risk resilience.
• Intentions of the Warnings:
  • Yellen clarified that these concerns are not part of an “anti-China policy” but are aimed at mitigating risks from the current policies.
  • The goal is to manage US-China ties to make them “resilient” and capable of withstanding shocks.
• Concerns for US Businesses:
  • She also mentioned addressing challenges faced by US businesses operating in China, such as barriers to access and coercive actions against American companies.
• Calls for Fair Practices:
  • Yellen emphasized that ending unfair practices would benefit both American firms and China by improving the business climate.
  • She seeks a “level playing field for American workers and firms” and open communication on areas of disagreement.

9. RBI issues draft Directions on Payment Aggregators (PAs)

Subject: Economy

Sec: Monetary policy

Physical Point-of-Sale (PoS) Activities:

• RBI issues two draft directions concerning regulation of PAs.
• Includes regulations on physical PoS activities, net worth, and licensing requirements.

Revision and Updates to KYC and Due Diligence:

• Second circular covers revisions in KYC, due diligence of merchants, and operations in escrow accounts.
• Aims to strengthen the payment ecosystem, according to the central bank.

Regulation Announcement:

• In September 2022, RBI announced regulations for offline PAs handling face-to-face payments.
• Draft circular seeks comments and feedback by May 31, 2024.

Types of Payment Aggregators:

• Payment ecosystem includes online PAs (PA – O) and those facilitating face-to-face or proximity transactions (PA – P).
• Non-bank PAs require approval from DPSS, RBI, CO before starting physical or online PA activities.

Compliance Deadline:

• PA-P banks must comply within three months of final norms issue.
• Non-bank entities offering PA-P services must inform RBI within 60 days and apply by May 2025.
• Non-bank PA-Os must seek RBI’s approval within 60 days to continue PA-P operations.
• Minimum net worth for non-bank PA-P entities:
  • ₹ 15 crore at application time.
  • ₹ 25 crore by March 31, 2028.
  • New non-bank PA-Ps need ₹15 crore initially, growing to ₹25 crore by third financial year end.
• Non-bank PA-Ps unable to comply must wind up activities by July 31, 2025, or face penalties.

Engagement of Agents:

• Non-bank PAs can engage agents for merchant onboarding, subject to a Board-approved policy and due diligence.

Data Storage Regulations:

• For face-to-face/proximity card transactions:
  • No entity except card issuers or networks can store card-on-file data from August 1, 2025.
  • Previously stored data must be purged.
  • Limited data (last four digits of card number, card issuer’s name) can be stored for tracking/reconciliation in line with standards.

Understanding Payment Aggregator (PA):

Overview of PA:

• A PA, also known as a merchant aggregator, is a third-party service provider facilitating customer payments on merchant platforms.
• It integrates payment options into websites or apps, enabling various transaction types.

Types of Transactions Handled:

• Facilitates cash/cheque, online payments from multiple sources, or offline transactions.
• Enables merchants to accept bank transfers without direct bank merchant accounts.

Legal Incorporation:

• PAs in India are incorporated under the Companies Act 2013.

Bank vs. Non-Bank PAs:

• PAs can be either banks or non-bank entities.
• Non-bank PAs need specific authorization from RBI due to their handling of funds.

RBI License Requirement:

• Since PAs handle funds, they require licensing from the Reserve Bank of India (RBI).

Examples of PAs in India:

• Amazon (Pay) India, Google India, Razorpay, Pine Labs, among others.

Understanding Payment Gateway: 

Overview of PG:

• It is a software service linking bank accounts to platforms for money transfers.
• Authorizes online transactions using various modes like net banking, credit cards, debit cards, UPI, or online wallets.

Role of Payment Gateway:

• Acts as a secure intermediary transferring funds from customer bank accounts to merchant payment portals.

Comparison: Payment Aggregator vs. Payment Gateway: 

Payment Gateway:

• Software allowing online transactions.
• Directly conducts transactions between banks and merchants.

Payment Aggregator:

• Aggregates multiple payment gateways into a single platform.
• Acts as an interface where payment gateways process transactions.