Daily Prelims Notes 17 February 2021
- February 17, 2021
- Posted by: admin1
- Category: DPN
Daily Prelims Notes
17 February 2021
All 6 Prelims qualified
4 CSE Mains qualified
If I can do it, you can too
Table Of Contents
- Switch Delhi Campaign
- Maharaja Suheldev
- Grants by the Finance Commission
- IMF’s Extended Fund Facility
- Persevarance rover
- Credit Default Swaps
- Non-convertible debentures (NCD)
- LG of Puducherry/UTs
- Assets under management (AUM)
Context: The Delhi Govt has started “Switch Delhi” campaign to nudge people to adopt electric vehicles amidst India switching to electric mode for sustainable development.
- It will educate people about the benefits of electric vehicles (EV) and urge them to make a switch
- It is to spread awareness about the Delhi government’s electric vehicle policy and the various benefits being offered to those who make the switch
- informing, encouraging, and motivating each and every person in Delhi to switch from polluting vehicles to zero-emission electric vehicles
- Earlier, Delhi became the first state/UT which launched the Delhi Electric Vehicle Policy in August 2020 with aim of 25% electric vehicles by 2024.
- Road tax and registration fees have also been made completely free and tenders have been floated to develop 100 public charging stations across the city.
Subject: Medieval history
Context: PM laid down the foundation stone of Maharaja Suhuldeve Memorial and development work of Chittauralake in Bahraich district UP.
- Maharaja Suheldev is an 11th-Century ruler who killed Ghaznavid general SalarMasud and credited to halt spread of Islam in the region
- Suheldev was a legendary medieval-era warrior-king.
- He is mentioned in Mirat-i-Masudi (written by Abdur Rahman Chishti). According to the legend, Suhaldev was the eldest son of King Mordhwaj of Shravasti, during the 11th
- Though his historical existence is not so much known, he is today popular as a caste icon among the Rajbhars (OBC) and the Pasis (second largest Dalit caste in U.P.), both of whom have been competing for his legacy.
Context: The 15th finance commission recommended a total of Rs 10, 33, 062 crore as grants under various heads.
- The Finance Commission is a Constitutionally mandated body that is at the Centre of fiscal federalism.
- It is set up under Article 280 of the Constitution, its core responsibility is to evaluate the state of finances of the Union and State Governments, recommend the sharing of taxes between them, lay down the principles determining the distribution of these taxes among States.
Types of grants by the Finance Commission
- Grants for rural local bodies: Post 73rd the Finance Commission (FC) also has role to ensure these local bodies are adequately funded. Nearly half of the Finance Commission Grants in Union Budget goes to village local bodies.
- Grants for urban local bodies: Under 74th amendment urban local bodies like municipal councils receive the largest chunk of Finance Commission Grants after Rural Local Bodies and Post Devolution Deficit Grants to states.
- Assistance to SDRF: The central government also provides funds to State Disaster Relief Fund (on its recommendations) in addition to funding the National Disaster Management Authority (NDMA).
- Post devolution revenue deficit grants: About a third of the total revenue collected by the Centre is directly transferred to states as their share in the divisible pool. However, the Finance Commission also provides a mechanism for compensation of any loss incurred by states, which is called post-devolution revenue deficit grants. It forms 2nd largest chunk of grants by the FC.
- Assistance to states from NDRF (separate from the grants given to state SDRF under Finance Commission Grants)
- Central pool of resources for north-eastern region and Sikkim
- Externally aided project grants
- Externally aided project loans
- Schemes for north-east council
- Schemes under Article 275 (1) of the Constitution
- Special assistance under the demand: Transfers to states. Special central assistance to scheduled castes and special central assistance to tribal area.
Context: The International Monetary Fund (IMF) and Pakistan on Tuesday reached a staff-level agreement that Pakistan had completed reforms required for the release of around $500 million in IMF funds. Further review of reform may give it access to $6 billion from the IMF’s Extended Fund Facility (EFF)
- The IMF funding for Pakistan had been suspended for about a year subject to the reforms.
- The need for IMF support arose as Pakistan economy has been facing economic woes (Declining growth, unsustainable debt, excahnge worries etc.)
- The package strikes an appropriate balance between supporting the economy, ensuring debt sustainability and advancing structural reform.
- It is a fund created by IMF for helping economies to address serious medium-term balance of payments problems because of structural weaknesses that require time to address.
- Assistance under an extended arrangement features longer program engagement to help countries implement medium-term structural reforms with a longer repayment period.
- It provides for support for comprehensive programs including the policies needed to correct structural imbalances over an extended period.
- Typically approved for periods of three years, but may be approved for periods as long as 4 years (repaid over 4.5–10 years in 12 equal semiannual installments unlike Stand-By Agreement facility which provides support for short period with repayment period of 3.5–5 years.)
Conditions to get help
- When a country borrows from the IMF, it commits to undertake policies to overcome economic and structural problems
- The IMF’s Executive Board regularly assesses program performance and can adjust the program to adapt to economic developments.
- Lending is tied to the IMF’s market-related interest rate, known as the basic rate of charge, which is linked to the Fund’s Special Drawing Rights (SDR) interest rate.
- EFF is guided by a country’s financing needs, capacity to repay, and track record with past use of IMF resources:
- Normal access: Borrowing under an EFF is subject to the normal limit of 145 percent annually of a country’s IMF quota, (IMF quota broadly reflects a country’s position in the global economy), and a cumulative limit over the life of the program of 435 percent of its quota, net of scheduled repayments.
- Exceptional access: The Fund may lend amounts exceeding these limits in exceptional circumstances provided that a country satisfies a predetermined set of criteria.
Subject: Science and Technology
Context: The NASA’s Persevarance rover is set to land on MARS on Friday.
- Closely on the heels of UAE’s Hope mission entered Martian orbit, and was followed closely by a Chinese mission Tianwen-1 the NASA’s Perseverance rover is scheduled to touch down on Mars.
- It shows increased spread of planetary exploration in general, and Mars exploration in particular.
- This mission will see landing on Jezero Crater, which was likely filled with water in the past.
- Perseverance is NASA’s 4th generation Mars Rover — starting with Sojourner from the Mars Pathfinder Mission in 1997, followed by Spirit and Opportunity from the Mars Exploration Rover Mission in 2004, and Curiosity from the Mars Science Laboratory in 2012
- The goal is to look for biosignatures in the dried up lake bed at Jezero Crater. It is to explore belief that early life on Mars may have resembled early ocean-dwelling life on Earth, like stromatolites. If indeed this was the case, Perseverance would find fossils or some biosignatures — hints of life — in either the chemical measurements or morphological observations.
- Perseverance will produce oxygen on the Martian surface for the first time, using atmospheric CO2 from the Martian atmosphere.
- Perseverance will cache rock samples that will be returned to Earth by a subsequent European Space Agency/NASA mission
Why so many mission in short period?
- Earth and Mars are at their closest distance relative to each other every 26 months providing for launch window and this is when Earthlings try to send missions to Mars.
- But never in history have three space agencies headed to Mars in a single launch window. And never in history have so many space agencies simultaneously operated a mission to Mars or the orbit of Mars. There are currently 10 spacecraft from five different space agencies — the United States, European Union, India, China, and the United Arab Emirates — either orbiting or on the ground on Mars
- The rise in missions is mainly due to a reduction in launch costs and the cheaper availability of the technology required in space exploration
Current missions on Mars
- NASA has a lander (Mars Insight), a rover (Curiosity), and three orbiters (Mars Reconnaissance Orbiter, Mars Odyssey, MAVEN)
- India has an orbiter (Mangalyaan-1)
- the EU has 2 orbiters (Mars Express and ExoMars Trace Gas Orbiter)
- China and UAE will have an orbiter each (Hope and Tianwen-1 respectively).
- SpaceX is investing in starting a commercial service to transport passengers to Mars through its project “Starship”.
Context: RBI releases draft norms for Credit Default Swaps
draft guidelines on credit default swaps (CDS) by RBI:
- Retail users will be allowed to undertake transactions in permitted credit derivatives for hedging their underlying credit risk.
- non-retail users will be allowed to undertake transactions in credit derivatives for both hedging and other purposes.
- A person resident in India and a non-resident — to the extent specified in the RBI directions – can participate in the market.
- Exchanges may offer standardised single-name CDS contracts with guaranteed cash settlement.
- Retail users shall undertake transactions in exchange-traded CDS only for hedging their underlying credit risk.
- The central bank said commercial papers, certificates of deposit and non-convertible debentures of original maturity up to 1-year, rated rupee corporate bonds (listed and unlisted) and unrated rupee bonds issued by the special purpose vehicles set up by infrastructure companies will be eligible to be a reference or deliverable obligation in a CDS contract.
Credit Default Swap (CDS)
- Credit default swap is a financial derivative or contract that allows an investor to “swap” or offset his or her credit risk with that of another investor.
- In this the lender buys a CDS from another investor who agrees to reimburse the lender in the case the borrower defaults. Just like an insurance policy CDS needs to be maintained through regular premium.
- It is an example of Over-the-Counter derivative (OTC).
- An over the counter (OTC) derivative is a financial contract that does not trade on an asset exchange, and which can be tailored to each party’s needs.
What are derivatives?
A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. Its value is determined by fluctuations in the underlying asset.
Concerns with CDS
CDS played a big role in the global financial crisis as Lehman Brothers, the biggest casualty, owed $600 billion in debt, out of which $ 400 billion was covered by CDS.
Context: Future Consumer firm has an interest obligation of Rs 13.89 crore, due on NCDs upto November 15, 2020, remains unpaid, raising fears of new defaults.
- Debentures are one of the long-term financial instruments issued by companies to borrow.
- It is different from “Share” which is the capital (representing the ownership of the shareholders) of the company, but Debenture is the debt of the company. The income earned on shares is the dividend, but the income earned on debentures is interest.
- NCDs are debentures with a feature of convertibility into shares after a certain point of time at the discretion of the debenture holder.
- The debentures which cannot be converted into shares are called non-convertible debentures (or NCDs).
Types of debentures
- There are two types of NCDs-secured and unsecured.
- A secured NCD is backed by the assets of the company. If the company fails to pay the obligation, the investor holding the debenture can claim that through liquidation of those assets.
- Unsecure non-convertible debentures have no backing even if company defaults.
Context: Kiran Bedi was removed as the Lieutenant-Governor of Puducherry with the Telangana governor taking additional charge of the UT.
- Article 239 in The Constitution of India 1949 provides for every Union territory to be administered by the President by an administrator appointed by him, save as otherwise provided by Parliament by law.
- Art 239 A says that Parliament may by law create for the Union territory of Puducherry —
- a body, whether elected or partly nominated and partly elected, to function as a Legislature for the Union territory, or
- a Council of Ministers,
- On the other hand, Article 239 AA talks about the powers and functions of Delhi government and Lieutenant Governor specifically.
More about LG
- The Government of Union Territories Act, 1963 provides for administration of Union Territory (UT) by the President through an administrator (In case of Pondicherry it is Lieutenant-Governor).
- The act also provides for a legislative assembly with a council of minister to govern the “UT of Pondicherry”.
- The act in section 44 talks of the aid and advice of CoM to the Administrator in the exercise of his functions in relation to matters with respect to which the Legislative Assembly of the Union Territory has power to make laws
- Section 44 says that in case of a difference of opinion between the LG and his Ministers on any matter, the Administrator is bound to refer it to the President for a decision and act according to the decision given by the President
- The act also provides for discretion of LGs which is significantly more compare to governors in state. Section 22 of the Act provides for prior sanction of the Administrator is required for certain legislative proposals
- The act provides for the elected govt to take recommendation of the LG before moving a Bill or an amendment to provide for “the imposition, abolition, remission, alteration or regulation of any tax”, “the amendment of the law with respect to any financial obligations undertaken or to be undertaken”, and anything that has to do with the Consolidated Fund of the UT.
- Options before the LG: Either grant or withhold his assent or reserve it for the consideration of the President. He can also send it back to the Assembly for reconsideration
- The Rules of Business of the Government of Pondicherry, 1963 also provides for how the LG should function w.r.t elected govt.
LG of Delhi vs LG of Pondicherry
- The LG of the Delhi has executive functions w.r.t Police, public order and land unlike the LG of the Pondicherry.
- The LG of Delhi is also guided by the Government of National Capital Territory of Delhi Act, 1991, and the Transaction of Business of the Government of National Capital Territory of Delhi Rules, 1993, the LG of Puducherry is guided mostly by the Government of Union Territories Act, 1963.
Context: A report highlighted that the assets of non-banking financial companies (NBFCs) are likely to touch ₹1.5-1.8 lakh crore, or 6-7.5% of their assets under management (AUM) by the end of this fiscal.
- Asset quality of NBFCs is expected to deteriorate further due to disruption of business operations caused by the pandemic, especially in the industry sector, a major recipient of NBFC credit. This came on the back of already stressed NBFCs on the back of IL&FS crisis and DHFL crisis.
- Challenge currently is more severe as unlike specific segment in crisis earlier, pandemic impacted all segments.
- Home loans with 35-40% share in Assets under Management (AUM) of NBFCs (others are: Vehicle finance, Real estate, MSMEs finance) accounts for largest share.
- the one-time COVID-19 restructuring window, and the micro, small and medium enterprises’ (MSME) restructuring scheme of the Reserve Bank of India (RBI) will limit the reported gross non-performing assets (GNPA)
Assets under management (AUM)
- It measures the total market value of all the financial assets which a financial institution manages on behalf of its clients and themselves.
- AUM is an indicator of the size and success of a given fund house.
Subject: Science and technology
Context: WHO gave green light to two versions of the AstraZeneca-Oxford COVID-19 vaccine for emergency use to be rolled out globally through COVAX.
- The vaccines are produced by AstraZeneca-SKBio (Republic of Korea) and the Serum Institute of India (SII).
- For Emergency Use Listing WHO assessed the quality, safety and efficacy of the vaccines which is currently pre-requisite for use of COVAX facility.
- It will lead to those countries which have no access to vaccine, rolling it out through an equitable vaccine distribution.
- Earlier WHO had also listed the Pfizer/BioNTech vaccine for emergency use.
- COVID-19 Vaccines Global Access or COVAX is a global initiative aimed at equitable access to COVID-19 vaccines led by the Global Alliance for Vaccines and Immunization (GAVI), the World Health Organization (WHO), the Coalition for Epidemic Preparedness Innovations (CEPI), and others.
- It is one of the three pillars of the Access to COVID-19 Tools Accelerator, an initiative begun in April 2020 by the World Health Organization (WHO), the European Commission, and the government of France as a response to the COVID-19 pandemic.
- COVAX aims to coordinate international resources to enable the equitable access of COVID-19 diagnostics, treatments, and COVID-19 vaccines. It aims for people in all corners of the world to get access to Covid-19 vaccines once they are available, regardless of their wealth.
- The COVAX facility continually monitors the Covid-19 vaccine landscape to identify the most suitable vaccine candidates, based on scientific merit and scalability, and works with manufacturers to incentivize them (Ex- Serum Institute of India has received funds from Gavi, the Vaccine Alliance and the Bill and Melinda Gates Foundation).
Access to COVID-19 Tools Accelerator (ACT Accelerator)
It is a framework for collaboration to accelerate the development, production, and equitable access to Covid-19 tests, treatments, and vaccines. It is built on three main pillars: Vaccines (COVAX), Therapeutics, Diagnostics.
Gavi, the Vaccine Alliance
- It was created in 2000. It is an international bringing together public and private sectors with the shared goal of creating equal access to new and underused vaccines for children living in the world’s poorest countries.
- Its core partners include the WHO, UNICEF, the World Bank and the Bill & Melinda Gates Foundation.
Coalition for Epidemic Preparedness Innovations
- CEPI is a global partnership launched in 2017 to develop vaccines to stop future epidemics.
- CEPI was founded in Davos (Switzerland) by the governments of Norway and India, the Bill & Melinda Gates Foundation, the Welcome Trust, and the World Economic Forum.