Daily Prelims Notes 17 June 2024

Daily Prelims Notes

17 June 2024

1. India to host its first multinational air exercise Tarang Shakti in August

Sub: Science and tech

Sec: Defence

Ex- Tarang Shakti- 2024:

• The Indian Air Force (IAF) will host its first multinational air exercise, Tarang Shakti-2024, in August, featuring participants from ten countries and several observers.
  • Following the experience of the Red Flag exercise in the U.S., the IAF anticipates engaging with friendly foreign countries with regular interactions and interoperability.
• Initially scheduled for late 2023, Tarang Shakti-2024 will now occur in two phases: the first in southern India in early August, and the second in the western sector from late August to mid-September.
  • Some countries will join both phases, while others will participate in one.
• Countries such as Australia, France, Germany, Japan, Spain, UAE, UK, and the US are expected to send contingents, with Germany showcasing an A-400M transport aircraft, a contender for an IAF tender.

Ex- Red Flag:

• The Red Flag exercise, which concluded recently in Alaska, included IAF’s participation with eight Rafale fighters and other support aircraft.
• The exercise simulated air combat scenarios, enhancing interoperability with international forces, including those from Singapore, the UK, Netherlands, and Germany. 
• For details of Exercise Red Flag

Source: TH

2. PM to visit Varanasi, release 17th PM-Kisan instalment

Sub: Schemes

Context:

• Prime Minister Narendra Modi will visit Varanasi and he will release the 17th instalment of the PM-Kisan Samman Nidhi, distributing over ₹20,000 crore to 92.6 million farmers.
• The event will be held at Mehndiganj, Sevapuri, where Modi will also award certificates to over 30,000 ‘Krishi Sakhis,’ self-help group members trained to assist other farmers.

PM- Kisan Samman Nidhi:

• PM Kisan Samman Nidhi (PM KISAN Yojana) is a Central Sector Scheme which aims at providing financial assistance to all cultivable land holding farmer families across the country, subject to certain exclusion criteria.
• It is a Central Sector Direct Benefit Transfer (DBT) Scheme.
• Objectives of PM Kisan Samman Nidhi
  • To Boost Small and Marginal Farmers’ Income: In the ongoing fiscal year, the government has introduced a new Central Sector Scheme designed to enhance the income of Small and Marginal Farmers (SMFs).
  • To address financial inclusion: The PM KISAN scheme is geared towards addressing the financial requirements of SMFs, facilitating the procurement of essential inputs for optimal crop health and yields.
  • Ensuring Sustainable Farming Income: The primary objective of PM KISAN is to safeguard SMFs from resorting to moneylenders to meet agricultural expenses, thereby ensuring their sustained engagement in farming activities.

Features of PM KISAN Samman Nidhi 

• Scope and Scale- The PM Kisan Samman Nidhi Yojana is poised to benefit a substantial 12 crore small and marginal farmers. The program boasts an impressive annual budgetary allocation of Rs 75,000 crore.
• Direct benefit transfer to individuals- Each PM KISAN beneficiary is entitled to receive the allocated amount directly into their bank account. The disbursement is structured in three tranches, with each tranche amounting to Rs 2,000. Direct transfer eliminates discrepancies and middleman.
• Ensured Income- The prime aim of PM KISAN is to ensure that farmers receive a minimum income. Eligible farming families get Rs. 6,000 in three equal parts every four months.
• Utlization of funds as per their requirement- Beneficiaries of PM KISAN have the freedom to use the money they receive from the scheme. They can use it for various needs. There is full autonomy in their spending decisions.
• All funds from the Central Government- All the funds for the PM KISAN program come from the central government. Initially, the program was allocated a reserve of Rs. 75,000 crore per year, with direct transfers made through Direct Benefit Transfer (DBT) to the bank accounts of beneficiaries.
• Participation of States- Identifying the beneficiaries is the responsibility of the State and Union Territory administrations, while the Government of India takes charge of providing the necessary funding.
  • To qualify for the program, a farmer family should include a husband, wife, and minor child or children, as determined by these governments.
• Mandatory Aadhaar Requirement- To avail the benefit of this scheme, it is essential to provide Aadhaar data as a compulsory prerequisite beneficiaries who don’t have AADHAR data can enroll themselves from nearest CSC centre.
• Self-Registration Mechanism- Beneficiaries can use  PM KISAN mobile App a mobile app and can register themselves in Common Service Centers, the scheme introduces a convenient self-registration mechanism for beneficiaries.
• Centralized Call Center Support- A dedicated centralized call center has been set up to assist beneficiaries, addressing issues encountered during registration or any other grievances they may have.
• Annual Physical Verification Requirement- Ensuring scheme authenticity, a mandatory annual physical verification is conducted for 5% of beneficiaries, contributing to the robustness of the verification process.

According to Guidelines of PM KISAN Scheme Following Category of Persons Are Not Eligible to Avail Benefit If Scheme.

• Person holding or retired from the constitutional posts.
• Former and present Ministers/State Ministers.
• Former or present members of LokSabha/ RajyaSabha/ State Legislative Assemblies/ State Legislative Councils
• Former and present Mayors of Municipal Corporations
• Former and present Chairpersons of District Panchayats.
• Any serving or retired officers as well as employees under the Central/ State Government Ministries / Offices / Departments.
• All retired pensioners who get a monthly pension of Rs.10,000/-or more and belong to the above category.
• Any individual who paid their income tax in the last assessment year is not eligible under this scheme.
• Professionals like Doctors, Engineers, Lawyers, Chartered Accountants, and Architects registered with Professional bodies.

Source: TH

3. Indirect evidence builds, yet the ‘dark’ universe remains murky

Sub: Science and tech

General Theory of Relativity and Dark Universe

General Theory of Relativity:

• The general theory of relativity has excelled in explaining gravity and phenomena like gravitational waves, lensing, redshift, black holes, and time dilation, refining Newton’s laws by describing gravity as a geometric property of spacetime.
• However, on a cosmic scale, space appears filled with dark energy, constituting about 70% of the universe’s energy, causing the universe to expand.
• This contrasts with Newtonian gravity, which pulls objects together.

Important terms:

Dark Energy:

• Observed at cosmic scales, dark energy permeates space, causing the universe’s expansion.
• Comprises 70% of the universe’s energy from the Big Bang.
• Creates negative pressure, stretching spacetime and allowing stars and galaxies to drift apart.
• Dominates in empty space, whereas gravity prevails in matter-rich regions.

Dark Matter:

• Proposed based on cosmological observations; first indirect evidence published by Vera Rubin 44 years ago.
• Explains unexpected galactic rotation rates, suggesting invisible matter exerts additional gravitational force.
• Remains hypothetical; no direct evidence yet.

Scientific Debate:

• Not all scientists agree with dark matter and dark energy hypotheses.
• Some propose alternate gravity paradigms, but they don’t fully explain observed phenomena like dark matter and dark energy do.

DESI and Lambda-CDM Model:

• Broadband Search for Dark Photon Dark Matter (BREAD) search and the Dark Energy Spectroscopic Instrument (DESI) aims to create a detailed 3D map of the universe.
  • By mapping the position of thousands of galaxies over many years, we can keep measuring how much the universe’s expansion due to dark energy is accelerating.
  • But for now, we have no choice but to draw all our inferences about dark matter and dark energy from indirect evidence alone.
• Data supports the Λ-CDM model, with Λ (lambda) representing dark energy’s density.
  • Λ (lambda) is the cosmological constant: it represents the energy density of space and is closely associated with dark energy.
  • It appears in equations of the general theory of relativity.
• Some studies suggest dark energy might change over time, challenging the Λ-CDM model.
• Modified theories like MOND, which don’t require dark energy, face challenges, such as data from the Cassini mission not supporting its predictions.

Source: TH

4. Electromagnet: driven by current

Sub: Science and tech

Electromagnets:

• Invented by William Sturgeon in 1824, electromagnets are crucial in various modern applications like loudspeakers, motors, MRI machines, maglev trains, and particle accelerators.
• They work by creating a magnetic field when an electric current flows through a coiled wire.
• This magnetic field is intensified if the wire is wrapped around a magnetic core, typically made of ferromagnetic metals like iron.
• Iron cores enhance the magnetic field because their internal atomic magnetic fields align with the external field produced by the current, amplifying the overall magnetic effect.
• The magnetic field exists as long as current flows through the coil, and some materials may retain weak magnetism even after the current stops.
• Superconducting electromagnets, used in MRI machines, utilize superconducting wire coiled around a core to generate extremely strong magnetic fields up to 30 tesla.
• Bitter electromagnets, another type, can produce fields up to 40 tesla by flowing current through wires coiled around a stack of electromagnets.

Uses of Electromagnets:

• Particle Accelerators
• Amplifiers
• Magnetic Separation
• Electric Motors and Generators
• MRI machines
• Control Switches in Relays
• Transportation
• Spacecraft Propulsion Systems
• Induction Heating
• Hard Drives

Disadvantages of Electromagnetism:

• They heat up very fast
• It consumes a lot of energy
• They can store huge amounts of energy in their magnetic field. If the electric current is interrupted, the energy will discharge

Source: TH

5. IRDAI’s Initiatives to Improve Health Insurance Experience

Sub: Science and tech

Sec: Health

The Insurance Regulatory and Development Authority of India (IRDAI) has implemented several consumer-centric reforms in the health insurance sector, aiming to enhance customer experience, streamline processes, and ensure timely and hassle-free claim settlements.

Key Reforms by IRDAI

• Simplified Claim Process:
  • Document Submission: Claims cannot be rejected due to a lack of documents. Insurers must collect necessary documents at the time of underwriting.
  • Policy Cancellation: Customers can cancel their policy anytime and receive a refund for the unexpired policy period. Insurers can cancel policies only on fraud grounds.
• Faster Claim Settlements:
  • Cashless Claims: Claims must be settled within three hours, with decisions on cashless authorizations required within one hour of the claim request.
  • Cashless Anywhere Directive: Insurers must settle claims in a cashless mode, even in hospitals not in their network, minimizing the need for reimbursement claims.
• Operational Enhancements:
  • Digital Pre-Authorization: Insurers should provide digital pre-authorization to facilitate quicker claims processing.
  • Help Desks: Insurers are encouraged to set up help desks at hospitals to manage cashless claim requests efficiently.
• Consumer-Centric Measures:
  • Immediate Processing in Case of Death: If a policyholder dies during treatment, the insurer must process the claim request immediately to release the mortal remains from the hospital.
  • Cost Coverage: If claims are not settled within the stipulated time, any additional costs charged by the hospital will be borne by the insurer from the shareholder’s fund.

Impact on the Insurance Sector

• Enhanced Coordination:
  • Improved coordination between insurers and hospitals is necessary for timely claim settlements. This includes the sharing of medical records and better operational processes.
• Medical Record Digitization:
  • Digitization through the National Health Claims Exchange will facilitate a more transparent and efficient exchange of information, aiding quicker decision-making by insurers.
• Positive Industry Response:
  • Insurers have shown a willingness to support these reforms, recognizing the potential for faster payouts and improved customer satisfaction.
• Holistic Healthcare Ecosystem:
  • These reforms require a collaborative effort from the entire healthcare ecosystem, including hospitals and insurers, to ensure their successful implementation.

Benefits to Policyholders

• Timely Settlements:
  • Faster claim settlements will provide financial relief to policyholders and reduce the stress associated with delayed reimbursements.
• Increased Satisfaction:
  • Streamlined processes and consumer-centric measures will enhance overall customer satisfaction, making health insurance more appealing and reliable.
• Support During Tragedies:
  • Immediate processing of claims in the event of a policyholder’s death will offer support to grieving families, ensuring they are not burdened with administrative delays during difficult times.

Conclusion

The IRDAI’s reforms are poised to revolutionize the health insurance landscape in India. By focusing on customer-centric policies, simplifying the claims process, and ensuring faster settlements, these initiatives will significantly improve the insurance experience for policyholders. This move towards a more inclusive and efficient health insurance system will likely lead to higher customer satisfaction and better healthcare outcomes.

6. Equity Derivatives: Not for the Uninitiated

Sub: Economy

Overview

Equity derivatives, such as futures and options, are financial instruments used primarily for hedging purposes.

However, for individual investors, these instruments often lead to substantial losses due to a lack of expertise and awareness.

SEBI’s Warning

In May 2023, the Securities and Exchange Board of India (SEBI) issued a circular highlighting the risks associated with equity derivatives trading for individual investors:

• Losses: 90% of individual traders in equity derivatives incurred net losses.
• Average Loss: Loss makers registered an average net trading loss of ₹50,000.
• Transaction Costs: Loss makers spent an additional 28% of their net trading losses on transaction costs, while those making profits spent between 15-50% of their profits on transaction costs.
• Risk Disclosure: SEBI mandated that traders be prominently shown risk disclosures upon logging into their trading accounts.

Despite these warnings, individual participation in equity derivatives remains high.

Trading Volume and Participation

• Increased Activity: Between May 2023 and April 2024, the average daily turnover (ADT) in equity derivatives rose from ₹1.62 lakh crore to ₹2.54 lakh crore.
• Individual Investors: The share of individual investors in the equity derivatives turnover slightly decreased from 26.8% to 25.5%, but the higher traded volume indicates increased participation. The number of individual investors in NSE Futures & Options surged from 10 lakh in 2018-19 to about 96 lakh in 2023-24.

Issues with Individual Participation

• Lack of Awareness: Many individual traders lack the necessary knowledge and experience compared to professional traders and proprietary books, which dominate the market.
• Speculation vs. Investment: Trading in derivatives is speculative and not aligned with long-term wealth creation. Most individuals should focus on long-term investments like stocks and mutual funds.
• Influencer Courses: Unregulated short courses by influencers claiming to make participants experts in derivatives trading are misleading. These courses are neither approved by SEBI nor run by licensed professionals.

Fundamental Aspect of Equity Derivatives

• Purpose: The primary purpose of the equity derivatives market is hedging, not speculative trading. Investors should use derivatives to hedge their portfolios, not as standalone investment tools.
• Risk Management: Trading in derivatives without proper knowledge increases risk exposure. Individuals should keep derivative exposure limited and learn through experience over time.

Conclusion

Equity derivatives are complex and require significant expertise. Individual investors should:

• Limit Exposure: Keep derivative trades to a small portion of the portfolio.
• Focus on Long-Term Investment: Prioritize long-term investments in stocks and managed portfolios.
• Gain Experience Gradually: Understand that expertise in derivatives trading comes with years of experience, not short-term courses.

By approaching equity derivatives cautiously and prioritizing long-term investment strategies, individual investors can avoid substantial losses and build wealth more effectively.

7. Creating an Emergency Reserve: Essential Tips for Financial Stability

Sub: Economy

A contingency reserve is a crucial component of financial planning, designed to meet expenses during uncertain times and cover unexpected costs during normal periods.

The importance of an emergency reserve, where to park it, and why relying solely on credit cards isn’t sufficient.

Why You Need an Emergency Reserve

• Protection During Crisis:
  • Think of your contingency reserve as self-insurance that protects your family’s well-being during crises such as job loss, medical emergencies, or natural disasters.
• Handling Unexpected Expenses:
  • Whether it’s a sudden car repair, home maintenance, or any other unforeseen expense, having an emergency reserve ensures you’re not caught off guard financially.

Where to Park Your Contingency Reserve

• Liquid Investments:
  • The contingency reserve should be kept in highly liquid investments that allow quick access without incurring losses. Interest-bearing instruments like savings accounts, fixed deposits, or liquid mutual funds are ideal.
• Protecting Value:
  • While aiming to protect the inflation-adjusted value of your reserve is optimal, at a minimum, strive to protect its nominal value. This ensures that the money retains its purchasing power over time.

Credit Cards: Not a Reliable Contingency Reserve

• Credit Limits:
  • Relying on credit cards can be problematic if your credit limit is exhausted or insufficient due to regular use for lifestyle expenses.
• Inactive Cards:
  • If you keep a credit card exclusively for emergencies and don’t use it frequently, the issuing company might reduce your credit limit or deactivate the card.
• Debt Risk:
  • Using credit cards for emergencies can lead to accumulating high-interest debt, exacerbating financial stress instead of alleviating it.

Importance of Keeping Cash at Home

• Natural Disasters:
  • In areas prone to natural disasters like flash floods, tsunamis, or earthquakes, having cash at home is essential. Disasters can disrupt electricity, internet, and phone services, rendering electronic payment methods useless.
• Accessibility:
  • Cash provides immediate access to essential goods and services when electronic transactions are not possible.

Overcoming Saliency Bias

• Idle Money Concerns:
  • The main hesitation in maintaining a contingency reserve often stems from the perception that the money is not earning optimal returns. This is known as saliency bias.
• Perspective Shift:
  • Viewing the contingency reserve and cash at home as a form of self-insurance can help appreciate the importance of having such a fund. It’s about ensuring financial security and peace of mind rather than just focusing on returns.

Conclusion

Establishing an emergency reserve is a fundamental step in financial planning.

By parking your reserve in liquid, low-risk investments, keeping a modest amount of cash at home, and understanding the limitations of credit cards, you can protect yourself and your family against financial uncertainties.

Embracing this approach helps safeguard your well-being during crises and ensures you are prepared for any unexpected expenses.