Daily Prelims Notes 26 April 2022
- April 26, 2022
- Posted by: OptimizeIAS Team
- Category: DPN
Daily Prelims Notes
26 April 2022
Table Of Contents
- TN clips Governor’s power to appoint VCs
- Developers should pay a higher Net Present Value for cutting forests
- Kuril Islands
- EV Fires
- Flow Batteries
- Counter Drone Systems
- An alternative to plastic pollution
- SC seeks steps for children on streets
- A docket full of unresolved constitutional cases
- Music Copyright Society
- Trade Receivables Discounting System (TreDs)
- RBI raising rate
1. TN clips Governor’s power to appoint VCs
Context- The Tamil Nadu Assembly has adopted two Bills that seek to empower the government to appoint Vice-Chancellors (VCs) to 13 State universities under the aegis of the Higher Education Department by amending the respective Acts.
What are the highlights of the TN Bills?
- The Bills passed in Tamil Nadu stress that “every appointment of the Vice-Chancellor shall be made by the Government from out of a panel of three names” recommended by a search-cum-selection committee.
- Currently, the Governor, in his capacity as the Chancellor of state universities, has the power to pick a VC from the shortlisted names.
- The Bills also seek to empower the state government to have the final word on the removal of VCs, if needed.
- Removal will be carried out based on inquiries by a retired High Court judge or a bureaucrat who has served at least as a Chief Secretary, according to one of the Bills.
Role of Governors in State Universities
- In most cases, the Governor of the state is the ex-officio chancellor of the universities in that state.
- Its powers and functions as the Chancellor are laid out in the statutes that govern the universities under a particular state government.
- Their role in appointing the Vice-Chancellors has often triggered disputes with the political executive.
Who is a Chancellor of a University?
- In India, almost all universities have a chancellor as their titular head whose function is largely ceremonial.
- The governor of the state, appointed as the union’s representative of state by the president, is the honorary chancellor of all State owned universities.
- The de facto head of any government university is the vice-chancellor.
- In private non-profit universities, normally the head of the foundation who has established the university is the chancellor of the university and is the head of the university.
What about Central Universities?
- Under the Central Universities Act, 2009, and other statutes, the President of India shall be the Visitor of a central university.
- With their role limited to presiding over convocations, Chancellors in central universities are titular heads, who are appointed by the President in his capacity as Visitor.
- The VCs too are appointed by the Visitor from panels of names picked by search and selection committees formed by the Union government.
- The Act adds that the President, as Visitor, shall have the right to authorize inspections of academic and non-academic aspects of the universities and also to institute inquiries.
Are other states trying to curtail the Governor’s role in appointing VCs?
- In December, the Maharashtra Assembly passed a Bill amending the Maharashtra Public Universities Act, 2016.
- Under the original Act, the Maharashtra government had no say in the appointment of VCs.
- In 2019, the West Bengal government took away the Governor’s authority in appointing VCs to state universities.
- But all such motives have been challenged by the University Grants Commission (UGC).
What is at the root of the differences?
- In West Bengal, Maharashtra and Tamil Nadu, the elected governments have repeatedly accused the Governors of acting at the behest of the Centre on various subjects, including education.
- The regulations, which differ from state to state, are often open to interpretation and disputes are routine.
- In fact, the TN Bills make a case for giving the state government the upper hand in the VC appointment process by citing the examples of Gujarat and Telangana.
- In Karnataka, Jharkhand and Rajasthan, state laws underline the need for concurrence between the state and the Governor.
- The terms “concurrence” or “consultation” are absent from state legislation in most cases.
What is the UGC’s role in this?
- Education comes under the Concurrent List.
- But entry 66 of the Union List states — “coordination and determination of standards in institutions for higher education or research and scientific and technical institutions”.
- This gives the Centre substantial authority over higher education.
- According to the UGC Regulations, 2018, the “Visitor/Chancellor” — mostly the Governor in states — shall appoint the VC out of the panel of names recommended by search-cum-selection committees.
- Higher educational institutions, particularly those that get UGC funds, are mandated to follow its regulations.
- These are usually followed without friction in the case of central universities, but are sometimes resisted by the states in the case of state universities.
Judicial observations in this regard
- A Bench of Justices M R Shah and B V Nagarathna said “any appointment as a VC contrary to the provisions of the UGC Regulations can be said to be in violation of the statutory provisions, warranting a writ of quo warranto”.
- It said every subordinate legislation of the UGC, in this case the one on minimum standards on appointments, flows from the parent UGC Act, 1956.
- Therefore, being a subordinate legislation, UGC Regulations become part of the Act.
- In case of any conflict between state legislation and central legislation, central legislation shall prevail by applying the rule/principle of repugnancy as enunciated in Article 254 of the Constitution.
- It reiterated that the subject ‘education’ is in the Concurrent List of the Seventh Schedule of the Constitution.
2. Developers should pay a higher Net Present Value for cutting forests
Context- In January 2022, a Supreme Court-appointed committee criticised the current method of evaluating forests, calling it outdated. It recommended a substantial revision of the Net Present Value (NPV) of forests, fixing compensatory afforestation practices, and the creation of a new body to regulate forest diversion.
- Under the Forest Conservation Act, 1980 (FCA), developers who use forest land for their projects are required to pay a one-time monetary valuation, called Net Present Value (NPV), to the government in lieu of cutting down forests.
- This is then transferred to a fund set up under the Compensatory Afforestation (CAMPA) Act, 2016, which the states have to use for afforestation on non-forest or degraded forest lands.
- It depends on factors such as the quality and type of forests.
- Since 2009, the government has been charging between Rs. 438,000 and Rs. 1.04 million as the NPV for diverting every hectare of forest.
- According to a 2008 Supreme Court order, the NPV was supposed to be revised by the Indian government in three years. But it failed to do so despite recommendations from several committees.
- In January 2021, the Union Ministry of Environment, Forest and Climate Change (MoEFCC) proposed to hike the NPV by 1.51 times which was based on the Wholesale Price Index (WPI). However, while doing so, it set aside the recommendation of a four-time increase in the NPV by another expert group the ministry had constituted earlier in 2014.
- Subsequently, in March 2021, the Supreme Court appointed an expert committee chaired by M.K. Ranjitsinh, wildlife expert and former chairman of the Wildlife Trust of India. Other members included environment ministry officials and renowned environmentalists. Its report was submitted to the apex court on January 4, 2022.
- The MoEFCC informed all the states that a 1.53 times increase of the NPV would now be applicable for all types of forests.
Net Present Value of Forests:
- It is a mandatory one-time payment that a user has to make for diverting forestland for non-forest use, under the Forest (Conservation) Act, 1980.
- This is calculated on the basis of the services and ecological value of the forests.
- It depends on the location and nature of the forest and the type of industrial enterprise that will replace a particular parcel of forest.
- These payments go to the Compensatory Afforestation Fund (CAF) and are used for afforestation and reforestation.
- The CAF is managed by the Compensatory Afforestation Management and Planning Authority (CAMPA).
- The Forest Advisory Committee constituted by the Ministry of Environment, Forest and Climate Change (MoEF&CC) decides on whether forests can be diverted for projects and the NPV to be charged.
- It is a statutory body constituted by the Forest (Conservation) Act 1980.
- Exemptions: Some projects have been provided exemption from paying NPV like construction of Schools, Hospitals, village tanks, laying down of optical fibre etc. Projects like underground mining and wind energy plants have been given a 50% exemption from NPV.
- In the Godavarman Thirumulpad v. Union of India case, 2008, the Supreme Court mandated the payment of NPV.
- The Kanchan Gupta Committee developed the concept of NPV after this case.
Forest Conservation Act, 1980:
- The Forest Conservation Act, 1980 stipulated that the central permission is necessary to practice sustainable agro-forestry in forest areas. Violation or lack of permit was treated as a criminal offence.
- It puts a restriction on the use of forest-land for non-forest purposes.
- It targeted to limit deforestation, conserve biodiversity and save wildlife.
Context- Japan has recently described the Kuril Islands (which Japan calls the Northern Territories and Russia as the South Kurils) as being under Russia’s “illegal occupation”.
What are the Kuril Islands/ Northern Territories?
- These are a set of four islands situated between the Sea of Okhotsk and the Pacific Ocean near the north of Japan’s northernmost prefecture, Hokkaido.
- Both Moscow and Tokyo claim sovereignty over them though the islands have been under Russian control since the end of World War II.
- The Soviet Union had seized the islands at the end of World War II and by 1949 had expelled its Japanese residents.
- Tokyo claims that the disputed islands have been part of Japan since the early 19th century.
Why in news?
- This is the first time in about two decades that Japan has used this phrase to describe the dispute over the Kuril Islands.
- Japan had been using softer language since 2003, saying that the dispute over the islands was the greatest concern in Russia-Japan bilateral ties.
What lies behind the dispute?
- Japan’s sovereignty over the islands is confirmed by several treaties since 1855.
- Russia, on the other hand, claims the Yalta Agreement (1945) and the Potsdam Declaration (1945) as proof of its sovereignty.
- It argues that the San Francisco Treaty of 1951 is legal evidence that Japan had acknowledged Russian sovereignty over the islands.
- Under Article 2 of the treaty, Japan had “renounced all right, title and claim to the Kuril Islands.”
- However, Japan argues that the San Francisco Treaty cannot be used here as the Soviet Union never signed the peace treaty.
Continuing the WW2:
- In fact, Japan and Russia are technically still at war because they have not signed a peace treaty after World War II.
- In 1956, during Japanese PM Ichiro Hatoyama’s visit to the Soviet Union, it was suggested that two of the four islands would be returned to Japan once a peace treaty was signed.
- However, persisting differences prevented the signing of a peace treaty though the two countries signed the Japan-Soviet Joint Declaration, which restored diplomatic relations between the two nations.
- The Soviet Union later hardened its position, even refusing to recognise that a territorial dispute existed with Japan.
- It was only in 1991 during Mikhail Gorbachev’s visit to Japan that the USSR recognised that the islands were the subject of a territorial dispute.
Have there been attempts at resolution?
- Since 1991, there have been many attempts to resolve the dispute and sign a peace treaty.
- The most recent attempt was under PM Shinzo Abe when joint economic development of the disputed islands was explored.
- In fact, both countries had agreed to have bilateral negotiations based on the 1956 Japan-Soviet Joint Declaration.
- Russia was even willing to give back two islands, the Shikotan Island and the Habomai islets, to Japan after the conclusion of a peace treaty as per the 1956 declaration.
- Japan’s attempt to improve ties with Russia was driven by its need to diversify energy sources and Russia by its need to diversify its basket of buyers and bring in foreign investments.
- But nationalist sentiments on both sides prevented resolution of the dispute.
Implications for Japan:
- Soon after the Russian invasion of Ukraine, Japan made its unhappiness with Russia clear.
- Japan has been among the most steadfast of Western allies in denouncing Russian aggression and punishing it with sanctions.
- Japan has probably been spurred by its fears of a Russia-China alliance as Japan itself has territorial disputes and an uneasy history with China.
- Secondly, Japan might have felt that this is a good opportunity to further isolate Russia and paint it as a “habitual offender” of international law.
- Finally, Tokyo might have been prompted to take this position as it feels that the invasion of Ukraine proves that getting back the Kuril Islands is a lost cause.
Subject: Science & Tech
Context- The growing EV mishaps are worrying. The Centre should act fast to establish battery safety standards.
- Sales of EV two wheelers have risen ﬁve times (463 per cent) to 2.31 lakh in 202122.
- This is the fastest growing segment, accounting for over half of total EV sales.
Why only EV Two wheelers catching fire:
- That only two wheeler batteries are catching ﬁre, and not those of cars or three wheelers, is not surprising because of two reasons —
- one, there are more two wheelers on the roads and,
- two, unlike the other segments, the two wheeler market is highly price sensitive, which has apparently driven the manufacturers to cut costs by compromising on safety.
- There is little doubt that the main culprit is battery chemistry.
- Lithium Ion batteries are of many makes, depending upon which other elements lithium has been married to.
- The most commonly used chemistry in two wheelers is nickel manganese cobalt, or NMC, which while being the best in terms of performance and costs, are the most inﬂammable.
- Not surprisingly, most two wheeler makers have procured NMC batteries from China. These are not suited to India’s hot climate.
- Other Li Ion chemistries, such as lithium ferro phosphate (LFP) and lithium titanate oxide (LTO) are costly, but safe.
What can be done:
- NMC could be used with safety features.
- There is plenty on the technology table — such as
- dual fuse for each cell which will automatically cut oﬀ if either the temperature or current exceeds a limit,
- active thermal management to cool down the battery,
- a temperature indicator with a buzzer to warn the rider and an emergency switchoﬀ system.
- The Centre should incentivise the use of solid state batteries, which have no inﬂammable, liquid electrolytes such as those based on abundant, indigenous materials such as sodium, zinc and aluminum.
Subject: Science & Tech
Context- Can flow batteries support India’s renewable energy pivot?
- India’s ambition of creating re newable energy capacity of 500 GW by 2030 cannot be realised without large scale storage systems.
- It is generally accepted that conventional battery systems cannot provide an aﬀordable solution.
- In ﬂow batteries, energy is stored in two liquid electrolytes in separate tanks.
- When you charge, the energy supplied urges electrons from the electron poor side to move to the electron rich side — like taking water uphill — creating a potential diﬀerence.
- During discharge, the reverse happens — electrons ﬂow from the electron rich side to the electron poor side.
- The ﬂow of electrons is electricity. Gaining electrons is a ‘reduction reaction’, losing electrons is ‘oxidation’, hence ‘redox’.
- The conversion of energy from chemical to electrical happens in a cell, which is split into two half cells by a membrane.
- Usually, vanadium is used as an electrolyte.
Significance : Flow batteries bring some signiﬁcant advantages.
- They are modular — one can keep increasing the energy storage capacity by simply raising the volume of the electrolyte tanks.
- The separation of storage capacity and power is a notable advantage. It can be compared this to an internal combustion engine in cars. The size of the engine determines the power; if the manufacturer wants the car to go a longer distance in one fuelﬁll, one only has to increase the fuel tank size.
- They can store power for long durations.
Subject: Science & Tech
Context- NSG to equip paramilitary forces, State police with anti-drone capabilities
About Counter Drone Systems:
- The armed forces — Army, Air Force and Navy — are developing their own capabilities and have lined up to purchase counter drone systems, essentially developed by the Defence Research and Development Organisation (DRDO).
- The counter drone system — available in static and mobile versions — are a combination of technologies that are used for detection, deterrence and destruction of incoming ﬂying object.
- According to the DRDO, the counter drone system consists of the following components:
- Radar and day and night camera to detect and track;
- communication channel for detection and jamming sensors;
- GPS jamming/spoofing system;
- laser directed energy weapon system for destroying; and
- a command and control centre.
- While jamming and spooﬁng are used for ‘soft kill’ which means making drones ineﬀective, laser weapon system is used for ‘hard kill’ ie, destroying the object.
- The National Security Guards (NSG) has been designated as the nodal agency by the Home Ministry to equip other paramilitary forces and State police departments with anti drone capabilities.
- The NSG, which has acquired specialised skill sets do domestically, has already trained police forces from Jammu and Kashmir and Punjab in anti drone warfare.
7. An alternative to plastic pollution
Context- Mumbai-based start-up Zerocircle zeroed in on seaweed in its quest to replace single-use plastic.
- UNEP data shows that global production of primary plastic will touch 1,100 million tonnes by 2050.
- Nearly half of this is designed for one time use.
- Recycling is an option, but 85 per cent ends up in landfills or oceans, as using virgin raw materials are cheaper than recycling.
- Microplastics pollute the ocean, the air, and our bodies. If no action is taken, there will be more plastic in the sea than fish by 2050.
Seaweed- a solution to one time plastics:
- Seaweed is the common name for plankton.
- Seaweed could also be used to make bioplastics — plastic material made from renewable biomass sources — and it is more sustainable compared with agricultural sources such as corn and sugarcane.
- If one want to create bioplastics from agricultural products, it would take 7 per cent of arable land besides needing fertilisers and freshwater, among other inputs. Seaweed, on the other hand, is easier to cultivate and can be harvested within 30 to 40 days.
- Naturally growing seaweed is not plucked out (from the oceans). The cultivation technique, if done correctly, will make the water cleaner.
- When seaweed grows, it absorbs excess nitrogen, phosphorus and carbon dioxide in the oceans.
- Seaweed cultivation becomes an additional source of income for ﬁsher families.
- After it is harvested, the seaweed is dried and powdered. Carbo hydrates are extracted, gelatinised and processed to produce a flexible plastic ﬁlm roll.
- Bio-based plastics means they are developed form biomass (plants) such as corn, sugarcane, vegetable oil or wood pulp.
- Biodegradable plastics are those which possess the characteristics of biodegradability and composability.
- They can be converted into natural substances like water, carbon dioxide, and compost by the action of microorganisms in the environment.
- Bioplastics are biodegradable materials that come from renewable sources and can be used to reduce the problem of contaminating plastic waste that is suffocating the planet and contaminating the environment.
- As an alternative to plastic , the use of bioplastics is being promoted, consisting in obtaining natural polymers from agricultural, cellulose or potato and corn starch waste.
Types of Bioplastics:
- Bioplastics can be prepared from a variety of materials like starch, sugar, cellulose etc.
- Cellulose-based plastics are made from wood pulp and they are used for making film based materials such as wrappers.
- Thermoplastics are starch based plastics. They are used for production of drug capsules as starch has ability to absorb moisture.
- These represent the most widely used bioplastic, constituting about 50 percent of the bioplastics market
- Polylactic Acid (PLA) is made from the fermentation of starch from crops. It is used for preparing computer and mobile phone casings, cups, bottles and other packaging.
- Polyhydroxybutyrate (PHB) is used for making bank notes and car parts etc.
- Polyamide 11 (PA 11) prepared from vegetable oils is used for making oil and gas ﬂexible pipes, and electrical anti-termite cable sheathing etc.
- Photo-degradable plastic which degrades on exposure to light.
8. SC seeks steps for children on streets
Context: SC tells States to follow NCPCR’s norms for the time being.
Observation of Court:
- Supreme Court on Monday directed the States and Union Territories (UTs) that have not yet framed their own policies to rehabilitate children in street situation (CISS) to immediately implement the Standard Operating Procedure for Care and Protection of Children in Street Situation 2.0 framed by the National Commission for Protection of Child Rights (NCPCR) for the time being
- A Bench led by Justice L. Nageswara Rao said these States and Union Territories could follow the NCPCR’s standard operating procedure (SOP) until they devised their own.
- Children could not be made to suffer for the delay on the part of the States and Union Territories to form their rehabilitation policies. Once individual schemes were formed, they have to be forwarded to the NCPCR.
- Court asked the States to approach the NCPCR with suggestions for changing their rehabilitation policies in accordance with their respective ground realities while at the same time keeping in mind the spirit and larger intent of the NCPCR’s SOP to rescue children from the streets.
- National Commission for Protection of Child Rights (NCPCR) is a statutory body established under the Commission for Protection of Child Rights (CPCR) Act, 2005.
- It is under the administrative control of the Ministry of Women and Child Development.
- Under the act, a Child is defined as a person in the 0 to 18 years age group.
- The Commission’s Mandate is to ensure that all Laws, Policies, Programmes, and Administrative Mechanisms are in consonance with the Child Rights perspective as enshrined in the Constitution of India and also the UN Convention on the Rights of the Child.
- This commission has a chairperson and six members of which at least two should be women.
- All of them are appointed by Central Government for three years.
- The maximum age to serve in commission is 65 years for Chairman and 60 years for members.
- The salary and allowances payable to, and other terms and conditions of service of, the Chairperson and Members, shall be such as may be prescribed by the Central Government.
Under the RTE Act, 2009, the NCPCR can:
- Inquire into complaints about violation of the law.
- Summon an individual and demand evidence.
- Seek a magisterial enquiry.
- File a writ petition in the High Court or Supreme Court.
- Approach the government concerned for prosecution of the offender.
- Recommend interim relief to those affected.
- Commission shall not enquire into any matter which is pending before a State Commission or any other Commission duly constituted under any law for the time being in force.
- Present an annual report to the Central Government and at such other intervals as the Commission may deem fit.
9. A docket full of unresolved constitutional cases
Supreme Court of India’s docket reveals a host of highly significant constitutional cases that were long-pending. All these cases involve crucial questions about state power, accountability, and impunity.Consequently, the longer they are left hanging without a decision, the greater the damage that is inflicted upon our constitutional democracy’s commitment to the rule of law.
Some of these cases are;
- Constitutional challenge to the Presidential Orders of August 5, 2019, that effectively diluted Article 370 of the Indian Constitution, and bifurcated the State of Jammu and Kashmir into two Union Territories, controlled by the Centre.
- Raises the question of whether the Centre can take advantage of an Article 356 situation in a State — a time when no elected government and Assembly is in existence — to make permanent and irreversible alterations in the very structure of the State itself.
- Also raises the question of whether, under the Constitution, the Union Legislature has the authority not simply to alter State boundaries (a power granted to it by Article 3 of the Constitution), but degrade a State into a Union Territory (something that has never been done before August 5, 2019). If it turned out that the Union Legislature does have this power, it would essentially mean that India’s federal structure is entirely at the mercy of Parliament
- Constitutional challenge to the electoral bonds scheme,that has now crossed four years.
- Constitutional challenges to the Citizenship (Amendment) Act (CAA), filed in the immediate aftermath of the legislation’s enactment, remain unheard.
Subject: Art and Culture
Context: IPRS has so far collected royalties of over Rs 300 crore in FY 21-22, almost doubling that of the previous year despite the pandemic which hit the overall entertainment industry hard.
- The Indian Performing Right Society Ltd (IPRS), which represents music composers, lyricists and publishers, is singing all the way to the bank, due to the surge in digital consumption of music on OTT and streaming platforms and the rising adoption of short-form video platforms.
- Besides Indian music composers, authors and publishers, it also represents international film players.
- In 2022, it collected royalties about Rs 310 crore and in the next 2-3 years it is expected to cross Rs 500 crore.With mobility restriction seased, the music copyright society anticipates income from events, malls, restaurants and hotels to see a revival this fiscal year.
- Earlier, it distributed royalties of about Rs 183 crore in FY21 and about Rs 141 crore in FY20.
- IPRS (came into existence in 1969) is to legitimize use of copyrighted Music by Music users by issuing them Licences and collect Royalties from Music Users, for and on behalf of IPRS memberse., Authors, Composers and Publishers of Music.
- Royalty thus collected is distributed amongst members after deducting IPRS’s administrative costs.
- Composers are those who are better known as Music Directors, Authors are better known as Lyricists, Publishers of Music are the Music Companies, or those who hold Publishing Rights of the Musical & Literary Works. Authors and Composers are sometimes referred to as Writers which can mean any or both of them.
- The Company’s policy and administration are controlled by a Governing Council of Directors elected by the Members at General Meetings every year from amongst their own numbers.
- The Company has its Registered and Corporate Office at Mumbai with branch offices at Delhi, Chennai and Kolkata through which, the Society carries on its licensing activities.
Music Copyright Society:
- The music copyright society include prominent names such as Javed Akhtar, (Chairman of IPRS), besides AR Rahman, Salim-Sulaiman, Vishal Dadlani, and a host of other artistes cutting across languages such as Hindi, Marathi, Tamil, Telugu, Bhojpuri and Punjabi.
- Music licence is needed whether it’s for a public performance, commercials, ringtones, TV or radio or played in restaurants, hotels or malls or on digital platforms.
Section : External Sector
Why in the news?
Countertrade has emerged as an important mode of international transactions for countries facing currency or cross- border payment challenges.
Countertrade is a reciprocal form of international trade in which goods or services are exchanged for other goods or services rather than for hard currency. This type of international trade is more common in developing countries with limited foreign exchange or credit facilities.
- Barter: Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment.
- Switch trading: Practice in which one company sells to another its obligation to make a purchase in a given country.
- Counterpurchase: The sale of goods and services to a company in another country by a company that promises to make a future purchase of a specific product from the same company in that country.
- Buyback: occurs when a firm builds a plant in a country, or supplies technology, equipment, training, or other services to the country, and agrees to take a certain percentage of the plant’s output as partial payment for the contract.
- Offset: Agreement that a company will offset a hard-currency purchase of an unspecified product from that nation in the future. Agreement by one nation to buy a product from another, subject to the purchase of some or all of the components and raw materials from the buyer of the finished product, or the assembly of such product in the buyer nation.
- Compensation trade: Compensation trade is a form of barter in which one of the flows is partly in goods and partly in hard currency.
- Debt-for-goods:a country avails itself of funding for a development project, and full or partial repayment of the debt is through exchange of goods or services to the lender country.
For the lender country, such a model can provide avenues for exports of high value-added goods and services tied to the development financing, while also helping secure the supply of key raw materials through imports from the borrower country.
For the borrower country, such a model helps in financing critical infrastructure development, without depletion of scarce forex resources.
- Barter trade agreement with Iraq under the ‘oil-for-food’ programme wherein Iraq agreed to facilitate daily delivery of a fixed quantity of oil to India at a fixed price in exchange for exports of rice and wheat from India.
- Counter purchase agreement with Malaysia wherein a rail construction project was undertaken by IRCON International Ltd. in Malaysia, for which the Malaysian government made payments to IRCON through the supply of palm oil of equivalent value to India.
- Buyback arrangement with the erstwhile Soviet Union wherein the National Textiles Corporation Ltd. (NTC) of India bought 200 sophisticated looms, in return for a buyback commitment by the Soviet Union to purchase 75 percent of the textile produced from the looms
- Debt-for-goods arrangement with Vietnam wherein India Exim Bank extended a Commercial Line of Credit to Vietnam and in return, the Food Corporation of India imported rice from Vietnam and paid to IDBI/India Exim Bank for the imports;
- Clearing arrangement with Iran wherein a Rupee payment mechanism was established between India and Iran in 2012 under which the Rupee accumulated from payments for imports by India was utilised for payment for exports of products, projects and services to Iran.
12. Trade Receivables Discounting System (TreDs)
Section : External Sector
Why in the news?
The Trade Receivables Discounting System (TreDs), a bills discounting platform for MSMEs vendors, has shown some growth in the wake of the pandemic-induced crisis, but is still an under-performer in relation to the unmet credit needs of MSMEs.
Trade Receivables Discounting System (TreDs):
TReDS is an electronic platform for facilitating the financing / discounting of trade receivables of Micro, Small and Medium Enterprises (MSMEs) through multiple financiers. These receivables can be due from corporates and other buyers, including Government Departments and Public Sector Undertakings (PSUs).
TReDS is a payment system authorised under the Payment and Settlement Systems (PSS) Act, 2007. It is a platform for uploading, accepting, discounting, trading and settling invoices / bills of MSMEs and facilitating both receivables as well as payables factoring (reverse factoring). MSME sellers, corporate and other buyers, including Government Departments and PSUs, and financiers (banks, NBFC-Factors and other financial institutions, as permitted) are direct participants in the TReDS and all transactions processed under this system are ‘”without recourse” to MSMEs.
Who can participate as a seller in TReDS?
Only MSMEs can participate as sellers in TReDS.
Who can participate as a buyer in TReDS?
Corporates, Government Departments, PSUs and any other entity can participate as buyers in TReDS.
Who can participate as a financier in TReDS?
Banks, NBFC – Factors and other financial institutions as permitted by the Reserve Bank of India (RBI), can participate as financiers in TReDS.
Broadly, following steps take place during financing / discounting through TReDS:
- Creation of a Factoring Unit (FU) – standard nomenclature used in TReDS for invoice(s) or bill(s) of exchange – containing details of invoices / bills of exchange (evidencing sale of goods / services by the MSME sellers to the buyers) on TReDS platform by the MSME seller (in case of factoring) or the buyer (in case of reverse factoring);
- Acceptance of the FU by the counterparty – buyer or the seller, as the case may be;
- Bidding by financiers;
- Selection of best bid by the seller or the buyer, as the case may be;
- Payment made by the financier (of the selected bid) to the MSME seller at the agreed rate of financing / discounting;
- Payment by the buyer to the financier on the due date.
Section : Monetary Policy
Why in the news?
Former RBI governor Raghuram Rajan said that bureaucrats and politicians need to realise that raising policy rates does not amount to anti-national activity that benefits foreign investors but is an investment in economic stability, whose greatest beneficiary is the Indian citizen.
RBI has shifted its focus to inflation as its first priority from growth. It will remain accommodative with a focus on the withdrawal of accommodation. Markets are anticipating a repo rate hike in the June policy.
Various types of monetary policy stances:
- Accommodative-An accommodative stance means the central bank is prepared to expand the money supply to boost economic growth. The central bank, during an accommodative policy period, is willing to cut the interest rates. A rate hike is ruled out.
The Reserve Bank of India (RBI) has been on an accommodative stance for the last two years to support the economy during the COVID-19 crisis. The central bank typically adopts an accommodative policy when growth needs policy support and inflation is not the immediate concern.
- Neutral-It suggests that the central bank can either cut rate or increase rate. This stance is typically adopted when the policy priority is equal to both inflation and growth. During neutral policy, the central bank doesn’t commit to hiking rates or cuts. The interest rate can move to either side depending on incoming data. The guidance indicates that the market can expect a rate action on either way at any point.
- Hawkish-A hawkish stance indicates that the central bank’s top priority is to keep the inflation low. During such a phase, the central bank is willing to hike interest rates to curb money supply and thus reduce the demand. A hawkish policy also indicates tight monetary policy. A rate cut is nearly certain during such a period. When the central bank increases rates or ‘tightens’ the monetary policy, banks too increase their rate of interest on loans to end borrowers which, in turn, curbs demand in the financial system.
- Calibrated tightening -Calibrated tightening means during the current rate cycle, a cut in the repo rate is off the table. But, the rate hike will happen in a calibrated manner. This means the central bank may not go for a rate increase in every policy meeting but the overall policy stance is tilted towards a rate hike. This can happen outside the policy meetings as well if the situation warrants.
Importance of rising rate of interest:
- Decline in credit growth-as borrowing becomes expensive.
- Decline in money supply and inflation– as credit growth declines
- Capital inflows -as relative rate of return rises with respect to other countries.
- Currency appreciation– as supply of foreign currency rises relative to domestic currency
- Bond yield fall-Bond yields move in the opposite direction to their prices; since yields are closely correlated to the government policy rate, monetary tightening implies a bond rout, particularly when trillions of dollars’ worth of government bonds have been bid up to the point that they trade with negative yields.