Daily Prelims Notes 27 July 2024

July 27, 2024
Posted by: OptimizeIAS Team
Category: DPN

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Daily Prelims Notes

27 July 2024

Table Of Contents

1. Tax Relief Issues for Non-Bank P-Note Holders in GIFT IFSC

Subject: Eco

Sec: Capital market

Lack of Tax Relief:
- The recent Budget did not extend tax exemptions to non-resident holders of offshore derivatives instruments (ODIs), also known as P-Notes, issued by non-bank entities in GIFT IFSC (Gujarat International Finance Tec-City International Financial Services Centre).
Current Tax Exemption:
- Section 10(4E) of the Income-Tax Act provides tax exemption to non-resident ODI holders for income from derivative instruments contracted with IFSC banks. However, this exemption does not apply to non-bank entities issuing ODIs.
Regulatory Changes:
- In May, the International Financial Services Centres Authority (IFSCA) permitted non-bank entities, such as broker-dealers and fund managers registered as foreign portfolio investors (FPIs), to issue ODIs in GIFT IFSC.
- Prior to this, only foreign banks could issue such instruments.
Call for Amendments:
- Experts argue that the lack of tax exemptions for non-bank entities creates uncertainty and disparity in the market. Experts highlighted the need for similar tax clarity provided to IFSC banks to develop this product segment.
Impact on Investments:
- Also, emphasized that extending tax relief to non-bank entities would encourage more investments, especially in debt instruments. The absence of such exemptions discourages potential investors due to tax uncertainties.
Comparison with Treaty Benefits:
- Relying on treaty benefits for ODI structures done outside India involves stringent conditions. For example, ODIs from the UK require reliance on the UK-India tax treaty for tax benefits on interest income and dividends.
- Using GIFT IFSC as a base provides an added layer of certainty, as it avoids treaty-abuse provisions and capital gains tax on debt investments.
Previous Legislative Changes:
- The Budget 2023 amended Section 18A of the Securities Contract Act, 1956, validating ODI contracts issued by FPIs in GIFT IFSC and regulated by the IFSCA.
Market Share:
- P-Notes accounted for 2.14% of the total assets under custody of FPIs as of March this year, indicating a significant portion of investment flows.

Conclusion: The absence of tax relief for non-bank P-Note holders in GIFT IFSC raises concerns about market fairness and investment attractiveness. Experts suggest amending the tax laws to provide certainty and boost investment through this financial route.

Participatory Notes (P-Notes)

P-Notes are a form of Offshore Derivative Instruments (ODIs) issued by registered Foreign Portfolio Investors (FPIs) to overseas investors.
These instruments allow foreign investors to participate in the Indian stock markets without registering directly with the Securities and Exchange Board of India (SEBI).
P-Notes typically have Indian stocks as their underlying assets, providing exposure to the Indian equity market.
Role of FPIs:
- Foreign Portfolio Investors (FPIs) are non-residents who invest in Indian securities, including shares, government bonds, and corporate bonds. They are registered entities with SEBI and play a crucial role in facilitating investments through P-Notes.
Regulatory Framework:
- While P-Note holders benefit from less stringent registration requirements compared to direct investors, they are still subject to a proper due diligence process conducted by SEBI. This process ensures that investments via P-Notes adhere to regulatory standards and guidelines.

2. RBI introduces PCA framework to improve financial health of UCBs

Subject: Eco

Sec: Monetary policy

Context: The Reserve Bank of India (RBI) on Friday prescribed a Prompt Corrective Action (PCA) framework for relatively weak urban co-operative banks (UCBs), with deposits above ₹100 crore (upper tier category), to nurse them back to health.

Details:

As per the framework, a financially unsound and ill-managed UCB can be brought under PCA if it breaches the risk thresholds of identified indicators pertaining to capital and profitability (net profit).
Currently, there are around 1,500 UCBs in the country. RBI classifies UCBs as Tier-I (deposits up to ₹100 crore); Tier-2 (more than ₹100 crore and up to ₹1,000 crore); Tier-3 (deposits more than ₹1,000 crore and up to ₹10,000 crore); and Tier-4 (above ₹10,000 crore). Tiers 2 to 4 come under the upper Tier.
RBI said the objective of the PCA Framework is to enable supervisory intervention at an appropriate time and require the UCBs to initiate and implement remedial measures in a timely manner, to restore their financial health
The provisions of the PCA Framework will be effective from April 1, 2025.

RBI has prescribed three risk thresholds for invoking PCA for breach of CRAR (10 per cent as of March-end 2024, 11 per cent as of March-end 2025 and 12 per cent as of March-end 2026) below the regulatory minimum – up to 250 basis points (bps); more than 250 bps but not exceeding 400 bps; and more than 400 bps.
In the case of NNPAs, too three risk thresholds have been prescribed – greater than or equal to 6 per cent but below 9 per cent; greater than or equal to 9 per cent but below 12 per cent; and greater than or equal to 12 per cent.
In the case of profitability, RBI has prescribed only one parameter “incurred losses during two consecutive years” for breach. In SAF too this was this parameter was prescribed.

3. 219 proposals for High Court judge appointment under process: govt

Subject: Polity

Sec: JUDICIARY

Context:

Chief Justices of the High Courts are required to initiate the proposal to fill up a vacancy of a High Court judge six months prior to the occurrence of vacancy.

More on News:

Names recommended by the High Court Collegium are sent with the views of the government to the SCC for advice.
Recommendation of the SCC is mandatory for appointment.
Appointment of Judges in the High Courts is a continuous, integrated and collaborative process, involving approval from various constitutional authorities.
The process of finalising a revised Memorandum of Procedure for Appointment of Judges to the Supreme Court and High Courts to bring in more transparency and accountability in the appointment process has not seen the light of the day.
The decision to reexamine the Memorandum of Procedure was taken after the Supreme Court struck down the National Judicial Appointments Commission law in 2015.

Appointment of High Court Judges:

The appointment of High Court judges is a collaborative process involving the Chief Justice of India (CJI), the Supreme Court Collegium, the Union Government, and the President of India.
The CJI heads the Supreme Court Collegium, a body of senior judges responsible for recommending candidates for judicial appointments.
The Union Government, through the Ministry of Law and Justice, processes these recommendations and forwards them to the President for final approval.
Articles 124(2)and 217 of the Indian Constitution deal with the appointment of judges to the Supreme Court and High Courts .
Constitutional Provisions for Judicial Appointments

Article 124

Supreme Court judges should be appointed by the Presidentafter consultation with such judges of the High Courts and the Supreme Court as the President may deem necessary. The CJI is to be consulted in all appointments except his or her own.

Article 217

High Court judges should be appointed by the President after consultation with the CJI and the Governor of the state. The Chief Justice of the High Court concerned too should be consulted.

National Judicial Appointment Commission Act, 2014:

The 1993 judgment was the basis on which a five-judge Constitution Bench declared the National Judicial Appointments Commission Act (NJAC) and the Constitutional (Ninety-Nine Amendment) Act, 2014 unconstitutional in October 2015.
NJAC too would recommend names for the Appointment of Supreme Court Judge and Appointment and Transfer of High Court Judge
Composition of NJAC

The Chief Justice of India
2 senior-most judges of the Supreme Court
The Law Minister of India
2 eminent members that are chosen by the Selection Committee

4. UN puts 4th-century Gaza monastery on endangered site list

Subject: IR

Sec: Int Org

Context:

The Saint Hilarion complex, one of the oldest monasteries in the Middle East, has been put on the UNESCO list of World Heritage sites in danger due to the war in Gaza.

More on News:

The site which dates back to the fourth century, had been put on the endangered list at the demand of Palestinian authorities and cited the “imminent threats”.
In December, the UNESCO Committee for the Protection of Cultural Property in the Event of Armed Conflict decided to grant “provisional enhanced protection” — the highest level of immunity established by the 1954 Hague Convention — to the site.

List of World Heritage in Danger:

The List of World Heritage in Danger is compiled by then United Nations Educational, Scientific and Cultural Organization (UNESCO) through the World Heritage Committee according to Article 11.4 of the World Heritage Convention, which was established in 1972 to designate and manage World Heritage Sites.
Entries in the list are threatened World Heritage Sites for the conservation of which major operations are required and for which “assistance has been requested”.
The list is intended to increase international awareness of the threats and to encourage counteractive measures.
Threats to a site can be either proven imminent threats or potential dangers that could have adverse effects on a site.

5. Rival gangs sign truce in Haiti’s largest shantytown

Subject: IR

Sec: Places in news

Context:

Port-Au-Prince, Haiti (AFP)— Two rival gang leaders signed a truce to end armed conflict in Haiti’s largest shantytown.

More on News:

Under the agreement between leaders of the G9 and G-Pep groups, roadblocks in the Cite Soleil (Sun City) shantytown of around 300,000 inhabitants were taken down.
Violence in Port-au-Prince has skyrocketed in recent months, sparking a serious humanitarian crisis.

Haiti’s Gang war:

Since 2020, Haiti’s capital Port-au-Prince has been the site of an ongoing gang war between two major criminal groups and their allies: the Revolutionary Forces of the G9 Family and Allies (FRG9 or G9) and the G-Pep.
The Government of Haiti and Haitian security forces have struggled to maintain their control of Port-au-Prince amid this conflict, with gangs reportedly controlling up to 90% of the city by 2023.
In response to the escalating gang fighting, an armed vigilante movement, known as bwa kale, also emerged, with the purpose of fighting the gangs.
On 2 October 2023, United Nations Security Council Resolution 2699 was approved, authorizing a Kenya-led “multinational security support mission” to Haiti.
In March 2024, gang violence spread throughout Port-au-Prince with the goal of obtaining the resignation of acting prime minister Ariel Henry, leading to the storming of two prisons and the release of thousands of prisoners. These attacks and subsequent attacks on various government institutions led the Haitian government to declare a state of emergency and impose a curfew.

Formation of G9 Alliance:

Another coalition of nine gangs was announced to be founded in Port-au-Prince in June 2020, which became the “G9 Alliance” led by Chérizier.
Since the coalition was founded, it has been responsible for multiple massacres against civilians and clashes with other rival gangs. From 2020 to 2021, the G9 was responsible for a dozen massacres, in which at least 200 people were killed.
The G9 was believed to have had close ties to the government of Moïse, which was accused of large-scale corruption.
The coalition members frequently evaded prosecution after the massacres and the clashes.
The G9 also began attacking neighborhoods in which civilians protested against the president and started clashes against rival gangs with the support of the police.
In response to the growing dominance of G9, a rival gang alliance, called “G-Pep”, was founded in July 2020.
It consisted of mainly those gangs in Port-au-Prince’s Cité Soleil who were strongly opposed to joining G9.
G-Pep was suspected of connection to various opposition parties and so opposed G9 and its ties to Moïse.

6. Are melanistic leopards increasing in Karnataka, given frequent sightings? Sign of habitat loss, say experts

Sub: Env

Sec: Species in news

Context:

Frequent sightings of melanistic leopards, also known as ‘black panthers,’ have been reported in Karnataka, raising curiosity among wildlife enthusiasts.
Melanism is a genetic condition causing black skin and spots, found in about 11% of the Indian leopard subspecies.

Population and Habitat Concerns:

The increase in sightings does not necessarily indicate a population rise; it may reflect habitat loss.
Karnataka’s leopard population is stable at around 2,500, with approximately 11% being melanistic.
The overall leopard population in India has grown from 8,000 in 2014 to 12,852 in 2018, with significant populations in Madhya Pradesh, Karnataka, and Maharashtra.

Habitat Loss and Human Encroachment:

Leopards in Karnataka face significant habitat loss due to urban expansion, deforestation, and agricultural activities.
This habitat encroachment forces leopards into human-dominated areas, increasing the likelihood of sightings and potential conflicts.

Melanistic Leopard/Black Panther:

Leopards (Panthera Pardus) are either light-coloured (pale yellow to deep gold or tawny) with black rosettes or black fur.
The melanistic leopards, which are either all-black or very dark in colouration, are known as black panthers. It is a colour variant of spotted Indian leopards, reported from densely forested areas of south India.
Black coat colouration is attributed to the expression of recessive alleles in leopards and dominant alleles in jaguars. In each species, a certain combination of alleles stimulates the production of large amounts of the dark pigment melanin (Melanism) in the animal’s fur and skin.
The appearance of a black coat may be influenced by other factors, such as the angle of incident light and the animal’s life stage.
It is as shy as a normal leopard and very difficult to detect.
Habitat:
- They are mainly in Southwestern China, Burma, Nepal, Southern India, Indonesia, and the southern part of Malaysia.
- In India, they can be spotted in the states of Karnataka, Tamil Nadu, Kerala, Maharashtra etc.
Threats:
- Habitat loss.
- Collision with vehicles.
- Diseases.
- Human encroachment.
- Poaching.
Protection Status:
- IUCN Red List: Vulnerable.
- CITES: Appendix I.
- Wildlife (Protection) Act, 1972: Schedule I.

Source: DTE

7. State of the World’s Forests 2024: Global efforts curb deforestation, but threats to forests from wildfires and pests remain

Sub: Env

Sec: Eco system

State of the World’s Forests Report:

The FAO released a report on July 22, 2024, highlighting both relief and concern regarding global forests.
The rate of deforestation has slowed, but climate change continues to pose significant threats.

Deforestation and Forest Cover:

Global forest cover in 2020 was approximately 4.1 billion hectares, with major contributions from Russia, Brazil, Canada, the USA, and China.
From 1990 to 2020, around 420 million hectares of forest were converted to other land uses.
Deforestation rates decreased from 15.8 million hectares per year (1990-2002) to 10.2 million hectares per year (2015-2020).

Regional Trends in Deforestation:

Africa, South America, and Asia had the highest deforestation rates, with Africa losing 4.41 million hectares annually.
Several countries, including China, Australia, and India, recorded gains in forest area in 2020.
Indonesia saw an 8.4% decrease in deforestation in 2021-22 compared to 2020-21, the lowest since 1990.
Brazil reported a 50% reduction in deforestation in the Legal Amazon region in 2023.

Mangroves and Their Resilience:

The global mangrove area was 14.8 million hectares, with South and Southeast Asia contributing nearly 44%.
Gross global mangrove loss decreased by 23% between 2000-2020.
Natural expansion of mangroves exceeded the loss to natural causes, indicating resilience.

Impact of Fires and Climate Change

An estimated 340-370 million hectares of land are impacted by fires annually, with 383 million hectares affected in 2023.
The increasing frequency and intensity of wildfires are contributing significantly to global carbon dioxide emissions.
Boreal fires in 2021 accounted for about 10% of global carbon emissions.

Threats from Pests and Diseases

Forests are threatened by pests like the pine wood nematode, which caused significant damage in China, Japan, and South Korea.
The USA faces potential losses exceeding 20% of host tree basal area over 25 million hectares by 2027 due to insects and disease.
Monitoring of forest degradation and pest outbreaks is still in its early stages, making it difficult to quantify economic impacts.

Source: DTE

8. No pollution control permits for ‘white category’ sectors now

Sub: Env

Sec: Pollution

Context:

The Union Environment Ministry has proposed that industries categorized under the ‘white category’ by the Central Pollution Control Board (CPCB) will no longer require prior permission from state pollution control boards to establish and operate under the Air Act, 1981, and Water Act, 1974.
These permissions, known as ‘consent to establish’ (CTE) and ‘consent to operate’ (CTO), are traditionally granted to regulate industries discharging pollutants.

Proposed Changes to Permissions:

The ministry suggests eliminating the CTE permit requirement for projects/activities that need prior environmental clearance (EC).
CTEs, previously issued with specific conditions to meet pollution norms, might now be integrated with the EC granted by the Ministry of Environment.
The ministry has released two separate draft notifications under the Air Act, 1981, and Water Act, 1974, inviting comments and objections within 60 days.

White Category Industries:

Industries such as wind and solar power projects, air cooler assembly, and bicycle assembly fall under the white category, exempting them from CTE and CTO permits.
After CPCB’s recategorization in 2016, sectors with a Pollution Index (PI) score up to 20 are classified as white-category industries.
These industries are required to inform state pollution control boards about their operations through self-declarations.
The Pollution Index ranges from 0 to 100, with higher values indicating greater pollution. The criteria for categorization are as follows:

Red category: PI score of 60 and above
Orange category: PI score of 41 to 59
Green category: PI score of 21 to 40
White category: PI score up to 20

Source: IE