Daily Prelims Notes 28 December 2024

Daily Prelims Notes

28 December 2024

Table Of Contents

1. The 1991 Economic Reforms: How Manmohan Singh’s Historic Budget Speech Reshaped India
2. As rupee hits new lows, real effective exchange rate soars to an all-time high
3. UNSC authorises new peacekeeping mission in Somalia
4. The Houthis of Yemen, and how they figure in Iran’s ‘axis of resistance’ against Israel
5. Smart Classroom Initiative Spurs Enrolment and Enhances Learning Experience
6. IIT-Bombay Develops Needle-Free ‘Shock Syringe’ for Painless Injections

1. The 1991 Economic Reforms: How Manmohan Singh’s Historic Budget Speech Reshaped India

Sub : Eco

Sec: External sector

Why in News

• The economic reforms of 1991, led by then Finance Minister Dr. Manmohan Singh, remain a cornerstone of India’s modern economic history. This transformative moment addressed a grave fiscal crisis, marked by soaring deficits and dwindling foreign reserves, and laid the foundation for liberalization, privatization, and globalization in India.

Background: India’s Economic Crisis of 1991

• The fiscal deficit had ballooned to 8% of GDP, driven by mounting government expenses.
• India’s foreign reserves had dwindled, leaving the country with only three days’ worth of fuel.
• By February 1991, inflation had soared to 13.7%, adding to the economic distress.
• Collapse of the Soviet Union, India’s long-standing ally.
• Gulf War, triggered by Saddam Hussein’s invasion of Kuwait, which skyrocketed fuel prices.

Manmohan Singh’s Historic Budget Speech:

• Delivered on July 25, 1991, this speech was pivotal in addressing the crisis and outlining a vision for reform.
• Acknowledgment of the Crisis: International trust in India’s economy plummeted after 1989 due to political instability and fiscal imbalances.
• Internal public debt had reached 55% of GDP, creating unsustainable pressure.
• Singh stated, “Neither the Government nor the economy can live beyond its means year after year.”
• The Reform Agenda

• • Key Priorities:
    • Stabilizing the macroeconomic environment.
    • Reducing fiscal deficits through structural adjustments.
    • Reforming industrial policies to boost efficiency and global competitiveness.
• Singh criticized the underperformance of the public sector, emphasizing its need for modernization and higher productivity.
• He advocated for greater reliance on foreign investments and technology to drive growth.

Key Components of LPG Reforms:

• Liberalization:
  • Abolition of the License Raj, reducing the need for licenses and permits for businesses.
  • Deregulation of interest rates and reduction in statutory liquidity ratios.
  • Reduction in tariffs and import duties to encourage foreign trade.
• Privatization:
  • Disinvestment: Selling government stakes in public sector enterprises to improve efficiency.
  • Encouraging private investment in sectors previously reserved for the public sector.
• Globalization:
  • Permitting higher levels of FDI in various sectors to integrate with the global economy.
  • Transition to a market-determined exchange rate system.

Outcomes and Impacts

• • Post-reforms, India’s GDP growth rate accelerated significantly.
  • FDI inflows increased from $97 million in 1990-91 to $81.72 billion in 2020-21.
  • The manufacturing sector’s productivity saw substantial growth.
  • The services sector’s contribution to GDP increased from 37.2% in 1990-91 to 54.3% in 2020-21.

The Global Parallel: Lessons from USSR’s Perestroika:

• USSR’s Reform Attempt: Mikhail Gorbachev’s perestroika (restructuring) and glasnost (openness) aimed to revive the Soviet economy in 1988 but ended unsuccessfully.
• The Soviet Union eventually collapsed in December 1991.
• India’s Approach: Unlike the USSR, India combined stabilization measures with robust structural reforms, avoiding a similar fate.

2. As rupee hits new lows, real effective exchange rate soars to an all-time high

Sub: Eco

Sec: External sector

Overview:

• The rupee is hitting fresh lows against the US dollar each day, yet its exchange rate has scaled an all-time-high in “real effective” terms.
• Real effective exchange rate (REER) index of the rupee touched a record 108.14 in November, strengthening by 4.5 per cent during this calendar year, according to the latest RBI data.

Factors Behind the Divergence:

The divergence between the rupee’s weakening against the US Dollar and its strengthening in the REER can be explained by two main factors:

1. Strengthening of the US Dollar:
   • The US Dollar has strengthened significantly post Donald Trump’s victory in the US presidential elections with Dollar Index, which measures the dollar’s value against six major currencies (euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc)
   • This has been primarily driven by expectations that US policies, such as tariff hikes, tax cuts, and mass deportations, will lead to higher inflation in the US.
   • This, in turn, would keep US Federal Reserve policies tight, leading to higher interest rates and a stronger dollar.

2. Rupee’s performance against other currencies:
   • Despite its depreciation against the dollar, the rupee has appreciated against other major currencies such as Euro, British pound and Japanese Yen in the same period.

Real effective exchange rate (REER):

• The real effective exchange rate (REER) is the weighted average of a country’s currency in relation to an index or basket of other major currencies.
• REER represents the inflation-adjusted, trade-weighted average value of a currency against its trading partners.
• The REER is a more comprehensive measure of a currency’s value because it accounts for the rupee’s exchange rate not just against the dollar, but also against a basket of 40 global currencies, which represent 88% of India’s total trade.
• Countries with the largest trading relationships would typically have the largest weightings in this comparative index, while countries with small trading relationships would have smaller weightings in the basket of currencies.

REER vs NEER:

Implications of High REER:

• A REER value above 100 suggests that the rupee is overvalued relative to its trading partners. In this case, the rupee is not depreciating enough to offset inflation, leading to its overvaluation.
• A stronger REER makes imports into India cheaper because foreign goods become less expensive in comparison to domestic goods.
• An overvalued rupee makes Indian exports less competitive as the cost of Indian goods rises in foreign markets.

3. UNSC authorises new peacekeeping mission in Somalia

Sub: IR

Sec: Int Org

Context:

• The United Nations Security Council authorized a new African Union Stabilization and Support Mission in Somalia (AUSSOM), which will begin on January 1, 2025.
• This mission will replace the larger African Union (AU) anti-terrorism operation currently in place.

Somalia’s Security Situation:

• Somalia’s security situation has been unstable for over a decade, beginning with Ethiopia’s military intervention in 2006 that ousted an Islamist-led government.
• The intervention, while initially successful in removing the administration, sparked a violent insurgency that has since claimed tens of thousands of lives.
• The country’s security has been heavily reliant on foreign assistance, especially from African Union forces, which have been stationed in Somalia to combat terrorism and insurgent groups like al-Shabaab.

Funding concerns:

• The European Union (EU) and United States, the top funders of AU forces in Somalia, wanted to reduce the number of African Union peacekeepers due to concerns about long-term financing and sustainability.
• The US, citing concerns about the funding and sustainability of the mission, abstained from voting on the resolution for AUSSOM. The remaining 14 members of the UN Security Council, however, voted in favour of the resolution, allowing the new mission to proceed.

About UNSC:

• The Security Council was established by the UN Charter in 1945. It is one of the six principal organs of the United Nations.
• The other 5 organs of the United Nations are—the General Assembly, the Trusteeship Council, the Economic and Social Council, the International Court of Justice, and the UN Secretariat.
• Its primary responsibility is to work to maintain international peace and security.
• The council has 15 members: the five permanent members and 10 non-permanent members elected for two-year term
• The five permanent members are the United States, the Russian Federation, France, China and the United Kingdom.
• Each member of the Security Council has one vote. Decisions of the Security Council on matters are made by an affirmative vote of nine members including the concurring votes of the permanent members.
• A “No” vote from one of the five permanent members blocks the passage of the resolution.
• The council’s presidency is a capacity that rotates every month among its 15 members.
• The council is headquartered at New York.

4. The Houthis of Yemen, and how they figure in Iran’s ‘axis of resistance’ against Israel

Sub : IR

Sec: Places in news

Context:

• Israel bombed several places in Yemen recently, including the airport in capital Sana’a, some Red Sea ports, and power stations.
• This move marks the expansion of Israel’s operations targeting the Houthi militant group, Ansar Allah, as part of its broader campaign against Iran and the “axis of resistance.”

The Houthis’ role in the Yemeni Civil War:

• Ansar Allah, commonly known as the Houthis, is a Zaydi Shia Islamist political and militant group that launched its insurgency against the Yemeni government in the early 2000s.
• Over time, it expanded its influence and captured significant territory, including the capital city, Sanaa, in 2014.
• Since then, Ansar Allah has functioned as a de facto government for much of Yemen, successfully maintaining control over large areas of the country.
• The internationally recognized Yemeni government, which has been in exile in the southern port city of Aden, has been backed by a coalition of Saudi Arabia, UAE Emirates (UAE), and other regional powers, while the Houthis are supported by Iran and Russia.

Shift in Houthi Strategy:

• Initially focused on the internal Yemeni conflict, the Houthis expanded their attacks following the October 7 Hamas attacks, framing their cause as part of the broader resistance against Israel and the U.S.
• This led to increased maritime and missile strikes and Houthis have succeeded in forcing commercial shipping between Asia and Europe to either go around the Cape of Good Hope or, if passing through Bab-el-Mandeb strait, the narrow entrance to the Red Sea between Yemen and the Horn of Africa, to make peace with very high insurance premiums.

International efforts:

• In January 2024, the US, UK, and their allies launched Operation Poseidon Archer, a sustained bombing campaign to degrade Houthi military capabilities in Yemen.
• The campaign supplements Operation Prosperity Guardian, a maritime security operation begun in December 2023 to protect shipping in the Red Sea from attacks by the militants.

Houthi Relations with the Axis of Resistance:

• The Houthis are a central part of the axis of resistance, a coalition of Iranian-backed groups, which includes Hezbollah, Hamas, and the Popular Mobilization Forces (PMF) in Iraq.
• Iran has continued to supply the Houthis with weapons and military aid, enabling them to maintain a strong presence in the region.
• Their alliance with Iranian-backed militias, like the PMF, has given them a broader strategic role as the leading Iranian proxy in the region positions them as a key player in the ongoing confrontation with Israel, particularly as Hezbollah and Hamas have seen their capabilities diminished.

5. Smart Classroom Initiative Spurs Enrolment and Enhances Learning Experience

Sub : Schemes

Sec: Msc

Why in News

• A recent study conducted by the Indian Institute of Management (IIM), Bangalore, highlights the significant impact of smart classrooms under the Smart Cities Mission (SCM). The initiative has led to a 22% increase in student enrolment, improved learning experiences, and enhanced teacher comfort in government schools across India.

Smart Classroom Initiative

• Increase in Enrolment: Data from 19 cities between 2015-16 and 2023-24 shows a 22% rise in overall student enrolment in schools equipped with smart classrooms.
• Geographic Distribution: A total of 71 cities have developed 9,433 smart classrooms in 2,398 government schools under the SCM.
• Top Performing States: Karnataka leads with 80 smart classroom projects.
• States with Minimal Projects: West Bengal is at the bottom, with just two projects implemented.
• Development of Digital Libraries: 41 cities have developed digital libraries, providing a total of 7,809 seats for students.
• Impact on Education: Cities like Raipur (Chhattisgarh) and Tumakuru (Karnataka) have witnessed significant benefits from these libraries.

About Smart Cities Mission (SCM):

• Smart Cities Mission was launched by the Hon’ Prime Minister on 25 June, 2015.
• The main objective of the Mission is to promote cities that provide core infrastructure, clean and sustainable environment and give a decent quality of life to their citizens through the application of ‘smart solutions’.
• It is under the Ministry of Housing and Urban Affairs.
• The Mission aims to drive economic growth and improve quality of life through comprehensive work on social, economic, physical and institutional pillars of the city.
• The focus is on sustainable and inclusive development by creation of replicable models which act as lighthouses to other aspiring cities. 100 cities have been selected to be developed as Smart Cities through a two-stage competition.
• The Mission is operated as a Centrally Sponsored Scheme.
  • Central Government will give financial support to the extent of Rs. 48,000 crores over 5 years i.e. on an average Rs.100 crore per city per year.
  • An equal amount on a matching basis is to be provided by the State/ULB.
  • Additional resources are to be raised through convergence, from ULBs’ own funds, grants under Finance Commission, innovative finance mechanisms such as Municipal Bonds, other government programs and borrowings.
• Emphasis has been given on the participation of private sector through Public Private Partnerships (PPP)
• There is no standard definition or template of a smart city.

SAAR Platform:

• SAAR (Smart Cities and Academia towards Action and Research)
• Launched in 2022 to facilitate collaboration between academia and the government.
• Focuses on documenting and researching urban initiatives for better policy formulation.

Sameeksha Series

• The SAAR initiative has introduced 50 impact assessment studies under the “Sameeksha Series.”
• These studies are conducted by 29 premier institutions, including:
  • Six Indian Institutes of Management (IIMs).
  • Eight Indian Institutes of Technology (IITs).
  • Three Schools of Planning and Architecture.
  • Twelve specialized research institutes.

6. IIT-Bombay Develops Needle-Free ‘Shock Syringe’ for Painless Injections

Sub : Sci

Sec: Health

Why in News

• Researchers at the Indian Institute of Technology (IIT), Bombay, have developed a revolutionary needle-free “shock syringe” for painless drug delivery. This innovation, led by Professor Viren Menezes from the Department of Aerospace Engineering, has significant implications for healthcare, including immunization drives and the prevention of needle-related injuries.

About Shock Syringe:

• Objective: To provide painless drug delivery for patients with a fear of needles.
• The project was led by Professor Viren Menezes, and the findings were published in the Journal of Biomedical Materials and Devices.

How It Works:

• Shock Wave Mechanism: The syringe generates high-energy pressure waves that travel faster than sound to pierce the skin.
• Similar to a sonic boom, these waves compress the surrounding medium to create a microjet for drug delivery.
• The device consists of three sections:
  • Driver Section: Uses pressurized nitrogen gas.
  • Driven Section: Houses the liquid drug.
  • Drug Holder: Guides the drug through the nozzle.
• The microjet travels at speeds twice as fast as a commercial airplane during take-off, ensuring rapid and gentle drug penetration.

Benefits and Applications

• Pain-Free Injections: Patients experience minimal or no discomfort during drug delivery.
• Reduced Risk of Blood-Borne Diseases: Eliminates needle-stick injuries, preventing the spread of infections caused by improper handling or disposal.
• Enhanced Efficiency: Accelerates immunization drives for children and adults.
• Durability: Each shock syringe can perform over 1,000 injections with periodic nozzle replacements.
• Safety Features: Continuous pressure monitoring and rigorous testing on synthetic skin ensure precise and safe drug delivery.