Daily Prelims Notes 3 September 2024

Daily Prelims Notes

3 September 2024

Table Of Contents

1. NIAB using next-generation sequencing for genetic print of Indigenous cattle
2. Digital Agriculture Mission: A Transformative Step Towards Smart Farming
3. Need to Prevent Market Dominance in Policy Discourse: Insights from Chief Economic Adviser
4. India Weighs Russia’s Alternative to SWIFT: Pros and Cons
5. Swiss Franc Carry Trade and Safe-Haven Rally Risk

1. NIAB using next-generation sequencing for genetic print of Indigenous cattle

Sub: Sci

Sec: Biotech

Genetic Conservation of Indigenous Cattle Breeds:

• The National Institute of Animal Biotechnology (NIAB) is working to decode the genetic blueprints of indigenous cattle breeds using Next Generation Sequencing (NGS) and genotyping technology.
• Goal:
• Establish molecular signatures for registered cattle breeds to aid in purity identification and
• Focus on developing next-generation vaccine platforms against livestock diseases like brucellosis, which are crucial for animal health and reducing economic losses.
• NIAB is keen to support industry and biotech start-ups to transform the livestock-based economy for food/feed security and develop animal vaccines, diagnostics, and new-generation biomolecules. Under the program:
  • ‘Bio-scaffolds’ (for repairing tissues), both natural as well 3D printed, are being produced for cell/drug delivery, bio-banking and using animal stem cells enriched scaffolds as various therapeutic interventions.
  • A ‘bovine primary lung cell-based 3D-pulmosphere model’ was developed for superior modelling of bovine tuberculosis and to establish an anti-TB drug screening platform.
  • Point-of-care diagnostics such as DIVA capable Brucella ELISA kit, iron oxide nanoparticles-based mastitis detection kit, a biosensor for detection of progesterone and luteinizing hormone in animal milk and serum, phyto-formulations for tick/tick-borne diseases were developed.
  • A biomarker (metabolite and protein) has been developed for early assessment of nutritional stress-induced negative energy balance leading to decreased productivity and infertility in the cattle population.
  • CRISPR-Cas9-based genome editing techniques, production of biosimilars such as protein hormones using large animal models, and engineered yeast and bacteria to produce complex drugs provide exciting opportunities.

BioE3 (Biotechnology for Economy, Environment and Employment) policy:

• To be steered by the Department of Biotechnology, the policy is for fostering high-performance biomanufacturing.
  • High-performance biomanufacturing is the ability to produce products from medicine to materials, address farming and food challenges, and promote the manufacturing of bio-based products through the integration of advanced biotechnological processes.
• The policy seeks to include innovation-driven support for research and development and entrepreneurship across thematic sectors.
• This will accelerate technology development and commercialization by establishing biomanufacturing and bio-AI hubs and bio foundry.
• Along with prioritising regenerative bioeconomy models of green growth, this policy will facilitate the expansion of India’s skilled workforce and provide a surge in job creation.
• To address the national priorities, the BioE3 Policy would broadly focus on the following strategic/thematic sectors:
  • high-value bio-based chemicals;
  • biopolymers and enzymes;
  • smart proteins and functional foods;
  • precision biotherapeutics;
  • climate resilient agriculture; carbon capture and its utilisation;
  • marine and space research.

Meeting of Livestock farmers and Agriculturists with NIAB Scientists (MILAN):

• ICAR-Central Island Agricultural Research Institute, Port Blair in collaboration with DBT-National Institute of Animal Biotechnology, Hyderabad organized this Workshop.
• Held at ICAR-CIARI, Port Blair
• The workshop was conducted on the theme of Implications of the Human-Animal Interface in Public Health and to understand the issues and challenges faced by livestock farmers, thereby making suitable technological interventions for improving the productivity and health of livestock.

2. Digital Agriculture Mission: A Transformative Step Towards Smart Farming

Sub: Schemes

Sec: Agriculture

Why This is in News

The Union Cabinet recently approved the Digital Agriculture Mission with a budget allocation of ₹2,817 crore. This mission aims to create robust Digital Public Infrastructure (DPI) in the agricultural sector, integrating data and information on farmlands, crops, and yields. The mission is expected to revolutionize the overall efficiency of the farm sector.

Digital Agriculture Mission:

It was officially announced in the Union Budgets for 2023-24 and 2024-25.

The mission seeks to establish a Digital Public Infrastructure (DPI) in the agricultural sector. This initiative is modelled after successful e-governance projects like Aadhaar, Digi Locker, eSign, UPI, and electronic health records. Its primary goals are to:

Total Budget: ₹2,817 crore

Central Government Contribution: ₹1,940 crore, and remaining amount by States and Union Territories.

Digital Public Infrastructure:

Digital Public Infrastructure (DPI) is a versatile open-source identity platform that facilitates access to a vast array of government and private services through the development of innovative applications and products.

The platform encompasses a range of digital identification and verification tools, civil registration capabilities, and payment features, including digital transactions and money transfers, data exchange, and information systems.

India operationalised DPIs through India Stack, which enabled its citizens to:

• Be part of the formal system through digital identity (Aadhaar).
• Be able to reach the national (and, increasingly, international) marketplace through a fast payment system (Unified Payments Interface or UPI).
• Safely share personal data without compromising privacy through the Account Aggregator platform built on Data Empowerment and Protection Architecture (DEPA).

Major Components of DPI in Agriculture:

Scheme for Special Assistance to States for Capital Investment, 2024-25 (SSASCI) 2024-25 is a central government initiative aimed at enhancing infrastructure and promoting land-related reforms in both rural and urban areas.

Launched: Initially launched in FY 2020-21 to drive state-level capital investments and economic growth.

Total Allocation: ₹1,30,000 crore.

Loan Terms: 50-year interest-free loans to states.

Land Reform Incentives:     ₹10,000 crore for land-related reforms.

₹5,000 crore for creating a Farmers’ Registry.

Key Areas of Focus

Rural Land Reforms

• ULPIN (Bhu-Aadhaar): Unique IDs for land parcels to prevent fraud.
• Cadastral Digitization: Updating and digitizing land records.
• Comprehensive Land Registry: Establishing accurate land ownership records.
• Urban Land Reforms
  • GIS Mapping: Digitization of urban land records to improve planning and management.

Reform-Driven Assistance

Milestone-Based Funding: ₹75,000 crore for states completing specific reforms in citizen services and sectoral governance.

Impact on Farmers and the Agricultural Sector

Enhanced Agricultural Data: The mission will support accurate and timely agricultural data, crucial for implementing government schemes like paperless Minimum Support Price (MSP) procurement, crop insurance, and credit card-linked crop loans.

Technological Integration: The mission will integrate advanced technology for better crop management, yield estimation, and resource allocation, ultimately contributing to a more sustainable and productive agricultural sector.

3. Need to Prevent Market Dominance in Policy Discourse: Insights from Chief Economic Adviser

Sub: Eco

Sec: Monetary Policy

Why in News?

The Chief Economic Adviser (CEA) of India, Anantha Nageswaran, recently cautioned against the increasing dominance of financial markets in policy and macroeconomic outcomes. His comments, made at the CII Financing 3.0 Summit in Mumbai, highlight the risks associated with “financialization,” where the financial sector’s influence over the real economy could lead to significant economic challenges.

What is Financialization?

Financialization refers to the increasing dominance of financial markets, institutions, and motives in the economy. It involves the expansion of financial activities beyond traditional banking and investment, permeating various sectors such as housing, education, and even government policy.

What is Financialization Trap?

The financialization trap is a scenario where the pervasive influence of financial markets and institutions begins to undermine economic stability and growth. This trap occurs when financial motives, markets, actors, and institutions gain substantial control over economic policy and outcomes, overshadowing the real economy’s needs and objectives.

Key Characteristics and Consequences

• Both government and households may take on unsustainable levels of debt to participate in financial markets, leading to financial instability. High debt levels make the economy susceptible to financial crises,
• Financialization often benefits those who own financial assets, exacerbating wealth disparities.
• Financial markets can influence government policies to favour short-term financial gains over long-term economic health. Increased speculation diverts resources from productive investments to financial trading, hindering sustainable economic growth.

Strategies to Avoid the Financialization Trap:

• Enforce strong regulations to align financial markets with real economic needs, minimizing excessive risk.
• Promote long-term investment strategies that support sustainable economic growth.
• Invest in infrastructure to strengthen the real economy and reduce reliance on financial markets.

Real Economy vs. Financial Sector: The CEA emphasized that the financial sector should serve the real economy, not dominate it.

What is Real Economy?

The real economy encompasses all activities related to the production, distribution, and consumption of goods and services. The real economy deals with tangible and intangible products that meet the everyday needs of people and businesses.

Element of Real Economy

Manufacturing: Production of tangible goods like automobiles, electronics, and textiles.

Agriculture: Involves farming, livestock rearing, and crop production.

Construction: Building of infrastructure such as roads, housing, and commercial properties.

Services: Includes non-tangible products like healthcare, education, and transportation.

Current State of India’s Financial Markets

India’s Stock Market Capitalization: Approximately 140% of India’s Gross Domestic Product (GDP).

As of 2024, India’s stock market is ranked 6th globally by market capitalization.

The number of registered investors on the National Stock Exchange (NSE) nearly tripled from March 2020 to March 2024.

Major contributions from sectors like Information Technology, Financial Services, and Consumer Goods.

Retail Participation: Retail participation in the stock market has surged, with the number of registered investors on the National Stock Exchange (NSE) nearly tripling from March 2020 to March 2024, reaching 92 million.

4. India Weighs Russia’s Alternative to SWIFT: Pros and Cons

Sub: Eco

Sec: External sector

• Russia’s Proposal:
  • Russia has proposed that India use its own financial messaging mechanism as an alternative to the SWIFT global network.
  • This proposal is aimed at facilitating rupee-rouble trade settlement between the two countries.
• RBI’s Assessment:
  • The Reserve Bank of India (RBI) has scrutinized the proposal and found it to be “doable”.
  • However, discussions are ongoing, and a final decision has not yet been made.
• Diplomatic Considerations:
  • The decision will consider diplomatic aspects, given the sensitive nature of the issue.
  • Prime Minister Modi and Russian President Putin agreed to promote trade settlements in national currencies and introduce digital financial instruments into mutual settlements.
• Ongoing Discussions:
  • Meetings have been held between senior officials from the RBI, some public sector banks, and their Russian counterparts to discuss Moscow’s proposed alternative messaging system for banks.
  • The RBI’s view is that the proposal is feasible, but more consideration is needed due to its diplomatic sensitivity.
• SWIFT System Background:
  • Prominent Russian banks have been banned from using the SWIFT system as part of the West’s sanctions against Russia following its war against Ukraine, which began in February 2022 and continues.

SWIFT (Society for Worldwide Interbank Financial Telecommunication)

The SWIFT (Society for Worldwide Interbank Financial Telecommunication) global network is a highly secure messaging system used by financial institutions around the world to exchange information about financial transactions.

What is SWIFT?

• Founded: 1973, in Belgium.
• Purpose: SWIFT is designed to facilitate secure, standardized communication between financial institutions, enabling them to send and receive information about financial transactions in a reliable and secure manner.
• Members: Over 11,000 financial institutions in more than 200 countries use the SWIFT network.

How SWIFT Works

• Message Types: SWIFT provides a standardized format for various types of financial messages, such as payment instructions, trade confirmations, securities transactions, and treasury transactions.
• Network: The SWIFT network does not transfer funds but rather sends payment orders between institutions’ accounts using the SWIFT code, also known as a Bank Identifier Code (BIC).
• Security: SWIFT is known for its high level of security and reliability, which is crucial given the sensitive nature of financial transactions.

Importance of SWIFT

• Global Standard: SWIFT is the standard for international financial transactions, making it integral to the global banking system.
• Efficiency: It allows for fast, secure, and reliable communication between banks, reducing the risk of errors and fraud in international transactions.
• Sanctions Tool: Because of its central role in global finance, access to the SWIFT network is crucial for countries and banks. As a result, the network is often used as a tool for enforcing international sanctions. For instance, when a country or financial institution is banned from SWIFT, it significantly hampers its ability to engage in international trade and finance.

5. Swiss Franc Carry Trade and Safe-Haven Rally Risk

Sub: Eco

Sec: External sector

• Swiss Franc as a Funding Currency:
  • The Swiss franc (CHF) is being increasingly used by investors to fund carry trades, a strategy where traders borrow low-interest currencies and swap them to invest in higher-yielding assets.
  • This is due to the decline in appeal of Japan’s yen, especially after the yen’s value rallied following weak U.S. economic data and a surprise rate hike by the Bank of Japan.
• Swiss Franc’s Interest Rate Environment:
  • The Swiss National Bank (SNB) initiated an easing cycle earlier in the year, keeping the key interest rate at 25%.
  • Comparatively, interest rates in other regions are higher: 25%-5.50% in the United States, 5% in Britain, and 3.75% in the eurozone.
• Safe-Haven Status:
  • The Swiss franc is near its highest value in eight months against the dollar and nine years against the euro. This reflects its status as a safe-haven currency and market expectations for European and U.S. rate cuts.
• Investor Strategy and Risks:
  • Speculators have maintained a $3.8 billion short position against the Swiss franc, indicative of its use in carry trades, while simultaneously moving to a $2 billion long position on the yen.
  • BofA and Goldman Sachs recommend buying sterling against the franc, citing the large interest rate gap between Switzerland and Britain.
  • However, using the Swiss franc as a funding currency is inherently risky, especially due to its safe-haven status, which could lead to rapid appreciation during market uncertainty, potentially wiping out gains from carry trades.
• Potential Central Bank Actions:
  • The SNB is expected to cut rates further in the coming months, which could lower borrowing costs and weaken the franc, making it cheaper for those already borrowing it.
  • The SNB and regulators may intervene to prevent the currency from appreciating further, especially considering the negative impact on exporters.

Currency carry trade

A currency carry trade is a financial strategy where an investor borrows money in a currency with a low-interest rate and uses the funds to invest in another currency with a higher interest rate. The goal is to profit from the difference between the interest rates, known as the “interest rate differential.”

How Currency Carry Trade Works

• Borrowing in a Low-Interest Currency:
  • The investor borrows money in a currency with a relatively low-interest rate. For example, if the interest rate in Japan is 0.1%, an investor might borrow Japanese yen.
• Converting and Investing in a High-Interest Currency:
  • The borrowed yen are then converted into a currency with a higher interest rate, such as the Australian dollar, where the interest rate might be 3-4%.
  • The investor then invests these funds in assets denominated in the higher-interest currency, such as bonds, stocks, or simply depositing it in a high-interest savings account.
• Earning the Interest Rate Differential:
  • The investor earns the difference between the higher interest rate on the investment and the lower interest rate on the borrowed funds.
  • For example, if the investor borrows yen at 0.1% and earns 4% on Australian dollars, the gross profit is 3.9%, before accounting for any transaction costs or exchange rate fluctuations.
• Repaying the Loan:
  • At the end of the investment period, the investor converts the high-interest currency back into the low-interest currency to repay the loan, ideally keeping the difference as profit.

Example of Currency Carry Trade

An investor borrows 1,000,000 Japanese yen at an interest rate of 0.1% per year. The investor converts the yen into Australian dollars and invests it in an Australian bond yielding 4% per year.

If the exchange rate between the yen and the Australian dollar remains stable, the investor will earn a 3.9% profit on the trade.

However, if the Australian dollar depreciates significantly against the yen, the investor could face a loss when converting back to yen to repay the loan.

Risks Associated with Currency Carry Trade

• Exchange Rate Risk
• Interest Rate Risk
• Market Volatility