Daily Prelims Notes 31 May 2022

Daily Prelims Notes

31 May 2022

Table Of Contents

1. Maharashtra overtook UP as top sugar producer
2. 50 years since Stockholm conference
3. India’s forests, soil can store additional 7 billion tonnes of carbon
4. Etalin hydel in Dibang Valley may lead to biodiversity loss
5. Chambal landscape: one of last viable habitats for red-crowned roofed turtle
6. Banking Privatisation
7. Security market and demat account
8. Tokenisation
9. Note Printing
10. NBFC-MFI
11. GVA and GDP

1. Maharashtra overtook UP as top sugar producer

Context:

After a five-year gap, Maharashtra has overtaken Uttar Pradesh (UP) to regain its position as India’s top sugar producer.

It is due to three factors:

1. Bountiful Rainfall: Maharashtra has been receiving enough rainfall since the 2019 southwest monsoon season (June-September) filling up of reservoirs and recharging groundwater aquifers.
2. Higher yields from farmers taking extra care of their crop: Farmers have harvested an average per-acre cane yield of 60 tonnes this year, as against 50 tonnes in 2020-21.
3. Huge jump in “unregistered” cane cultivation: In 2020-21, the state reported a total area of 11.42 lakh hectares (lh) planted under cane while this year it increased to 12.4 lh.

This means that there is un-harvested cane still in the fields and mills will continue to crush till the first week of June who closed their operations by April-end.

It isn’t Maharashtra alone. Karnataka, too, is poised to produce a record 60 lt of sugar this year, while Gujarat’s 12 lt would be its best since the 12.35 lt of 2010-11.

Reasons for UP’s sugar production declining after 2019-20:

1. Diversion of cane for making ethanol this year: UP has, in fact, become India’s largest ethanol producer, while also achieving the highest blending-in-petrol ratio among all states
2. Crop loss from excess rains and water-logging in many low-lying cane-growing areas of eastern UP:
3. Variety of sugarcane planted in UP: 87% of UP’s cane area being planted under a single variety, Co-0238, which has become susceptible to red rot fungal disease.

UP’s sugar output falling to a five-year-low in 2021-22 has, however, been more than offset by Maharashtra’s and Karnataka’s soaring to all-time-highs.

But interestingly, this hasn’t resulted in any price drop. It is due to exports having crossed 75 lt – surpassing the 71.9 lt record of 2020-21 – and are likely to reach 100 lt in the current sugar year.

2. 50 years since Stockholm conference

• From June 5 to June 16, 1972, a conference to create a common governance structure for the planet’s environment and natural resources was held.
• The occasion was the United Nations Conference on the Human Environment in Stockholm, the first such worldwide convergence on planetary environment, with the theme ‘Only One Earth’.
• When the participating 122 countries — 70 of them developing and poor countries — adopted the Stockholm Declaration on June 16, they essentially committed to 26 principles and an action plan that set in a multilateral environmental regime.
• This was the first globally subscribed document that recognised the “interconnections between development, poverty and the environment.”
• The three dimensions of this conference were:
  • Countries agreeing not to “harm each other’s environment or the areas beyond national jurisdiction”;
  • an action plan to study the threat to Earth’s environment;
  • and establishment of an international body called the UN Environment programme (UNEP) to bring in cooperation among countries.
• The result was the setting up of the Environment Ministry all over the world, with India setting up its ministry of environment and forest in 1985.

Stockholm declaration

• Earth’s natural resources, including air, water, land, flora and fauna, especially representative samples of natural ecosystems, must be safeguarded for the benefit of the present and future generations through careful planning or management.
• The discharge of toxic substances or of other substances and the release of heat, in such quantities or concentrations as to exceed the capacity of the environment to render them harmless, must be halted in order to ensure that serious or irreversible damage is not inflicted upon ecosystems.
• States shall take all steps to prevent pollution of the seas by substances that are liable to create hazards to human health, to harm living resources and marine life, to damage amenities or to interfere with other legitimate uses of the sea.
• The environmental policies of all States should enhance and not adversely affect the present or future development potential of developing countries, nor should they hamper the attainment of better living conditions for all, and appropriate steps should be taken by States and international organizations with a view to reaching agreement on meeting the possible national and international economic consequences resulting from the application of environmental measures.
• States have, in accordance with the Charter of the United Nations and the principles of international law, the sovereign right to exploit their own resources pursuant to their own environmental policies, and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other States or of areas beyond the limits of national jurisdiction.
• Most of today’s conventions related to planetary crises like the United Nations Framework Convention on Climate Change (UNFCCC), the Convention to Combat Desertification (UNCCD), the Convention on Biological Diversity (CBD) and the whole environmental regime being implemented through the UN system trace their origin to the Stockholm Declaration.

Stockholm 2022

The world is all tuned in to Stockholm+50, themed as “Stockholm+50: A healthy planet for the prosperity of all — our responsibility, our opportunity.”

3. India’s forests, soil can store additional 7 billion tonnes of carbon

• This puts India among the top 10 countries with additional carbon storage capacity.
• Land-based carbon storage is a part of nature-based solutions to the climate crisis, one of the focus areas at the 26th Conference of Parties (CoP26) to the United Nations Framework Convention on Climate Change.
• This storage can further be expanded through reforestation, improving natural forest stewardship and storage benefit through conserving forests.
• Tropics show the most promise, holding 68 per cent of additional carbon-storing potential as a result of carbon-rich forest ecosystems.
• Impact of climate change on the storage capacity of forests.
• Under a high emissions scenario, there might be an average increase of 17 per cent additional potential for land carbon storage globally, but a decrease of roughly 12 per cent in the tropics.

4. Etalin hydel in Dibang Valley may lead to biodiversity loss

• The 3,097-megawatt hydroelectric project will require diversion of 1,165.66 hectares of forest land and feeling of more than 280,000 trees in the area.
• The Forest Advisory Committee (FAC) had highlighted that the land in which the project is proposed covers two pristine forests with riverine growth that once cut cannot be replaced.
• There is also a threat to 21 mammal species and 230 bird species in the area at an elevation of 600-1,800 metres.
• The actual bird count within a 10- kilometer radius of the Etalin-Damro road is more likely to be closer to 300 species, including some rare ones like Blyth’s Tragopan, Rufous-necked Hornbill, Ward’s Trogon, Hodgson’s Frogmouth, Beautiful Nuthatch, Wedge-billed Babbler, Mishmi-Wren-babbler, among others.
• Also, the presence of tigers in the area cannot be ruled out.
• Along with the 3,097-MW Etalin, there is also the 2,880-MW Dibang multipurpose project and 22-MW Anonpani project in the Dibang Basin.
• Other proposed projects include – the 680 MW Athunli Hydropower Project — located only a few kilometers upstream from these two projects on the same river.

River Dibang consists of three major rivers viz, Dri, Mathun and Talon and three other smaller rivers viz, Ahi, Awa & Emra. Dibang Valley is bounded by Lohit in the south-east, Lower Dibang Valley in the South, East Siang and Upper Siang in the West and by China in the North and North-East.

5. Chambal landscape: one of last viable habitats for red-crowned roofed turtle

• The Chambal landscape is an important habitat for freshwater turtles.
• There are eight species of turtles found here of which the red-crowned roofed turtle (Batagur kachuga) is critically endangered, according to the International Union for Conservation of Nature.
• The male of the species exhibit dimorphism by producing distinct colours on the head, red, blue and yellow, to attract females during breeding season. In this habitat, less than 500 adult females survive.
• The other important species found here is the Batagur dhongoka or the three-striped roofed turtle.
• The Chambal turtles use the sandy riverbank for nesting. Illegal sand mining is one of the major threats for them.
• A programme by the Turtle Survival Alliance-India protects vulnerable nests from inundation during the monsoon season by removing these to hatcheries.
• In Chambal, turtle protection work by the TSA started around 2006 after it identified 10 species of freshwater turtles that it deemed needed immediate attention. Of this, three endangered species were present in Chambal.
• In these 15 years of turtle conservation in the Chambal landscape, eighteen major turtle habitats have been identified along the river and 5,000 Batagur nests protected by TSA.
• Activities involve translocation of vulnerable nests to hatcheries and the release of young turtles fitted with transmitters to help track their movement
• Recently, the organization has introduced a spatial monitoring and reporting tool for turtle monitoring and conservation in the landscape. turtles.

Chambal landscape

• The presence of several important species ensured that Chambal was declared a sanctuary for proper protection.
• Apart from reptiles and smoothed coated otters, Chambal also supports resident and migrant bird species.
• The landscape is suitable for turtles as the animals get proper places for nesting and basking.
• The ravines act as a protective barrier during heavy floods when many turtles are able to prevent themselves from being washed away.

6. Banking Privatisation

Context

The Centre had announced privatisation of two public sector banks in the Budget for 2021-22 but is yet to amend the relevant banking laws to enable the sale of its majority stake in them.

Concept:

Banking Laws (Amendment Bill 2021)

• It aims to bring down the minimum government holding in the PSBs from 51 per cent to 26 per cent.
• It will bring amendments in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act, 1949 

Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970:

It provides for the acquisition and transfer of the undertakings of certain banking companies, having regard to their size, resources, coverage and organization, in order to control the heights of the economy and to meet progressively, and serve better, the needs of development of the economy in conformity with national policy and objectives and for matter connected therewith or incidental thereto.

Banking Regulation Act, 1949

• It regulates banking firms in India.
• It was passed as the Banking Companies Act 1949. and was changed to the Banking Regulation Act,1949 from 1st March 1966.
• This act empowers the Reserve Bank of India (RBI) to:
  • Issue licence to commercial banks,
  • Regulate shareholders’ shareholding and voting rights,
  • Supervises the appointment of boards and management,
  • Regulates the operations of banks, giving instructions for audit,
  • Control moratorium, merger, and liquidation,
  • Issues instructions to the banks in the interests of public welfare & banking policy,
  • Impose a penalty on banks if required.

7. Security market and demat account

Context:

The cumulative number of demat accounts opened up to end-March 2020 was 4.1 crore. This number increased to 9.2 crore as on end-April 2022.

Demand account:

Demat refers to a dematerialised account. Just as we open a bank account to hold money and make payments, we need to open a Demat account to buy and sell securities (listed stocks), ETFs as well as debentures in the financial markets.

The investor should start the demat account with a depository participant who is recognized by SEBI. In the Demat account, shares and securities are held electronically instead of the investor taking physical possession of share certificates. Whenever an investor registers with an investment broker or sub broker, a Demat Account is opened by him/ her and the Demat account number is quoted for all transactions to enable electronic settlements of trades to take place.

The account is accessible on the internet and all trades are settled in dematerialised form i.e. in the form of electronic records rather than certificates.

Depository and Depository Participants:

A depository is an organisation which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant.  It also provides services related to transactions in securities. At present, there are two depositories viz. National Securities Depository Limited   (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI.

The depositories don’t directly interact with the customers who purchase and sell shares. Rather, they provide their services like keeping of share certificates in electronic forms through another set of institutions called depository participants (DP).

In India, a Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act.

Structure of Security/Bond market:

The securities market which is divided into:

• Government securities -it is issued by the government and are risk-free, hence, they are called gilt-edged securities. In the gilt-edged securi­ties market, the RBI plays an all-important role.

Government securities market for both ‘old’ and ‘new’ issues has been on ‘over-the- counter market’ where securities of the Un­ion Government and State Governments are issued.

• Corporate securities– like shares, or equi­ties, bonds and debentures are issued by the corporate firms.
  • It consists of the primary mar­ket, called new issues-the new issues are not ‘quoted’ or ‘listed’ or ‘approved’ in the reg­ister of the stock exchange in the organised stock exchanges, these new securities are dealt in ‘over-the-counter market’ or the ‘auction market’.
  • The secondary mar­ket, called old issues-The stock exchange is a specialist market place to facilitate the exchanges of old securities. It is known as a ‘secondary market’ for securities. The stock exchange dealings for ‘listed’ securities are made in an open auction market where buyers and sellers from all over the country meet. 

These are the instru­ments through which long-term capital funds are collected from the public.

8. Tokenisation

Context:

The Reserve Bank of India has extended the implementation date of card-on-file (CoF) tokenisation norms by six months to June 30, 2022.

Details:

In September 2021, the RBI prohibited merchants from storing customer card details on their servers with effect from January 01, 2022, and mandated the adoption of card-on-file (CoF) tokenisation as an alternative to card storage. It applies to domestic, online purchases.

Concept:

Tokenisation refers to replacement of actual credit and debit card details with an alternate code called the “token”, which will be unique for a combination of card, token requestor and device.

Example-when you make online payments through your credit card (or debit cards), it will be mandatory to enter your card details in full, that is, your card number, CVV and authenticate with OTP. But if you don’t want to go through this hassle each time, you can opt to create a token. The process is called card-on-file tokenisation (CoFT). In case of multiple cards, each will have to be tokenised.

Three steps have to be completed for smooth implementation of tokenisation:

• Token provisioning: the consumer’s card number should be convertible into a token, which means the card networks have to be ready with the relevant infrastructure.
• Token processing: Consumers should be able to complete their transaction successfully through the tokens.
• Scale-up for multiple use cases: Consumer should be able to use the token for things like refunds, EMIs, recurring payments, offers, promotions, guest checkouts etc.

How does it work?

• When you enter the card details to process the payment, the payment gateway will check with you if you want to create a token.
• If yes, it would forward the request to the card network — Visa, MasterCard, Rupay, Amex or Diner’s Club.
• Authorised by the issuer bank, upon verification of the user’s credentials.
• The card network issues the token and shares it with the user.
• Every token is unique to the payment gateway or the merchant, card network and the card. Therefore, if you have stored your card details across five merchants — say for ordering food, online shopping, booking movie tickets, OTT platforms and paying for utilities, you have the convenience of generating 5-6 tokens for each app.
• De-tokenisation involves cancelling the token

Is it mandatory?

It is not mandatory. A merchant cannot force the user to create a token. It needs explicit consent and an additional factor of authentication like an OTP or PIN to generate a token.

One can set limits for each token, including daily transaction limits. Likewise, one can renew the token just like you would do with the card. Card issuers cannot charge a fee for issuing tokens. However, interest charges, taxes and fees, including renewal fee applicable on the card, will remain. Tokens can be generated for both credit and debit cards.

Impact:

Merchants and payment gateways cannot store details of their users’ credit or debit cards. A tokenised card transaction is considered safer as the actual card details are not shared with the merchant during transaction processing.

9. Note Printing

Context:

While the volume of notes printed in FY22 was 41 per cent more than that of FY09, the cost of printing in this period surged 141% according to the RBI report.

Cause:

• New notes post demonetisation- rise in quantity of printing cost and cost of faster transportation of new notes.

10. NBFC-MFI

Context:

stressed assets of non-banking financial companies- microfinance institutions (NBFC-MFIs) are estimated to have declined to around 14 per cent as of March 2022 from close to 22 per cent in September 2021, helped by revival in the economy and limited impact of the omicron variant, says a report.

NBFC-MFI:

The NBFC-MFI is a non-deposit taking financial company.

Conditions to qualify as NBFC-MFI:

• Minimum Net Owned Funds (NOF) of Rs. 5 crore.
• At least 85% of its Net Assets in the nature of Qualifying Assets.
• The Qualifying Assets are those assets which have a substantial period of time to be ready for its intended use or sale.

The difference between an NBFC-MFI and other NBFC is that while other NBFCs can operate at a very high level, MFIs cater to only the smaller level of social strata, with need of smaller amounts as loans.

Stress Resolution Framework 2.0:

Resolution Framework 2.0 announced by the Reserve Bank of India (RBI) in the wake of the second Covid-19 wave. This Framework is to relieve stress faced by most vulnerable categories of borrowers – namely individuals, borrowers and MSMEs.

• Individuals, borrowers and MSMEs with aggregate exposure up to Rs. 25 crore, who have not availed restructuring under any previous frameworks, but classified as standard on 31 March, 2021, will be eligible to be considered under Resolution Framework 2.0.
• This can be invoked till September 30, 2021 and will have to be implemented within 90 days after invocation.
• For individuals and small businesses who have availed restructuring of loans under Resolution Framework 1.0, where moratorium of less than 2 years was permitted, lending institutions can now increase the period and/or extend residual tenure up to a total period of 2 years.
• In respect of small businesses and MSMEs restructured earlier, lending institutions are now permitted to review working capital sanction limits, as a one-time measure.

11. GVA and GDP

Context:

On August 31, the Ministry of Statistics and Programme Implementation (MoSPI) will release the so-called “Provisional Estimates (or PEs)” of GDP for the last financial year (2021-22). They will add the data from the fourth quarter (January to March) and thus provide the most complete picture of how India’s economy performed in 2021-22.

Concept:

India’s economy had contracted by 6.6% in 2020-21. As such, the GDP growth in 2021-22 will tell us the extent of India’s economic recovery.

Gross Domestic Product:

The GDP measures the monetary value of all “final” goods and services—that is, those that are bought by the final user—produced in a country in a given period of time (say a quarter or a year).

Sub-components of GDP :

Knowledge about them helps us understand how sustainable India’s economic recovery is. Broadly speaking, GDP has four engines of growth in any economy. 

• Private Final Consumption Expenditure- PFCE.
• Gross Fixed Capital Formation or GFCF.
• Government Final Consumption Expenditure (GFCE)
• Net Exports- (Export-Import) i.e. NX

India’s context:- share of components in total GDP:

Private Final Consumption Expenditure (56%)>Gross Fixed Capital Formation (32%)>Government Final Consumption Expenditure (11%)>Net export. NX is the smallest engine of GDP growth and is often negative.

Alternatives-

Often, overall GDP does not tell us the full picture. To get a better understanding of how an average Indian is affected, the GDP datasheet also looks at per capita income (or p.c. GDP) and per capita expenditure (or per capita PFCE).

• Per capita income is a measure of the amount of money earned per person in a nation or geographic region. Per capita income can be used to determine the average per-person income for an area and to evaluate the standard of living and quality of life of the population. Per capita income for a nation is calculated by dividing the country’s national income by its population.
• Per capita expenditures refers to the market value( price at which they are sold in the market) of all goods purchased by households divided by population of the country. Durable goods like tv, computer, washing machine, AC. Purchase of properties or capital goods is not included but rent paid for rented houses is included and money paid for services is also included.

GDP and GVA:

For any financial year, the two main variables of national income are GDP and GVA (or Gross Value Added):

The GDP calculates India’s national income by adding up all the expenditures in the economy while,

The GVA calculates the national income from the supply side by looking at the value-added in each sector of the economy. GVA sub-components:

• Agriculture, forestry and fishing
• Mining and quarrying
• Manufacturing
• Electricity,gas,water supply and other utility services
• Construction
• Trade, hotel, transport, communication and services related to Broadcasting
• Financial, real estate and professional services
• Public administration, defence and other services.

While both the variables measure national income, they are linked as follows:

GDP = (GVA) + (Taxes earned by the government) — (Subsidies provided by the government).

• As such, if the government earned more from taxes than what it spent on subsidies, GDP will be higher than GVA.
• If, on the other hand, the government provided subsidies in excess of its tax revenues, the absolute level of GVA would be higher than the absolute level of GDP.