Daily Prelims Notes 5 May 2022

Daily Prelims Notes

5 May 2022

Table Of Contents

1. Anti-Defection Law
2. Mercy Petition
3. Fed Reserve Monetary Policy
4. RBI rate hike
5. GST Compensation
6. NRI Investments
7. New insights Evolution of galaxies
8. Invasive Alien plants can threaten water supply
9. HC seeks report on relief in sexual offence cases
10. World Press Freedom Index

1. Anti-Defection Law

Subject: Polity

Section: Parliament

Context: Recent report by NGO Association for Democratic Reforms (ADR) says that close to 90 per cent of the MLAs across Uttar Pradesh, Uttarakhand, Manipur and Punjab, who recontested in the 2022 Assembly polls after switching parties saw their wealth grow between 2017 and 2022

Anti-Defection Law:

• The 52nd Amendment Act of 1985 added the 10th Schedule to the Constitution. This act is commonly referred to as the ‘anti-defection law’.
• The 52nd Amendment Act provided for the disqualification of the members of Parliament and the state legislatures on the ground of defection from one political party to another.
• Provision of the Anti-defection Act:A member of a House belonging to any political party becomes disqualified for being a member of the House;

• • If he voluntarily gives up his membership of such a political party.
  • If he votes or abstains from voting in contrary to any direction issued by his political party without obtaining prior permission of the party.
• Independent Members: An independent member becomes disqualified if he joins any political party after such election.
• Nominated Members: A nominated member of a House becomes disqualified for being a member of the House if he joins any political party after the expiry of six months from joining the house.This means that he may join any political party within six months of taking his seat in the House without inviting this disqualification.
• Exceptions: The above disqualification on the ground of defection does not apply in the following two cases:
  • If a member goes out of his party as a result of a merger of the party with another party. A merger takes place when 2/3rd of the members of the party have agreed to such merger.
  • If a member, after being elected as the presiding officer of the House, voluntarily gives up the membership of his party or rejoins it.
• Deciding Authority: Any question regarding disqualification arising out of defection is to be decided by the presiding officer of the House (Speaker or Chairman of the House).

2. Mercy Petition

Subject: Polity

Section: Executive

Context: President has no role to play in Perarivalan’s plea, says SC

Observation of Court:

• Supreme Court disagreed with the Central government’s suggestion that the court should wait till the President took a call on Rajiv Gandhi assassination case convict A.G. Perarivalan’s mercy plea referred to him by the Tamil Nadu Governor for a decision.
• Under Article 161 of the Constitution, the Governor was bound by the aid and advice given by the Tamil Nadu Council of Ministers in September 2018 to the Governor to release Perarivalan, who has already served over 30 years of his life sentence.
• The Governor prima facie had no authority to transfer the mercy plea to the President. There was no role for the President here under the Constitution.

Background of Rajiv Gandhi Assasination case https://optimizeias.com/rajiv-gandhi-assasination-case/

What is Mercy petition?

• A mercy petition is filed by a convict to change his/her punishment (especially capital) into a lesser form of punishment. It is also called clemency petition/plea or executive clemency.
• Mercy Petition can be exercised after all the legal remedies were exhausted. (Legal remedies include all the remedies available under prevailing law and Constitution).
• A petition can be filed with the President (under Article 72 of the Indian Constitution)or the governor (under Article 161 of the Constitution).

 Procedure to file a Mercy petition:

• After extinguishing all the reliefs in the court of law, either the convict in person or his relative on his behalf may submit a written petition to the President.
• The petitions are received by the President’s secretariat on behalf of the President, which is then forwarded to the Ministry of Home Affairs for their comments and recommendations.
• The Home Ministry in consultation with the concerned State Government discusses the merits of the petition.
• After the consultation, recommendations are made by the Union Home Minister and then, the petition is sent back to the President for his decision.
• Even though the President and Governor are the executive heads, but they cannot exercise their discretion with regard to their powers under Articles 72 and 161.
• Both the executive heads are required to act on the advice of CoM
• The advice of the appropriate Government binds the Head of the state.

Pardoning Power of the President

• Pardon: The president can totally acquit the person for the offence and let him go free like a normal citizen.
• Commute: To reduce the type of punishment into a less harsh one. For example Rigorous imprisonment to simple imprisonment.
• Remission: To reduce the punishment without changing the nature of the punishment. For example 20 years rigorous imprisonment to 10 years rigorous imprisonment.
• Reprieve: A delay is allowed in the execution of a sentence, usually a death sentence for a guilty person to prove his innocence.
• Respite:Reduce the degree of punishment looking at specific grounds like pregnancy, old age etc.

3. Fed Reserve Monetary Policy

Subject :Economy

Section: External Sector

Context: The Federal Reserve raised interest rates by the steepest increment since 2000 and decided to start shrinking its massive balance sheet, deploying the most aggressive tightening of monetary policy in decades to control soaring inflation.

Decisions taken:

• Increase Benchmark rate– The increase in the Federal Open Market Committee’s target for the federal funds rate, to a range of 0.75% to 1%, follows a quarter-point hike in March that ended two years of near-zero rates to help cushion the U.S. economy against the initial blow from Covid-19.

• Reduce Balance sheet– by selling the Treasuries and mortgage-backed securities. The balance sheet had ballooned in size as the Fed aggressively bought securities to calm panic in financial markets and keep borrowing costs low as the pandemic spread.

Impact:

These twin measures will reduce the quantity of surplus liquidity in the system as well as increase the cost of funds.

Fed Reserve and the Monetary Policy:

The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy.

The Federal Reserve controls the three tools of monetary policy–open market operations, the discount rate, and reserve requirements.

• The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and
• The Federal Open Market Committee is responsible for open market operations.

Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

Impact/Policy implications:

Changes in the federal funds rate trigger a chain of events that affect other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money and credit, and, ultimately, a range of economic variables, including employment, output, and prices of goods and services.

Structure of the FOMC

The Federal Open Market Committee (FOMC) consists of twelve members–

• The seven members of the Board of Governors of the Federal Reserve System;
• The president of the Federal Reserve Bank of New York; and
• The four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.

Nonvoting Reserve Bank presidents attend the meetings of the Committee, participate in the discussions, and contribute to the Committee’s assessment of the economy and policy options.

The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.

Goals:

The Federal Open Market Committee (FOMC) is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates.

4. RBI rate hike

Subject: Economy

Section: Monetary Policy

Context:

The RBI’s rate setting panel on Wednesday announced an ‘off-cycle’ increase in benchmark interest rates.

Details:

• Rise in Repo Rate– by 40 basis points to 4.4% with immediate effect.
• Increase in the cash reserve ratio (CRR) by 50 basis points (bps) from 4 per cent to 4.50 per cent.

Causes:

• Russia’s invasion of Ukraine and the subsequent western sanctions on Moscow led to supply chain disruption and cost push inflation.
• Indian households’ perception and expectations of inflation have been running well above the RBI’s upper tolerance threshold of 6% for more than two years..
• Fed policy normalisation causing capital outflows
• Heightening the risks of imported inflation due to new COVID infections
• India’s Monetary Policy Framework holds RBI responsible and accountable, should retail inflation overshoot the 6 per cent target for three consecutive quarters.

Impact:

• Rise lending rate- as repo rate is linked to lending rate
• Rise deposit rate
• Reduce liquidity
• Eliminate capital outflow
• Deachor inflation expectation
• Rise in bond yield
• Currency appreciation

Issue:

• Unsuccessful earlier efforts -despite RBI’s attempts to soak up liquidity through the VRRR and SDF windows, domestic liquidity has remained in the surplus.
• Cost Pull Inflation-Present inflation is mainly supply led hence, managing demand side variables might not quickly be transmitted to lower inflation.
• Stagflation- actions might hold back recovery without much effective decline in inflation, leading the economy to Stagflation.
• Capital outflows- on the backdrop of rising Fed policy rate, capital might continue to leave Indian Territory.
• Chances of perverse policy-as change in inflation expectation caused mainly due to changes in price of daily use items thus, reflect a transitory inflation.
• Fiscal-monetary conflict– as tightening monetary policy would increase cost of borrowing for government
• Crowd out effect of tight monetary policy- as cost of borrowing would rise leading to decline in private consumption and investment.
• Output gap is still negative– as output is below full-capacity production due to COVID pandemic.

Alternatives

• Selective Credit Control measures by the RBI
• Pro-growth measure — a reduction in fuel taxes by both Central and State governments to neutralise the adverse impact of the rise in international crude oil prices on the wake of record collections in the GST.
• Supply Chain Diversification and ease supply

RBI Inflation Targeting:

Inflation Targeting is a monetary policy framework wherein the Central Bank of a country focuses only on maintaining the rate of Inflation within a targeted range.

The principle of inflation targeting is based on the belief that long-term economic growth is best achieved by maintaining price stability, and price stability is achieved by controlling inflation.

Inflation targeting was first adopted by New Zealand and subsequently, a large number of countries including India have been following Inflation Targeting as their core element of monetary policy.

In case of India, the flexible Inflation targeting was introduced through the Monetary Policy Framework Agreement signed between the RBI and Government in 2015. As per terms of the agreement, RBI’s primary objective would be to maintain price stability, while keeping in mind the objective of growth. The RBI is required to maintain a rate of inflation of 4% with a deviation of 2% i.e. inflation has to be maintained between 2% to 6%.

The Reserve Bank of India Act, 1934 was amended to provide a statutory basis for a FTI framework. The amended Act provides for the inflation target to be set by the Government, in consultation with the RBI, once every five years.

Monetary Policy Committee:

It is a statutory and institutionalized framework under the Reserve Bank of India Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.

The Governor of RBI is ex-officio Chairman of the committee. The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (4%).

5. GST Compensation

Subject: Economy

Section: External Sector 

Context:

GST compensation dues to States for 2021-22 stood at ₹78,704 crore, due to inadequate balance in the Compensation Fund

Details:

The levy of the compensation cess, which was to cease on June 30 this year, has been extended till March 2025-26 with a view to use the receipts to repay the principal and interest on these special loans.

Concept:

The introduction of the Goods & Services Tax (GST) required States and Union Territories (with Legislature) to subsume their sovereignty in a GST Council, raising the issue of loss on account of migration from Value Added Tax/Sales Tax to GST.

The GST Compensation Act, 2017 guaranteed states that they would be compensated for any revenue shortfall below 14% growth (base year 2015-16) for the first five years ending 2022.

The compensation was to be calculated by assuming a 14% year-on-year growth over revenues in 2015-16 from the State taxes subsumed in GST, and remitted from a compensation cess fund.

A GST compensation fund is created from which the state would be paid the shortfall every two months by the Centre . This corpus is funded through a compensation cess that is levied on so-called ‘demerit’ goods. The items are pan masala, cigarettes and tobacco products, aerated water, caffeinated beverages, coal and certain passenger motor vehicles.

Normally, compensation for 10 months from April-January of any financial year is released during that year and the compensation for February-March is released only in the next financial year. The GST Compensation regime ends in June 2022

Issue:

• Decline in Compensation cess
• Structure of GST- even though state GST collections have improved and is even greater than Centre’s share in the last few months, that is not enough for some of the producer states as GST is primarily a destination-based tax. Producer states may face more fiscal stress as consumption happens outside state lines.

Steps taken:

Centre had borrowed from the market under a special window and passed it onto the States as back-to-back loans. This was meant to help States meet the resource gap due to short-release of compensation on account of inadequate balance in the compensation fund.

Way forward:

• Extending the GST compensation system beyond the current deadline.
• Inclusion of excluded items- land, electricity and petroleum products such as petrol, diesel and aviation turbine fuel etc in the GST regime to increase revenue of the states.

6, NRI Investments

Subject: Economy

Section: External Sector 

Investment made by an Indian entity that is owned and controlled by an NRI on a non-repatriation basis won’t be considered for the calculation of indirect foreign investment, the department for the promotion of industry and internal trade said in a notification. Hitherto, non-repatriable NRI investments in Indian companies have not been counted as FDI but downstream investments by such firms retained the FDI tag.

Details:

NRI investments that are repatriable are considered FDI while non-repatriable investments are considered domestic investment.

Investments by NRIs on a non-repatriation basis as stipulated under Schedule IV of Foreign Exchange Management (non-debt instruments) Rules 2019 are deemed to be domestic investment at par with the investments made by residents.

Accordingly, an investment made by an Indian entity which is owned and controlled by NRI(s) on a repatriation basis shall not be considered for calculation of Indian foreign investment. An Indian company is one that is both “owned” and “controlled” by resident Indians and violating any one condition makes the company foreign-owned.

Investment on repatriation basis means the sale or maturity proceeds of an investment, net of taxes, are eligible to be transferred out of India. In case of non-repatriation investments, this cannot be transferred out of the country.

Concept:

NRIs have many investment options in India :

• Non-Resident External (NRE) scheme–
  • NRE account is a rupee account, offering complete security
  • These accounts can be in the form of savings, current, recurring, or fixed deposits.
  • The currency risk is on the depositor.
  • It is  financed from abroad income through inward remittances
  • Money can be fully repatriated (sent back) abroad without restrictions,
  • Given the attractive post-tax return, NRE temporary deposits are very popular with non-residents.

• Non-Resident Ordinary (NRO) scheme–
  • The NRO account is also a rupee account,
  • This account allows NRIs to receive funds in either Indian or foreign currency. However, only Indian currency can be withdrawn as NRO Accounts are kept in Indian currency
  • It is generally financed by income earned in India or from Indian assets
  • There are restrictions on repatriation i.e. remittances outside India are allowed only up to $1 million under the automatic route, while higher remittances require RBI approval.
  • Unlike the NRE account, interest accrued on NRO account are taxable, this is not preferred by most NRIs.

• FCNR (foreign currency) scheme. 
  • These accept any permitted foreign currency.
  • FCNR Accounts are Term Deposit Accounts and not Saving Accounts.
  • The currency risk (change in price of one currency in relation to another) is borne by the bank.
  • They are fully repatriable (ability to move money abroad).

NRI investments on a repatriation basis in Indian companies are considered as FDIs, and are subject to regulations and caps.

7. New insights Evolution of galaxies

Subject: Science and technology

Section: Space

Context:  A study has shown that  supermassive black holes may be playing an essential role in the evolution of their host galaxies.

What is a galaxy ?

• A galaxy is a sprawling space system which is composed of stars, dust, interstellar gas, stellar remnants, and dark matter and all held together by gravity.
• The universe has many galaxies, and each carries millions of stars which are bounded by a unique force known as gravitational force. The solar system where our earth exists is in the Milky Way Galaxy.
• Galaxies differ from each other in shape, size, colour and composition. There are three types of galaxies that we find in the universe. i.e. Elliptical Galaxies, Spiral Galaxies and Irregular Galaxies.

New insights in the evolution of galaxy

• Supermassive black holes at the centres of galaxies are known to give rise to fast-moving jets of relativistic particles that can traverse large distances through the galaxy and beyond.
• The jets have long been suspected of driving the evolution of galaxies.
• A new study by an international team of astronomers, including Dipanjan Mukherjee from the Pune-based Inter-University Centre for Astronomy and Astrophysics (IUCAA), has unravelled the mystery.
• It has shown that even a relatively weak jet from a supermassive black hole can clear the nuclear region of the galaxy of its gas, indicating that they may be playing an essential role in the evolution of their host galaxies.

What are black holes ?

• Black holes are extraordinarily dense objects possessing gravitational pulls so powerful even light cannot escape them.
• It refers to a point in space where the matter is so compressed as to create a gravity field from which even light cannot escape.
• The black holes belong to two categories:
  • One category ranges between a few solar masses and tens of solar masses. These are thought to form when massive stars die.
  • The other category is of supermassive black holes. These range from hundreds of thousands to billions of times that of the sun from the Solar system to which Earth belongs.

8. Invasive Alien plants can threaten water supply

Subject: Environment

Section: Space  

Context: The study predicted that clearing catchment areas fully infested with mature invasive alien trees can increase streamflow by between 15.1% and 29.5%.

Alien species and water Supply

• To find out how much alien trees threaten water supply, a hydrological study was conducted. The researchers set up the most fine-scale, detailed models possible to try and estimate how alien trees affect stream flow in four small mountain catchments above some of Cape Town’s major dams.
• The models predicted that clearing catchment areas fully infested with mature invasive alien trees can increase stream flow by between 15.1% and 29.5%.
• The study also found that stream flow gains from clearing alien trees from rivers were almost twice as high as clearing the alien trees from the surrounding land. That’s because alien trees in rivers have access to an almost endless water supply and so use more.

What are invasive Alien Species (IAS):

• An alien species is a species introduced outside its normal distribution.
• An alien species becomes ‘invasive’ when they are introduced deliberately or accidentally outside their natural areas, where they out-compete the native species and upset the ecological balance.
• Invasive alien species (IAS) are animals, plants or other organisms that are introduced into places outside their natural range, negatively impacting native biodiversity, ecosystem services or human well-being.
• The most common characteristics of invasive species are
  • rapid reproduction and growth,
  • high dispersal ability,
  • ability to survive on various food types, and in a wide range of environmental conditions and
  • the ability to adapt physiologically to new conditions, called phenotypic plasticity.
• The alien invasive species are non-native to an ecosystem. They may cause economic or environmental harm or even adversely affect human health.
• IAS are the most common threat to amphibians, reptiles and mammals on The IUCN Red List; they may lead to changes in the structure and composition of ecosystems detrimentally affecting ecosystem services, human economy and well being. IAS are such a problem that Aichi Biodiversity Target 9 and one clause of UN Sustainable Development Goal 15 – Life on Land specifically address the issue.

9. HC seeks report on relief in sexual offence cases

Subject: Polity

Section: Right issues

Context: The Delhi High Court has called for a detailed report from the Delhi State Legal Services Authority (DSLSA) to share details of cases where compensation has been paid and cases where compensation is yet to be paid to the victims of sexual offence

Concept-

• The top court had earlier directed all States governments and Union Territories to appoint a dedicated nodal officer to coordinate with the member secretary of the State Legal Service Authority (SLSA) to facilitate payment of ex-gratia compensation to the family members of Covid victims.

State Legal Services Authority:

• It is headed by the Chief Justice of the State High Court who is its Patron-in-Chief.
• A serving or retired Judge of the High Court is nominated as its Executive Chairman.

Legal Services Institutions for providing Free Legal Aid:

• National Level : National Legal Services Authority
• State Level : State Legal Services Authority.
• District Level : District Legal Services Authority. The District Judge of the District is its ex-officio Chairman.
• Taluka/ Sub-Division Level : Taluka/ Sub-Divisional Legal Services Committee headed by a senior Civil Judge.
• Supreme Court: Supreme Court Legal Services Committee
• High Court : High Court Legal Services Committee

National Legal Services Authority:

• The National Legal Services Authority (NALSA) was constituted under the Legal Services Authorities Act, 1987 in 1995 for providing free and competent legal services to the weaker sections of the society.
• The Chief Justice of India is the Patron-in-Chief and the second senior most Judge of Supreme Court of India is the Executive Chairman of the Authority.
• Article 39 A of the Constitution provides for free legal aid to the poor and weaker sections of the society, to promote justice on the basis of equal opportunity.
• Article 14 and Article 22 (1) ensures equality before law.

10. World Press Freedom Index

Subject: Governance

Section: Reports and indices

Context:

India’s ranking in the 2022 World Press Freedom Index has fallen to 150 out of 180 countries, according to the latest report released by the global media watchdog, Reporters Without Borders (RSF). In last year’s report, India was ranked 142. The top three positions for countries with the highest press freedom were taken by the Nordic trio of Norway (a score of 92.65), Denmark (90.27) and Sweden (88.84).

Concept:

• It ranks 180 countries, topped by Norway followed by Finland and Denmark, while Eritrea is at the bottom.
• China is ranked 177, and is only above North Korea at 179 and Turkmenistan at 178.
• In the South Asian neighbourhood, Nepal is at 106, Sri Lanka at 127, Myanmar (before the coup) at 140, Pakistan at 145 and Bangladesh at 152.
• The report said that Asia Pacific’s authoritarian regimes have used the Covid-19 pandemic to perfect their methods of totalitarian control of information.
• India has not slipped further on the World Press Freedom Index 2021.
• India is ranked 142 after it had consistently slid down from 133 in 2016.

About World Press Freedom Index

• It is an annual report published every year since 2002 by Reporters Without Borders (RSF).
• RSF is an international NGO whose self-proclaimed aim is to defend and promote media freedom. Headquartered in Paris, it has consultative status with the United Nations
• It is a qualitative analysis combined with quantitative data on abuses and acts of violence against journalists during the period evaluated.
•  The RSF defines press freedom as “the ability of journalists as individuals and collectives to select, produce, and disseminate news in the public interest independent of political, economic, legal, and social interference and in the absence of threats to their physical and mental safety
• The countries have been given scores ranging from 0 to 100, with 0 being the best possible score and 100 the worst, ever since the 2013 index.
• The Index ranks 180 countries and regions according to the level of freedom available to journalists.
• It does not rank public policies even if governments obviously have a major impact on their country’s ranking.