Daily Prelims Notes 7 October 2022
- October 7, 2022
- Posted by: OptimizeIAS Team
- Category: DPN
Daily Prelims Notes
7 October 2022
Table Of Contents
- Government releases 7183 crore deficit grant to 14 states
- Interest rates likely to go up
- ISRO’s humanoid Vyom Mitra’s skills to get a lift-off
- India abstains on Sri Lanka vote at Human Rights Council
- Central Bank Intervention
- Paris Club
- Policy trilemma
- Agroecology for preserving agrobiodiversity
Context: Finance ministry released the monthly instalment of the revenue deficit grant of 7183 crores.
About the Post Devolution Revenue Deficit (PDRD):
- The Centre provides the Post Devolution Revenue Deficit Grant to the States under Article 275 of the Constitution.
- The grants are released as per the recommendations of the Finance Commission in monthly instalments to meet the gap in Revenue Accounts of the States post-devolution (of the divisible tax pool of the Centre).
- The 15th Finance Commission has post-devolution revenue deficit grants amounting to about 3 trillion over the five-year period ending FY26.
- The number of states qualifying for the revenue deficit grants decreases from 17 in FY22, the first year of the award period to 6 in FY26, the last year.
- The eligibility of States to receive this grant and the quantum of grant was decided by the Commission based on the gap between assessment of revenue and expenditure of the State.
Article 275 of the Constitution:
- It provides for the payment of such sums as Parliament may by law provide as grants-in aid to such States as Parliament may determine to be in need of assistance.
- The grants are paid out of the Consolidated Fund of India in each year, and different sums may be fixed for different States.
- These grants are to be of the nature of capital and recurring sums as may be necessary.
- These aim to enable that State to meet the costs of such schemes of development as may be undertaken by it with the approval of the Government of India for the purpose of promoting the welfare of the Scheduled Tribes in that State or raising the level of administration of the Scheduled Areas there in to that of the administration of the rest of the areas of that State.
- Grants are primarily intended to correct Inter-State disparities in financial resources and to coordinate the maintenance and expansion of the welfare schemes of the State Governments on a uniform national level.
Context: Recently, RBI has hiked the Repo rate by 50 basis points, which now stands at 5.90 %.
- The RBI raised the Repo rate by 50 basis points to 5.90 in the last monetary policy review as the Monetary Policy Committee (MPC) seeks to ensure that inflation remains within the target, while supporting growth.
- The regime of high-interest rates is expected to last for two to three years or till when the inflation level comes down and the central bank cuts down the Repo rate.
- While the central bank retained its CPI inflation projection at 6.7 per cent for FY23, it downgraded the real GDP growth projections for FY23 to 7 per cent from 7.2 per cent and FY24 at 6.5 per cent.
- CPI is likely to remain above 6 per cent for the first three-quarters of FY23.
- This indicates that EMIs or tenure on loans can rise further.
Impact on the economy
- Impact on demand: The hikes are set to raise the lending rates in the banking system and impact the demand in the economy.
- When interest rates are raised, it makes money more expensive, thereby resulting in reduction of demand in the economy and bringing down inflation.
- High EMI’s: The rate hike will force banks and non-banking finance companies to increase lending rates and result in higher equated monthly instalments (EMIs) of existing borrowers.
- New home, vehicle and personal loans will also become costlier.
- It is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
- Repo stands for ‘repurchase option’ or ‘repurchase agreement’.
- The central bank provides these short term loans against securities such as treasury bills or government bonds.
- It is commonly known as Policy Rate too.
- Repo rate is used by monetary authorities to control inflation.
- The government increases the repo rate when they need to control prices and restrict borrowings.
- On the other hand, the repo rate is decreased when there is a need to infuse more money into the market and support economic growth.
Subject : Science & tech
Context: Vyommitra, the humanoid designed and developed by the ISRO has been successfully integrated with a computer ‘brain’ which enables it to ‘read’ control panels aboard and communicate with the ISRO ground stations.
About Vyom Mitra:
- The humanoid has been developed by the ISRO Inertial Systems Unit, Thiruvananthapuram.
- Vyom Mitra is a half-humanoid and her body stops at the torso and has no legs.
- The humanoid will simulate the human functions required for space before real astronauts take off.
- She has been designed to resemble a human with facial expressions and speech and sight
- Vyommitra is also set to get a digital twin. The ‘twin’ will undergo computer simulations where the control systems are tested for microgravity conditions.
- The humanoid can detect and give out warnings if the environment changes within the cabin.
- She is capable of switching panel operations, performing Environment Control and Life Support Systems (ECLSS) functions, having conversations with the astronauts, recognizing them, and solving their queries.
- The AI-enabled robot can withstand vibrations and shock during the flight.
Role of Vyom Mitra:
- Vyommitra will fly aboard the first unmanned test flight ahead of the crewed Gaganyaan flight expected in 2024.
- It will simulate the exact human functions in space.
- It will check whether the systems are working right.
- Gaganyaan is a mission by the Indian Space Research Organization (ISRO).
- Under the Gaganyaan schedule:
- Three flights will be sent into orbit.
- There will be two unmanned flights and one human spaceflight.
- The Gaganyaan system module, called the Orbital Module will have three Indian astronauts, including a woman.
- It will circle Earth at a low-earth-orbit at an altitude of 300-400 km from earth for 5-7 days.
- Crew module –spacecraft carrying human beings.
- Service module –powered by two liquid propellant engines.
- It will be equipped with emergency escape and emergency mission abort.
- GSLV Mk III, also called the LVM-3 (Launch Vehicle Mark-3,)the three-stage heavy lift launch vehicle, will be used to launch Gaganyaan as it has the necessary payload capability.
- Training in Russia:
- In June 2019, the Human Space Flight Centre of the ISRO and the Russian government-owned Glavkosmos signed a contract for the training, which includes Russian support in the selection of candidates, their medical examination, and space training.
- The candidates will study in detail the systems of the Soyuz manned spaceship, as well as be trained in short-term weightlessness mode aboard the Il-76MDK aircraft.
- The Soyuz is a Russian spacecraft. The Soyuz carries people and supplies to and from the space station.
- The Il-76MDKis a military transport plane specially designed for parabolic flights of trainee astronauts and space tourists.
Subject: International Organisations
Context: India abstained from voting on a resolution on Sri Lanka at the U.N. Human Rights Council, while observing that Sri Lanka’s progress in implementing commitments on the 13 th Amendment, meaningful devolution, and early provincial elections remains “inadequate”.
About UN human Rights Council
- The UN Human Rights Council is an inter-governmental body within the United Nations system responsible for strengthening the promotion and protection of human rights around the world.
- The Council was created by theUnited Nations General Assembly in 2006. It replaced the former United Nations Commission on Human Rights.
- The Office of the High Commissioner for Human Rights (OHCHR) serves as the Secretariat of the Human Rights Council.
- OHCHR is headquartered in Geneva, Switzerland.
- It is made up of 47 United Nations Member States which are elected by the UN General Assembly (UNGA).
- The members are elected for a period of three years, with a maximum of two consecutive terms.
- The UNGA takes into account the candidate States’ contribution to the promotion and protection of human rights, as well as their voluntary pledges and commitments in this regard.
- The Council’s Membership is based on equitable geographical distribution. Seats are distributed as follows:
- African States: 13 seats
- Asia-Pacific States: 13 seats
- Latin American and Caribbean States: 8 seats
- Western European and other States: 7 seats
- Eastern European States: 6 seats
- Members of the Council serve for a period of three years and are not eligible for immediate re-election after serving two consecutive terms.
What is the 13th Amendment of Sri Lankan Constitution?
- It is an outcome of the Indo-Lanka Accord of July 1987, signed by the then PM Rajiv Gandhi and President J.R. Jayawardene, in an attempt to resolve the ethnic conflict and civil war.
- The 13th Amendment, which led to the creation of Provincial Councils, assured a power-sharing arrangement to enable all nine provinces in the country, including Sinhala majority areas, to self-govern.
- Subjects such as education, health, agriculture, housing, land and police are devolved to the provincial administrations.
- But because of restrictions on financial powers and overriding powers given to the President, the provincial administrations have not made much headway.
- In particular, the provisions relating to police and land have never been implemented.
Global foreign-currency reserves are falling at the fastest pace on record as central banks from India to the Czech Republic intervene to support their depreciating currencies.
- Valuation changes– as the dollar appreciated two-decade highs against other reserve currencies, like the euro and yen, it reduced the dollar value of the holdings of these currencies.
- Central Bank’s Intervention-central banks across the world intervening to support their depreciating currencies.
Central Bank Intervention:
- It is also known as foreign exchange market intervention or currency manipulation,
- It is a monetary policy tool that involves a central bank taking an active, participatory role in influencing the monetary funds transfer rate of the national currency, usually with its own reserves or its own authority to generate the currency.
- A central bank intervention occurs when a central bank buys (or sells) its currency in the foreign exchange market in order to raise (or lower) its value against another currency.
- Intervention usually happens when a nation’s currency is undergoing excessive downward or upward pressure from market players, usually speculators.
- Verbal Intervention– when officials from the central bank “talk up” (or “talk down”) a currency.
- This is either done by threatening to commit real intervention (actual buying/selling of currency), or simply by indicating that the currency is undervalued or overvalued.
- This is the cheapest and simplest form of intervention because it does not involve the use of foreign currency reserves.
- Operational Intervention-This is the actual buying or selling of a currency by a nation’s central bank.
- Concerted Intervention-This happens when several nations coordinate in driving up or down a certain currency using their own foreign currency reserves.
- Sterilized Intervention-When a central bank sterilizes its interventions, it offsets these actions through open market operations.
- Selling a currency can be sterilized when the central bank sells short-term securities to drain back the excess funds in circulation as a result of the intervention.
- By definition, sterilized intervention has little or no effect on domestic interest rates, since the level of the money supply has remained constant.
- Non-sterilization intervention-influences the exchange rate by inducing changes in the stock of the monetary base, which, in turn, induces changes in broader monetary aggregates, interest rates, market expectations and ultimately the exchange rate
- Verbal Intervention– when officials from the central bank “talk up” (or “talk down”) a currency.
The Paris Club has formally approached India and China to seek the cooperation of the two governments in restructuring Sri Lanka’s foreign debt.
- Japan, China and India are Sri Lanka’s biggest creditors, accounting for around $10 billion of Colombo’s nearly $51 billion in foreign borrowings.
- So far, none of the governments has agreed to restructure their debt to help Colombo meet the terms of the IMF deal.
- Sri Lanka wasn’t included in the G-20 ‘Common Framework’ adopted in 2020.
- The framework allows low-income countries to restructure the loans owed to the G-20 governments, which include the Paris Club economies as well as India and China.
What is ‘Paris Club’ in Economics?
- It is an informal group of officials from major creditor countries whose role is to find co-ordinated and sustainable solutions to the payment difficulties experienced by debtor countries.
- Paris Club creditors provide debt treatments to debtor countries in the form of rescheduling, which is debt relief by postponement or, in the case of concessional rescheduling, reduction in debt service obligations during a defined period (flow treatment) or as of a set date (stock treatment).
- The Paris Club was created gradually from 1956, when the first negotiation between Argentina and its public creditors took place in Paris.
- The Paris Club treats public claims (that is to say, those due by governments of debtor countries and by the private sector), guaranteed by the public sector to Paris Club members.
- It is similar to the London club, which is a group of commercial bankers formed in 1976 to deal with the financial problems of Zaire, and is focussed on providing various forms of debt relief to countries that face financial distress due to their heavy debt load.
- There are currently 22 Permanent Members of the Paris Club–
- Unlike China and India, Japan is a member of the Paris Club.
Context: The trilemma has come under focus recently as the U.S. Federal Reserve has been raising interest rates to fight rising prices. In a world where capital is largely free to move across borders, this has led many investors to pull money out of the rest of the world and rush to the U.S. in search of higher yields, thus putting pressure on many currencies such as the Indian rupee. In fact, even developed markets like Japan and the Eurozone have seen their currencies depreciate significantly against the U.S. dollar.
- The policy trilemma refers to the trade-offs a government faces when deciding international monetary policy. In particular, the policy trilemma contends that it is not possible to have all three objectives at the same time, but has to choose two from the following three options:
- Free movement of capital
- Independent (autonomous) monetary policy
- Fixed (managed) exchange rates
- The Impossible Trilemma, an important paradigm of open economy macroeconomics, asserts that a country may not be able to stabilise the exchange rate, and conduct an independent monetary policy when it is financially integrated with the rest of the world.
- Policymakers in all sophisticated economies face this trilemma, forcing them to make choices about which targets they are going to pursue.
- The RBI has tried to avoid these choices: It has tried to pursue all three objectives simultaneously in an especially aggressive manner since the pandemic struck.
- It has reduced its policy interest rate to negative levels in real terms.
- It has bought government securities to push down long-term interest rates.
- It has allowed large capital inflows, then intervened in the foreign exchange market to prevent the appreciation of the rupee. These actions are incompatible, and will eventually generate a serious policy dilemma.
- One of the corners of the trilemma has to do with capital inflows. In the first few months of the pandemic and the associated lockdown, the Indian economy witnessed a net outflow of foreign portfolio investment (FPI). However, this trend has reversed in recent months.
- At the same time, the combination of weak economic growth, lacklustre domestic demand, and low oil prices have shifted the current account balance from deficit into surplus. Imports have fallen more than exports suggesting that India is doing worse than its trading partners. These factors have changed the balance of supply and demand in the foreign exchange markets as a result of which the currency has begun to face appreciation pressures against the dollar. This brings us to another corner of the trilemma — currency stability.
- Retail inflation has now breached the upper limit of 6 per cent for more than three quarters. Core inflation has been rising and inflation expectations have jumped sharply. And while credit to the private sector remains depressed, credit to the government has been strong, implying that overall broad money is growing rapidly.
Context: Half of the breeds of many domestic animals have been lost. According to the Food and Agriculture Organization (FAO), only nine plant species account for 66 per cent of total crop production, despite the fact that there are at least 30,000 edible plants.
- The United Nations Environment Program defines agro-ecology as “an ecological approach to agriculture, often described as low-external-input farming.
- Other terms such as regenerative agriculture or eco-agriculture are also used.
- Agro-ecology is not just a set of agricultural practices, it focuses on changing social relations, empowering farmers, adding value locally and privileging short value chains.
- It allows farmers to adapt to climate change, sustainably use and conserve natural resources and biodiversity
- In simple words, agro-ecology celebrates crop diversity.
- It seeks low energy external inputs, agro-ecological services as enterprises, soil covered for a large period of time through multiple cropping, niche crops and regional markets.
- The Prime Minister’s call for using less fertilisers and pesticides “as a great step for saving mother earth” on August 15, 2019 and reiteration of his “Vocal for Local” idea, aptly captures the essence of agro-ecology and it also meets 12 out of the 17 UN Sustainable Development Goals.
- Rain-fed areas provide nutrition security through millets, pulses and oilseeds.
- Productivity of most of the rain-fed crops is meagre as compared to their irrigated cousins and hence traits of resilience and improved productivity are screened for under rain-fed crop improvement programs.
- Most of the endemic and cultivable land races of these regions are ephemerals. The word ‘ephemeral’ denotes all plants lasting a very short period of time and they inhabit rain-fed areas.
- Introducing agro-ecology in rain-fed areas could thus be a good policy option.
Dryland Agriculture refers to growing of crops entirely under rainfed conditions.
a) Dry farming: is cultivation of crops in regions with annual rainfall less than 750 mm. Crop failures is most common due to prolonged dry spells during the crop period. These are arid regions with a growing season (period of adequate soil moisture) less than 75 days. Moisture conservation practices are necessary for crop production.
b) Dryland farming: is cultivation of crops in regions with annual rainfall more than 750 mm. In spite of prolonged dry spells crop failure is relatively less frequent. These are semiarid tracts with a growing period between 75 and 120 days. Moisture conservation practices are necessary for crop production. However, adequate drainage is required especially for vertisols or black soils.
c) Rainfed farming: is crop production in regions with annual rainfall more than 1150 mm. Crops are not subjected to soil moisture stress during the crop period. Emphasis is often on disposal of excess water. These are humid regions with growing period more than 120 days. In dry farming and dryland farming, emphasis is on soil and water conservation, sustainable crop yields and limited fertilizer use according to soil moisture availability. In rainfed agriculture, emphasis is on disposal of excess water, maximum crop yield, high levels of inputs and control of water erosion