Daily Prelims Notes 7 October 2024

Daily Prelims Notes

7 October 2024

Table Of Contents

1. A faith exiled from Russia years ago on the verge of disappearance in Georgia
2. Gold: what makes it so desirable?
3. Kazakhs vote on the first nuclear power station in country
4. Megalithic Burial Excavations Begin in Hanur: Unearthing the Iron Age Heritage
5. ASI Completes Epigraphy Work on Ancient Inscriptions in Thirukurungudi Temples
6. Ultrasound-Based Technique: A Revolutionary Approach to Cancer Detection
7. Why a proposed Eco-Sensitive Zone around Gir forest is facing protests
8. Telangana’s dry port logistics drive
9. How Europe’s creating the moon on Earth
10. Interest Rates Set to Ease: Impact on Borrowers and Savers

1. A faith exiled from Russia years ago on the verge of disappearance in Georgia

Sub: IR

SEC: Places in news

Context:

• Doukhobor Community that migrated to Georgia from Russia due to religious persecution is having concerns about the loss of cultural identity and traditions due to declining membership.

About Doukhobor Community:

• A pacifist Christian sect with unique beliefs and practices, originating in 18th-century Russia.
• Founded on principles of nonviolence and communal living.
• They rejected Orthodox Church and military service under Czar Nicholas I.
• Russian novelist Leo Tolstoy, also a pacifist, who donated the profits from his final novel Resurrection to help Doukhobors emigrate to Canada.

Cultural Practices:

• Nonviolence is central to their identity, with a strong emphasis on communal support.
• Community life focuses on shared agricultural practices and self-sufficiency.
• Prayers are conducted without priests and led by community members, reflecting their grassroots spirituality.
• Hymns and prayers are traditionally passed down orally.

Expulsion:

• In 1830s, thousands from the community were expelled from Russia for refusing military service and allegiance to Czar Nicholas I.
• Expelled from Russia, they settled in various regions, including Canada.
• They stablished villages in regions near the Ottoman Empire, emphasizing nonviolence and communal worship.
• At their peak, the community grew to about 20,000 members.

Current Status:

• Approximately 100 Doukhobors remain in Georgia, primarily concentrated in the villages of Gorelovka and Orlovka in the South Caucasus, Georgia.
• Significant Doukhobor populations exist in Canada, particularly in British Columbia, where they have established vibrant communities.

Challenges:

• The community is threatened by assimilation pressures as younger members, influenced by surrounding cultures, explore alternative beliefs.
• The diminishing population raises concerns about the survival of cultural practices and communal identity.
• In Georgia, tensions exist with ethnic Georgians and Armenians.

2. Gold: what makes it so desirable?

Sub: Geo

SEC: Eco geo

Context:

• Each of the Nobel Prizes to be awarded from October 7 will include a medal of electrum, an alloy of gold and silver, plated with 24 carat gold.

About Gold:

• Atomic Number: 79
• Latin Name: Aurum (Symbol: Au)
• Gold nuggets are typically found in mountainous areas with quartz veins.

Desirability:

• Gold is a precious metal famed for its use in jewellery and as a form of investment.
• Approximately 10% of global gold production is used in industry, mostly used for connectors in computers.
• Gold is a significant part of national reserves and is often held by central banks.

Characteristics:

• Doesn’t dissolve in strong nitric acid.
• Malleable, ductile, corrosion-resistant.
• Good conductor of electricity.
• Dissolves in aqua regia (a mix of nitric and hydrochloric acids).
• Dissolves in some alkaline solutions and mercury.
• Noble Metal: Among noble metals, gold is less reactive than all except platinum.

Global Production:

• South Africa was the leading producer since the late 19th century.
• Currently, China is the largest producer.Major producers include Australia, Russia, the USA, and Canada.

Indian Context:

• India is one of the largest consumers of gold, primarily for jewellery.
• Karnataka is the largest producer of gold in India.

3. Kazakhs vote on the first nuclear power station in country

Sub: IR

SEC: Places in news

Context:

• Kazakhstan voted in a referendum on building the country’s first nuclear power station.
• The proposed power station is to be located on the shores of Lake Balkhash.

Need for nuclear power:

• Kazakhstan already imports electricity, mostly from Russia, as its facilities, many of which are old, struggle to meet domestic demand.
• The new first nuclear power station aimed at enhancing power generation capacity and phasing out polluting coal plants.
• Kazakhstan is the world’s top uranium producer, accounting for 43% of the world’s supply in 2022.
• However, the country does not enrich uranium to the point where it can be used as fuel.

Concerns:

• The plan has faced public criticism on concern over related hazards, the Soviet nuclear testing legacy, and fears that Russia will be involved in the project.
• Kazakhstan was part of the Soviet Union in 1986 when the Chornobyl nuclear disaster occurred, and tens of thousands of Kazakhs were left with lifelong health issues.
• Between 1949 and 1989, the USSR carried out around 450 nuclear tests in Kazakhstan, exposing 1.5 million people to radiation.

What is referendum:

• A referendum is a direct vote in which an entire electorate is invited to vote on a particular proposal and can result in the adoption of new laws or policies.
• It typically involves issues of significant public interest such as constitutional amendments, changes in governance, or specific legislative proposals.

Lake Balkhash:

• It is an endorheic lake located in Kazakhstan,
• Lake Balkhash is one of the largest lakes in Central Asia and the 15th largest lake in the world.
• The lake is divided into two parts by the Sarimsek Peninsula, with the western part containing fresh water and the eastern part containing saline water.
• The Ili River is the main source of water for Lake Balkhash.
• The lake is shrinking and has become increasingly saline.

About Kazakhstan:

• Kazakhstan is a landlocked country in Central Asia. It shares borders with Russia, China, Kyrgyzstan, Uzbekistan, and Turkmenistan, with access to the Caspian Sea.
• Kazakhstan broke away from the Soviet Union to became an independent republic in 1991.

4. Megalithic Burial Excavations Begin in Hanur: Unearthing the Iron Age Heritage

Sub: History

Sec: Ancient History

Why in News

Excavations have commenced at a significant megalithic burial site in Doddalathur village, located in Hanur taluk of Chamarajanagar district, Karnataka. This excavation is a joint initiative led by the University of Mysore and the Mythic Society, Bengaluru, aiming to uncover the rich Iron Age heritage of South India. The project also serves as a training ground for archaeology students.

About Excavation Site

The excavation is taking place in Doddalathur village, situated in a valley formed by the Male Mahadeshwara Hill ranges in Hanur taluk, Chamarajanagar district, Karnataka.

The site is believed to date back to the Megalithic Period, also known as the Iron Age, which is roughly placed between 1200 BCE and 300 CE in South India.

The site was first discovered in 1961 by C. Krishnamurti of the Archaeological Survey of India (ASI).

The village once had over 1,000 megalithic burials, but due to agricultural expansion, settlement, and land development activities, many burials have been disturbed or destroyed. However, a significant number of burials still remain intact, offering potential for further excavation.

Past Excavations in the Region: In 2021 and 2022, the Department of Ancient History and Archaeology excavated the Budipadaga site, located about 20 km southwest of Doddalathur.

Budipadaga is a habitation-cum-megalithic burial site, offering similar archaeological value.

Megalithic culture:

The term “Megalith” is derived from the Greek words “mega” (large) and “lithos” (stone), meaning large stone structures, often associated with burials.

While megalith is often used to describe a single piece of stone, it also can be used to denote one or more rocks hewn in a definite shape for special purposes.

Megalithic culture refers to a period characterized by the use of large stones for monuments and burial practices.

Megaliths in India are dated before 3000 BC, with recent findings dated back to 5000 BC in southern India.

Coincides with the Iron Age in the Indian subcontinent.

Geographical Spread:Found extensively in peninsular India, especially in states like Maharashtra, Karnataka, Kerala, Tamil Nadu, and Andhra Pradesh.They are also found in the upper Indus valley and central India.

Types of Megaliths:

Menhirs: Single standing stones, often for commemorative or religious purposes.

Dolmens: A table-like structure formed by placing a large flat stone on top of upright stones, used as burial sites.

Cairns: Stone heaps or piles used to mark graves.

Stone Circles: Circular arrangements of stones around burial sites.

Capstone style: Single megaliths placed horizontally, often over burial chambers, without the use of support stones.

Cist: A small stone-built coffin-like box or ossuary used to hold the bodies of the dead.

Iron Age and Settlement Patterns:The period marked the introduction and widespread use of iron tools and weapons, leading to advancements in agriculture, warfare, and settlement development.

Megalithic Burials: Characteristic of the Iron Age, these burials used large boulders (megaliths) in circular patterns, indicating complex burial practices and social structures.

Iron Age settlements were often located in fertile valleys and near hilly regions (e.g., Male Mahadeshwara Hills), with proximity to resources being a key factor.

The Iron Age revolutionized agriculture and trade, enabling more permanent and widespread settlements across South India.

5. ASI Completes Epigraphy Work on Ancient Inscriptions in Thirukurungudi Temples

Sub: History

Sec: Medieval  History

Why in News

The Epigraphy Division of the Archaeological Survey of India (ASI) has recently completed the estampage method of copying ancient inscriptions from three significant temples in Thirukurungudi, Tirunelveli district, Tamil Nadu. These inscriptions provide valuable insights into the region’s history, particularly during the Pandya and Vijayanagara periods.

Temples Involved: The inscriptions were copied from three temples:

Nambi Rayar Temple

Thirumalai Nambi Temple

Aniliswarar Temple

Inscriptions Collected: Approximately 25 inscriptions were copied over a period of 15 days using the estampage method.

Estampage Method:

A technique used by archaeologists to replicate stone inscriptions for detailed study.

Process:The inscribed stone is cleaned using a brush.

Paper Application: Pre-soaked maplitho paper is applied to the stone surface to capture the engravings.

Inking: Once the paper dries, ink is applied to highlight the characters of the inscription.

Details Recording: Information about the inscription’s location is noted on the back of the sheet for record-keeping.

Purpose:Allows precise replication of ancient texts for analysis and preservation.Aids in understanding historical rulers and dynastic history through corroboration with other sources.

Nambi Rayar Temple:Thirukurungudi, Tirunelveli district, Tamil Nadu.

Dravidian-style temple, part of the Vaishnavite tradition.

Lord Vishnu, worshipped as Nambi Rayar.

An important Divya Desam, one of the 108 Vishnu temples revered by the Alvars.Known for its architectural grandeur and historical inscriptions, including records of land donations for temple rituals.

Inscription describes the gift of tax-free land to the temple for the creation of a flower garden to supply flowers for temple rituals (pujas).

Inscription, written in Tamil, dates back to the Vijayanagara period, mentioning land boundaries during a king’s reign.

Thirumalai Nambi Temple:Thirukurungudi, situated in the Western Ghats near Tirunelveli, Tamil Nadu.

Vaishnavite temple – Lord Vishnu, in the form of Thirumalai Nambi.

Set in a picturesque hill area, part of the Pancha Nambi Kshetrams (five sacred places dedicated to Lord Nambi).

Inscriptions reveal historical donations and local community involvement in temple management.

Aniliswarar Temple:Thirukurungudi, Tirunelveli district, Tamil Nadu.

Shaivite temple – Lord Shiva, worshipped as Aniliswarar.

Contains Pandya period inscriptions in Vattezhuthu script.Historical records mention donations like sheep for ghee to light perpetual lamps, reflecting ritualistic practices of the time.

Inscription is from the Pandya period, reflecting the religious and social practices of the time.

About Pandyas:Southern India, primarily Tamil Nadu.

From around 6th century BCE to 14th century CE.

Capital: Madurai.

Prominent Kings: Nedunjeliyan, Sundara Pandya.

Religion: Shaivism and Vaishnavism were prominent.

Contributions: Known for temple architecture, particularly Meenakshi Temple. Flourished in trade with Roman and Southeast Asian regions.

Decline: Overpowered by Delhi Sultanate in the 14th century.

About Vijayanagar:Founded in 1336 CE, lasted until 1646 CE.

Capital: Hampi.

Prominent Kings: Krishnadevaraya, Harihara, and Bukkaraya.

Religion: Patronized Hinduism, supported both Shaivite and Vaishnavite traditions.

Contributions: Known for prosperity, literature, and temple architecture (e.g., Virupaksha Temple). Prominent in trade and defense against Muslim invasions.

Decline: Weakened after the Battle of Talikota (1565 CE) against Deccan Sultanates.

6. Ultrasound-Based Technique: A Revolutionary Approach to Cancer Detection

Sub: Sci

Sec: Health

Why in News

Scientists are pioneering a novel ultrasound-based method to detect cancers, which could potentially replace invasive biopsy procedures. This groundbreaking technique, which was recently presented at the joint meeting of the Acoustical Society of America and the Canadian Acoustical Association, holds immense promise for transforming cancer diagnostics.

Ultrasound-Based Cancer Detection

A new, non-invasive method has been developed using high-frequency ultrasound to detect cancerous tissues. This technology enables scientists to release tiny droplets containing RNA, DNA, and proteins into the bloodstream, allowing them to identify specific cancer biomarkers.

How it Works:

High-energy ultrasound waves break off small pieces of tissue from suspected cancerous areas.

The tissue fragments release genetic material and proteins (biomarkers) into the blood, which can be tested for cancer detection.

Ultrasound increases the concentration of these biomarkers in the bloodstream by over 100 times, improving the chances of identifying cancer at an early stage.

Photoacoustic Imaging:New technology allows for real-time imaging of cancerous tissues using laser pulses that create sound waves, improving visualization of tumour-associated blood vessels​. The new systems capture images 100 to 1,000 times faster than previous technologies, enhancing clinical applicability​

Wearable Ultrasound Devices:Researchers have developed a miniaturized ultrasound scanner that can be worn, enabling women to conduct breast imaging at home​. This device can detect tumours as small as 0.3 cm, potentially increasing early detection rates for interval cancers​

Benefits of Ultrasound Technology:Ultrasound is non-invasive and radiation-free, providing detailed soft tissue images, which is crucial for detecting breast and prostate cancers.​The technology enhances surgical precision by differentiating between cancerous and healthy tissues during operations​

Future Prospects:The U.S. National Cancer Institute has launched a new initiative, the ‘Cancer Screening Research Network,’ which aims to explore innovative cancer detection techniques. The network is expected to begin large-scale clinical trials with 24,000 participants in 2025, and this ultrasound-based method could be part of future trials.

About Cancer:Cancer is a disease characterized by the uncontrolled growth and spread of abnormal cells within the body. It can arise in various tissues and organs, leading to the formation of tumours.

Cancer begins with genetic mutations that alter the normal behaviour of cells. These mutations can result in the proliferation of cancerous cells, forming clusters known as tumours.

The cancerous cells may detach from these tumours and spread through the lymphatic system or bloodstream, leading to metastasis in other body regions.

Approximately 63% of all deaths in India are attributed to NCDs, with cancer being a significant contributor.

By 2030, the economic burden of cancer-related illnesses is projected to reach approximately $3.55 trillion in lost output.

7. Why a proposed Eco-Sensitive Zone around Gir forest is facing protests

Sub: Env

Sec: Protected Areas

Context:

• On September 18, the Ministry of Environment, Forest and Climate Change (MoEFCC) proposed notifying 3,328 sq km around the Gir forest in Gujarat as an Eco-Sensitive Zone (ESZ).
• A week later, the area was reduced to 2,061 sq km to accommodate the needs of people living near the forest.

Reasons for Protests:

• Farmers argue that restrictions in ESZs limit their ability to protect their crops from wildlife, such as the Asiatic lions.
• Local leaders and organizations, like the Bharatiya Kisan Sangh, are concerned about the negative impact on businesses, tourism (resorts), and small industries due to the restricted permissions in ESZs.

Previous Disputes:

• In 2016, a similar proposal for a 3,328 sq km ESZ led to protests. Farmers’ rights to self-defence against wild animals were cited as the reason.
• After complaints, the Gujarat government revised the ESZ area, reducing it to 1,114 sq km, which was challenged in court.
• To date, the Gujarat High Court has prevented the final notification.

Gir’s Uniqueness:

• Protected Area: Gir National Park along with other sanctuaries is the last remaining habitat of Asiatic lions.
• Human-Wildlife Coexistence: Despite some conflicts (like livestock loss), local communities generally tolerate and support lion conservation.
• Lion Population Growth: Due to conservation efforts, the lion population increased from 327 in 2001 to 674 in 2020.

Process of Declaring an ESZ:

1. State forest departments submit ESZ proposals for each Protected Area.
2. MoEFCC issues a draft notification, inviting public feedback within 60 days.
3. After receiving suggestions and the state’s response, the ministry finalizes the ESZ notification based on recommendations from an expert committee.

Ecologically Sensitive Zones (ESZs) in India

• Ecologically Sensitive Zones (ESZs) are areas notified by the Ministry of Environment, Forests and Climate Change (MoEFCC), Government of India around Protected Areas, National Parks, and Wildlife Sanctuaries. These zones act as “shock absorbers” or “buffers” for the protected areas by regulating and managing the activities around such areas.
• Key Guidelines:

1. ESZ notification under Section 3 of the Environment (Protection) Act, 1986
2. Supreme Court directions regarding mandatory ESZ of 10 km around protected areas (unless specifically altered)
3. Guidelines for Declaration of ESZ around National Parks and Wildlife Sanctuaries dated February 9, 2011

Extent and Boundaries

Standard ESZ Area

• Minimum: Up to 100 meters from the protected area boundary
• Maximum: Up to 10 kilometres from the protected area boundary
• Case-specific variations based on:
  • Geographical features
  • Population density
  • Economic needs
  • Environmental requirements

Activities in ESZs:

Penalties for Violations:

• Under Environment (Protection) Act, 1986:
  • Imprisonment up to 5 years
  • Fine up to ₹1 lakh
  • Additional fine of ₹5,000 per day for continuing violations

Asiatic lion

• Asiatic lion (Panthera leo persica) is a sub-species of lion that is found only in the Gir Forest National Park and Wildlife Sanctuary in Gujarat, India.
• The Asiatic lion is one of the most endangered big cats in the world, with a population of less than 700 individuals in the wild.
• The Asiatic lion is found only in the Gir Forest National Park and Wildlife Sanctuary, which is a protected area covering an area of about 1412 sq km in Gujarat.
• The Asiatic lion is slightly smaller than its African counterpart, with a distinctive fold of skin on its belly and a shorter, less bushy mane.
• The Asiatic lion’s diet mainly consists of deer, antelope, and wild boar, although it may also prey on domestic livestock in areas surrounding the Gir forest.
• Cultural significance: The Asiatic lion has cultural significance in India, where it is revered as a symbol of power, courage, and royalty, and is depicted in several ancient Indian artworks and scriptures.
• Conservation Status
  • Wildlife (Protection) Act 1972: Schedule 1
  • CITES :Appendix I
  • IUCN Red List: Endangered
• The Asiatic lion faces several challenges to its survival, including habitat loss, fragmentation, and human-wildlife conflict.

Barda Wildlife Sanctuary

• Barda Wildlife Sanctuary is a protected area located in the Porbandar district of Gujarat, India. It covers an area of about 192 sq km and is located in the foothills of the Aravalli Range in Gujarat.
• The vegetation in the sanctuary includes dry deciduous forest, scrubland, and grassland.
• The sanctuary is home to a diverse range of flora and fauna, including leopard, hyena, jackal, sloth bear, jungle cat, Indian civet, and several species of birds and reptiles.
• Barda Wildlife Sanctuary is connected to several other protected areas in the region, including Gir National Park and Wildlife Sanctuary, Pania Wildlife Sanctuary, and Jamjir Wildlife Sanctuary, which together form a contiguous wildlife habitat.
• Barda Wildlife Sanctuary is recognized as an Important Bird Area (IBA) by BirdLife International.
• Threats: The Barda Wildlife Sanctuary faces several threats, including poaching, habitat loss and fragmentation, and human-wildlife conflict.

Source: IE

8. Telangana’s dry port logistics drive

Sub: Geo

Sec: Eco geo

Context:

• Dry Port Development in Telangana.

What is a Dry Port?

• A dry port is an inland terminal that connects to a seaport by rail or road, acting as a trans-shipping hub for sea cargo.
• Exporters can complete all customs formalities at the dry port, saving time and reducing costs.
• In addition to their role in cargo transhipment, dry ports may also include facilities for storage and consolidation of goods, maintenance for road or rail cargo carriers and customs clearance services. 
• The location of these facilities at a dry port relieves competition for storage and customs space at the seaport itself.
• In India, dry ports are in: Andhra Pradesh, Assam, Chhattisgarh, Delhi, Gujarat, Haryana, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh, Uttarakhand, West Bengal.

Telangana Government’s Initiative:

• The Telangana government is working on developing a dry port in the northern corridor of the state, in a public-private partnership (PPP) mode.
• The State aims to enhance its logistics infrastructure to support industrial development and boost exports.
• Feasibility studies are ongoing to consider setting up additional dry ports to further increase export capabilities.
• At present, exports from Telangana are routed through ports in Tamil Nadu and Andhra Pradesh, increasing logistical complexities.

Previous Proposals:

• In July 2021, the government, under K Chandrasekhar Rao’s leadership (then known as Telangana Rashtra Samithi, now Bharata Rastra Samithi), approved plans for a 1,400-acre multi-modal logistics park near Nalgonda through a PPP model.
• It also decided to establish two integrated container depots (ICDs) in Hyderabad, similar to the Concor ICD at Sanathnagar, to collaborate with the Customs department and promote exports.
• A proposal to set up 10 additional integrated logistics parks across Telangana was also approved, but none of these projects, including the dry port, have commenced.

Importance of Logistics for Telangana:

• Telangana’s industrial strengths include pharmaceuticals, food processing, textiles, and the defence and aerospace sectors.
• A robust logistics infrastructure is crucial to support these industries and enhance export capabilities.
• According to government data, Telangana’s logistics sector is growing at 12% annually, and the development of industrial corridors will likely increase demand for logistics services further.

Source: TH_BL

9. How Europe’s creating the moon on Earth

Sub : Sci

Sec: Space

LUNA Analog Facility: Simulating the Moon on Earth

• Developed by the German Space Agency (DLR) and European Space Agency (ESA), the LUNA Analog Facility was unveiled in September 2024.
• Its purpose is to recreate the moon’s environment for training astronauts and testing new technologies.
• Key components include:
  • Artificial lunar soil (regolith) from volcanic soils of Italy, Germany’s Eifel region, and Norwegian rocks.
  • Special lighting to simulate the sun’s angle and harsh shadows astronauts would face on the moon.

Challenges in Simulating the Moon:

• One crucial element, lunar gravity, is missing from the facility. On the moon, gravity is one-sixth that of Earth.
• Unlike parabolic flights or swimming pools, which simulate zero-gravity, LUNA’s land-based setup makes this hard to achieve.
  • Parabolic flights use refitted jet aircraft to recreate the loss of gravity by ascending to and descending from high altitudes at 45-degree angles.
  • Astronaut training swimming pools are also specially equipped, and the astronauts perform mock exercises in spacesuits.
• Proposed solution: Engineers plan to develop a “gravity offload system”, where astronauts are suspended by cables to mimic moon-like gravity. This system is still in the prototype phase.

Training Exercises:

• During the unveiling, astronauts Matthias Maurer and Thomas Pesquet conducted mock lunar missions in front of officials, using long-handled scoops, a sample trolley, and a robotic dog.
• Although they could not experience moon-like gravity, the facility replicates the difficult lighting and terrain conditions astronauts will encounter on the real moon.
• Regolith’s challenges: Lunar soil is highly abrasive, potentially damaging all electrical equipment and spacesuits. Testing these effects is a key part of LUNA’s purpose.
• LUNA has room for further development, with additional modules nearby for habitat simulation and food cultivation (from the EDEN ISS experiment).
• Future plans include the possibility of a “LUNA 2” for Mars training.

Global Connectivity:

• LUNA can connect to mission control centers worldwide, allowing remote simulations. NASA astronauts could be guided through a mission simulation in Germany by teams in the US.
• According to ESA officials, the LUNA facility signals Europe’s serious commitment to space exploration, supporting both NASA’s Artemis program and Europe’s goal of reaching the moon by the 2030s.

EDEN ISS experiment:

• The goal of the EDEN ISS project is to advance controlled environment agriculture technologies beyond the state-of-the-art.
• It focuses on ground demonstration of plant cultivation technologies and their application in space.
• EDEN ISS develops safe food production for onboard the International Space Station (ISS) and for future human space exploration vehicles and planetary outposts.
• EDEN ISS develops an advanced nutrient delivery system, a high performance LED lighting system, a bio-detection and decontamination system and food quality and safety procedures and technologies.
• A mobile container-sized greenhouse test facility was built to demonstrate and validate different key technologies and procedures necessary for safe food production within a (semi-) closed system.

Source: IE

10. Interest Rates Set to Ease: Impact on Borrowers and Savers

Sub : eco

Sec: Monetary Policy

• Global Rate Reduction Trends:
  • Globally, central banks like the U.S. Federal Reserve and the European Central Bank are reducing interest rates.
  • The Reserve Bank of India (RBI) has not committed to a rate cut yet, but widespread expectations point to rate cuts in the near future.
  • Currency Exchange Rate: The exchange rate is currently stable.
  • Timing of Rate Cut: The RBI may initiate an interest rate cut by December.
• Fundamental Reasons for Rate Reduction:
  • Lower Inflation: India’s inflation has decreased, allowing room for interest rate cuts.
  • Global Rate Reductions: Major economies are cutting rates, and India is likely to follow.
  • Stable Currency: The exchange rate is stable, which supports the possibility of interest rate easing.
• Impact on Borrowers:
  • Floating Rate Loans:
    • Loans are often benchmarked to external variables like the RBI repo rate or Treasury Bill yields.
    • Any cut in repo rate will lead to immediate transmission to loan rates.
  • Options for Borrowers:
    • Option 1: Keep EMI the same and reduce the loan tenure. This helps in reducing the overall interest paid.
    • Option 2: Reduce EMI and keep the loan tenure the same. Although it eases cash flow, it leads to paying more interest over time.
  • Fresh Loans:
    • Low floating rates are attractive but remember, interest rates move in cycles.
    • During the post-COVID phase, floating housing loan rates had dropped to 6.5%.
• Impact on Savers and Depositors:
  • Deposit Rates:
    • A cut in the RBI repo rate (currently 6.5%) will lead to lower deposit rates.
    • The extent of reduction depends on banks, but it will likely follow the RBI’s rate cut, for example, by 0.5% to 0.75%.
  • Opportunity Cost:
    • Locking in current deposit rates could prove beneficial, as future rates are expected to be lower.
  • Other Interest-Bearing Instruments:
    • Small Savings Schemes: Includes Post Office Schemes, RBI Floating Rate Bonds, and government-sponsored retirement schemes.
    • Corporate Deposits and Bonds: Deposits by corporates/NBFCs and government / corporate bonds will also see similar rate movements.
  • Mutual Funds (Debt MFs):
    • In debt mutual funds, when interest rates decline, bond prices rise, leading to higher returns.
    • The 10-year benchmark government bond yield has already eased from 7.38% to 6.75% over the past year.
• What Borrowers Should Do:
  • For existing loans: Consider keeping EMI the same and reducing tenure to minimize total interest paid.
  • For new loans: Sign up for a loan based on your capacity, keeping in mind that floating rates may rise over time.
• Conclusion:
  • Borrowers benefit from lower rates as loan EMIs decrease or tenure shortens.
  • Savers/Depositors face lower returns but can still benefit if they lock in rates now.
  • The RBI will reduce rates only when inflation is low, ensuring the real return (inflation-adjusted) for savers is not adversely impacted.