Daily Current Affairs [IAS UPSC Prelims and Mains Exam] – 7th January 2019
Role of open market operations in easeing tight liquidity conditions
Part of: GS Prelims and Mains III – Indian Economy; monetary policy; open market operations
- We know that the issue of liquidity crunch is being faced by the banking system.
- The tight liquidity conditions had led to overnight call money rate breaching the monetary policy corridor on several occasions.
- Therefore, the Reserve Bank of India (RBI) decided to scale up its open market operations (OMO).
- In other words, RBI to pump in more liquidity into the system through open market operations (OMOs).
About open market operations
- Open market operations are conducted by the RBI by way of sale or purchase of government securities (g-secs) to adjust money supply conditions.
- The central bank sells g-secs to suck out liquidity from the system and buys back g-secs to infuse liquidity into the system.
- These operations are often conducted on a day-to-day basis in a manner that balances inflation while helping banks continue to lend.
- The RBI uses OMO along with other monetary policy tools such as repo rate, cash reserve ratio and statutory liquidity ratio to adjust the quantum and price of money in the system.
Do you know?
- When RBI sells government security in the markets, the banks purchase them. When the banks purchase Government securities, they have a reduced ability to lend to the industrial houses or other commercial sectors. This reduced surplus cash, contracts the rupee liquidity and consequently credit creation / credit supply.
- When RBI purchases the securities, the commercial banks find them with more surplus cash and this would create more credit in the system. Thus, in the case of excess liquidity, RBI resorts to sale of G-secs to suck out rupee from system.
- Similarly, when there is a liquidity crunch in the economy, RBI buys securities from the market, thereby releasing liquidity.
- Its worth to note here that the market for government securities is not well developed in India but still OMO plays very important role.
GST can boost direct, indirect tax collections
Part of: GS Prelims and Mains III – Indian Economy; Fiscal policy
- According to tax analysts, GST can boost direct, indirect tax collections.
- To meet its fiscal requirements, government is increasingly dependent on tax revenue and also trying to improve revenues via sources such as PSU dividends.
- The view among tax analysts is that the government cannot take the risk of increasing tax rates, whether direct or indirect, for fear of a backlash from the public. So, the only option it has to boost tax revenues is to increase the tax base and stop evasion, both of which the government has been trying to do.
Do you know?
- Government’s dependence on tax revenue has steadily increased from last five years.
- However, the share of revenue from non-tax sources (such as dividends from PSUs and the RBI) and capital receipts (such as disinvestment proceeds) has been declining.
Measures taken to increase the tax base and stop evasion
- Analysing the business-wise monthly GST payments and ascertaining trends in State-wise movement of goods using the e-waybill data.
- Government plans to correlate GST data with information relevant from an income tax payment perspective so that incorrect tax filings can be corrected and revenues enhanced.
Therefore, the expansion of the GST taxpayer base, improving the return filings compliance and using the large amount of data available to detect tax evasion would become the cornerstone of the government’s measures to enhance tax revenues.
Tribals of West Bengal battling food scarcity: study
Part of: GS Mains II – Health issue; vulnerable section; Social/Welfare issue
According to a survey report,
- About 31% of tribal households in West Bengal face food scarcity in varying degrees.
- West Bengal is home to a over five million tribals, with 6% of the India’s tribal population of 100 million.
- But in many areas, tribals of the State are “far behind” in terms of human development.
- Poverty-born vices like alcoholism [and] the fragility of the public health system have resulted in a much lower life chances among the Adivasis.
- Degradation of forest and environmental degradation are cited as two more reasons for “reduced availability of natural nutrients” resulting in early deaths.
- The work participation rate [WPR] is higher among the Adivasis in Bengal “forcing the children of schoolgoing age to discontinue their studies in order to fend [for] themselves and support the families.
Defence manufacturing rules eased
Part of: GS Prelims and Mains III – Defence/Security; Government policies and schemes
- Government has simplified the process for approval of manufacturing of a range of defence and aerospace equipment and components by private industry, by bringing them under the licensing authority of the Department of Industrial Policy and Promotion (DIPP).
- Licensing process made simpler for private industry to build a range of equipment.
- Earlier DIPP used to segregate defence items in two categories covered by two different Acts — the Industries (Development and Regulation) Act, 1951, and the Arms Act, 1959. Now, items are listed in three categories — defence aircraft, warships of all kinds, and allied items of defence equipment.
- This move is also expected to help foreign Original Equipment Manufacturers (OEM) looking for partnerships with the private sector.
U.S. withdraw from Syria
Part of: GS Prelims and Mains II – International affairs
- President Donald Trump’s National Security Adviser said that U.S. will withdraw from Syria only after security of Kurds is ensured.
- US wants a guarantee from Turkey that Kurds in Syria would be protected.
Do you know?
- Kurdish-led forces control a large swathe of Syria’s north and northeast, some of it seized from the Islamic State group.
- A U.S. withdrawal could leave them exposed to an attack by neighbouring Turkey and its Syrian proxies.
- Government may soon make it mandatory for linking Aadhaar with driving licences.
- Aadhaar linkage will help to catch the guilty person who causes an accident.
- At present, the guilty person who causes an accident flees the scene and gets a duplicate licence. This helps him go scot-free. However, with the Aadhaar linkage one can change his/her name but cannot change their biometrics, neither iris nor fingerprints. Therefore makes it easy to hold the culprit.
Person in news: Tahawwur Rana
Why in news?
- Tahawwur Rana is a key accused in the 26/11 Mumbai terror attack case.
- Rana was arrested in 2009 and is serving a 14-year prison term in the U.S. for providing material support to terror outfit Lashkar-e-Taiba (LeT), which planned and executed the attacks.
- Rana, a Chicago-based businessman, helped David Coleman Headley open an immigration firm in Mumbai, which was a cover to conduct reconnaissance on targets that were attacked on November 26, 2008.
- The NIA also has registered a forgery case against Rana for opening the immigration centre based on fake documents.
India-U.S. Extradition Treaty of 1997
- Government of India had engaged with U.S. authorities under this treaty for custody of U.S.-based individuals for their role in the November 26, 2008, terrorist attacks in Mumbai.
Part of: GS Mains III – Role of NGOs or CSOs; Science and Technology
- “Innovate2Cultivate” programme – organized by a non-profit organisation connects start-ups with farmers of specific crops so that innovations are nurtured and taken to the farms.
- The start-ups have developed or are working on technologies and solutions such as organic micro nutrients and alternatives to pest management and soil management.
ISS crew could grow beans in 2021
Part of: GS Mains III – Science and Technology
- After cultivating lettuce in space three years ago, crew members aboard the International Space Station could be growing beans in 2021.
- Food grown in space could be crucial to sustain the astronauts in future deep space missions.
General studies 2
- Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure
- Statutory, regulatory and various quasi-judicial bodies
General studies 4
- Integrity, impartiality and non-partisanship, objectivity, dedication to public service
- Status and problems; ethical concerns and dilemmas in government institutions;
Federal polity and national agencies in India
- CBI has had its roots as an anti-corruption wing of the British Indian government known as the Delhi Special Police Establishment.
- Due to its competence and professionalism that from such humble origins it rose to national eminence and in 1963 it became the CBI.
- In the past some States occasionally blocked the CBI probe in specific cases.
- Now, the situation changed that hereafter a State’s refusal to allow the CBI probe in its territory is likely to be based not so much on the merits of a case but on political equations between that State and the ruling party at the Centre.
Impacts on credibility of CBI
- Previously, people use to demand a CBI probe into any crime or scam involving influential persons. But now civil society’s lack of confidence in the agency’s competence and neutrality is very much evident.
- Giving credence to the doubts about the CBI’s integrity, the families of Govind Pansare and Gauri Lankesh have determined to oppose a combined CBI investigation into their killings as well as that of Narendra Dabholkar and M.M. Kalburgi.
- Under the Constitution, the State governments have exclusive jurisdiction in matters related to law and order.
- The Centre can claim its jurisdiction over its departments located in States, such as railway property, and on matters like terrorism, sedition, counterfeit currency, etc.
- Even in these cases the Central agencies cannot discharge their duties without active cooperation from the State government concerned.
- Raising the concerns over integrity of CBI, the governments of Andhra Pradesh and West Bengal withdrew ‘general consent’ to the CBI to register fresh cases under its purview.
- Now CBI will have to obtain the State’s consent case by case; this will give a State government the opportunity to both ensure that the CBI is not acting at the behest of the ruling party at the Centre, or insert its own politics into investigations.
- The agency may technically go ahead with cases it already registered in these States, but that logic holds only on paper.
- Without a State government’s active cooperation, the CBI or any Central agency cannot carry out its operations in that State.
Impact on other agencies
- It is not the CBI alone that will be caught in the cross hairs of Centre-State feuds in future.
- Other agencies such as the Enforcement Directorate, the National Investigation Agency (NIA), etc. may find it hard to smoothly carry out their operations in States that are not politically aligned with the ruling party at the Centre.
- For example: unlike the CBI act (the Delhi Special Police Establishment Act) which mandates States’ consent, the NIA Act does not place such a restraint on the NIA.
- However, the NIA would be no more effective than the CBI when a State refuses to cooperate, whether that refusal is de jure or de facto.
- There is urgent need to define and delineate ‘federal crimes’ as recommended by the Malimath Committee in 2003.
- The task should be to bring in States as partners in solving a national problem,rather than declaring them as federal problems.
- There is need to calibrate different tiers of government and bring about political consensus so as to ensure India’s constitutional scheme delivers on its promise.
- A first step in this direction has to be the willingness of political parties to recognise the danger they pose to each other as well as to the entire polity. And then arrive at a modus vivendi.
- Elected executive must refrain from ‘monitoring’ investigations; a provision for more effective judicial oversight at all stages of criminal investigations; and the resolve to ensure bureaucratic neutrality.
- Institutional collapse is like a disease and it has entered a critical phase. If not tackled in time, it may inflict system-wide damage.
- The task of restoring the credibility of investigative agencies cannot be rocket science. Moreover, it is now in the self-interest of all political parties.
- The time is ripe for ideas to strengthen our federalism. Ideas for reforms will spring up and fructify only if elite consensus creates conducive environment.
Connecting the dots:
- Bureaucratic professionalism and neutrality of national investigative and regulatory agencies, is key to success for constitutional federal polity in India. Comment.
TOPIC:General studies 2
- Current events of national and international importance
- International disputes and agreements
Lessons for Kashmir from the Kuriles
- The Second World War left behind many problems inherited from history, some of them were in respect of multiple disputed territories.
- One of them concerns four islands in the Kurile chain, that are claimed by Japan but occupied by Russia as successor state of the Soviet Union.
- Despite the passage of over 70 years, this dispute has defied solution and prevented the conclusion of a Russo-Japanese peace treaty to draw a final curtain over the detritus of the war.
- The Kuriles are an archipelago of some 56 islands. All of them are under Russian jurisdiction but Japan claims the two large southernmost islands, Etorofu and Kunashiri, and two others, Shikotan and Habomai, as its ‘northern territories’.
- These islands were occupied by the Soviet Union in August 1945, after which the entire Japanese population, numbering less than 20,000, was evicted.
- The islands are now populated by the various ethnic groups of the former Soviet Union, but only eight of them are actually inhabited.
- The prime value of the islands, however, is strategic. The Russians have deployed missile systems, plan a submarine project there, and intend to rule out any American military use of the islands.
Opinions of; public and governments
- Public opinion in both countries is totally against any concession.
- Russians recalls the Japan-Russia war (1904-05) and the Japanese intervention with the U.S. and Europe during the early years of the Russian Revolution.
- Moscow’s legal claim is based on the post-war settlements of Yalta and San Francisco, whereas the Japanese claim is founded on the Russia-Japan treaties of 1855 and 1875.
- Leaders in both Russia and Japan are aware that their domestic political positions would be severely at risk from right-wing and conservative circles were they to suggest even the slightest compromise.
- Among hyper-nationalist circles, territorial issues have always been questions of utmost sensitivity.
The Progress on Kurils
- In 2016, both countries embarked on some joint undertakings on the islands without calling in question the claims and legal positions of either side.
- They agreed to joint field surveys and joint economic activities with the identification of specific projects, the enterprises that would undertake them, and various levels of supervision.
- These proposals cover marine species and aquaculture, greenhouse strawberry and vegetable cultivation, development of package tourism, wind power generation, and the reduction and disposal of garbage.
- They also agreed to scheduled visits by Japanese families who sought to visit the graves of their ancestors.
- The Japanese have further proposed safe opportunities for fishing salmon and trout without using prohibited driftnet methodology, and cooperation in disaster prevention.
- These may seem small steps, but underlying them is a serious purpose: to build trust. Summits and Foreign Ministers’ meetings have become commonplace.
Concerns of Russia
- Moscow is concerned about Tokyo amending Article 9 of the Japanese Constitution, which disallows Japan from maintaining a military force or using force to settle international disputes
- Russia views with anxiety the fact that Japan is among the world’s biggest spenders on defence and has a very powerful military.
- Japan plays host to American bases and missile systems, and plans to spend $240 billion up to 2024 on cruise missiles, missile interceptors, fighter jets and aircraft carriers.
- Responsible for this military build-up are apprehensions about threats from China and North Korea.
- Japan and South Korea seem to be inching towards a future of relative independence from the U.S. in wartime operations.
Causes Japanese engagements with Russia
- Japan’s wish to engage with Russia stems from the rapid rise of China and the perceived threat from North Korea.
- Russia is now seen in Japan as the lesser enemy, and improving relations with Moscow might drive a wedge in the growing quasi-alliance between Russia and China, a break-up desired by the U.S.-led Western alliance.
- Russian far east is endowed with plentiful natural resources which are in need of investments, but is hampered by a small population, whereas China has 100 million citizens along that shared land border.
Japan has no territorial or demographic ambitions in Russia other than the Kuriles, and has the capacity to transform the vast contiguous areas of Russia.
- The two countries agreed to resolve the Kurile islands dispute by concluding a peace treaty without any further delay.
Conclusion: Lessons for India
- Although no two international problems are analogous, there are important lessons to be drawn from the manner in which traditionally hostile neighbours can identify common interests and explore unorthodox avenues along which to proceed in search of innovative solutions to apparently insoluble disputes.
- This requires strong leadership and a bold imagination. Neither India nor Pakistan lacks either attribute.
- Kashmir is essentially a territorial dispute of almost equal vintage as the Kuriles. But if both sides keep waiting for the most propitious time to make the first move, it will never come about.
Connecting the dots:
- India and Pakistan can learn from Japan and Russia on seeking innovative solutions to territorial disputes. Comment.
(TEST YOUR KNOWLEDGE)
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Q.1) In the context of Indian economy, Open Market Operations’ refers to
- Borrowing by scheduled banks from the RBI
- Lending by commercial banks to industry and trade
- Purchase and sale of government securities by the RBI
- None of the above
Q.2) If the RBI implements an expansionist open market operations policy, this means that it will?
- Buy securities from non-government holders
- Offer commercial banks more credit in open market
- Sells G-securities (government securities) in open market
- Openly announces to the market that it intends to expand its credit
Q.3) Which of the following are instruments of Monetary Policy?
- Repo Rate
- Liquidity adjustment Facility
- Cash Reserve Ratio
- Open Market Operations
Select the code from below:
- 1 and 4
- 2 and 3
- 1,2 and 4
- All of the above
Q.4) Consider the following statement about Call Money Market:
- Borrowing and lending of funds take place on overnight basis.
- Participants in the call money market in India currently include all the scheduled commercial banks (SCBs), cooperative banks, insurance.
Which of the above statements is/are correct?
- 1 only
- 2 only
- Both 1 and 2
Q.5) The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the following?
- Banks keep their deposits with the RBI
- RBI provides loans to banks whenever they are in need
- It rediscounts the Bills of exchange
Choose the correct answer using the codes given below.
- 1 and 2 only
- 2 and 3 only
- 1 and 3 only
- All of the above
Q.6) Which among the following are government’s measures to enhance tax revenues?
- expansion of the GST taxpayer base
- improving the return filings compliance
- detect tax evasion
- PSU dividends
Choose the correct options:
- 1 and 4
- 2 and 3
- 1,2 and 3
- All of the above
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