60 Days Plan: UPSC IAS Prelims 2019 – Economics and Current Affairs (Day 21)

Explanation:

Creeping inflation or low inflation takes place over a longer period and range of increase is usually in single digit. Example is monthly inflation which increases from say 2.5 to 2.7 to 3.0.

Galloping inflation is the very high inflation running to double digit or triple digit. Example is Latin American countries of Argentina, Chile, Brazil in the 1970s and 1980s where inflation run from 50 to 700 percent.

Hyperinflation – In this case the range of inflation is not only very high but shoots up in a very short period of time usually overnight. Example of Germany after the First world war in the early 1920s. Such an inflation quickly leads to a complete loss of confidence in the domestic currency and people start opting for other forms of money, as for example physical assets, gold and foreign currency .

All the above statements are correct. Skewflation refers to skewedness of inflation in the economy which is essentially rise in the prices in few sectors and fall in the others. Example, increase in the cost of living while the prices of assets (say housing) are falling. Hence it is sector specific.

It is different from stagflation which is phenomenon coupled with slow or stagnant economic growth with relatively high unemployment rate.

In case of inflation, the lending institutions do not increase the nominal interest rate as the real cost of borrowing (i.e nominal interest rate minus inflation) falls by the same amount with which the inflation rises. Hence inflation is advantageous to borrowers and loss to lenders

Explanation:

Statement A is correct, as import market suffers and export market booms in inflation. As domestic currency depreciates, imports become costlier while exports become more competitive in the global markets.

Statement B is also correct as the domestic currency looses its value in front of the foreign currency and hence depreciates.

Statement c is correct as the real value of income for fixed income individuals decreases. For example, if an individual can buy 1000 pens with his salary at low inflation, he can afford only 800 pens with inflation due to rise in prices.

Statement d is wrong – the tax collection of both direct and indirect taxes increases for governments. Indirect taxes increases due to rise in prices of goods while direct taxes increases as the salaries of employees move into higher income slabs. But only the nominal value of tax collections increases while the real value doesn’t. (Real value = Nominal – inflation).

Whole Sale Price Index – Office of the Economic Adviser in DIPP Department of Industrial Policy and Promotion In Ministry of Commerce & Industry.

Consumer Price Index – Rural/Urban by Central Statistics Organisation – Ministry of Statistics and Programme Implementation

Consumer Price Index – Rural labourers, Agricultural labourers and Industrial workers by Labour Bureau.

Statement 1 is wrong- as Monetary Policy committee is given a statutory and institutionalised framework by amending the RBI, 1934 Act through Finance Act 2016.

Monetary policy committee consists of 6 members – 3 from RBI and 3 from the government. The members from the government are nominated and not elected.

Members from RBI: (Term of four years)

(a) The Governor of the Bank—Chairperson, ex officio;

(b) Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio;

(c) One officer of the Bank to be nominated by the Central Board—Member, ex officio

Members from the government – Term of four years.

RBI Governor has a casting vote in case of a tie.

Hence the statements 2, 3, 4 are correct.

Constitution of MPC was first proposed by B N Srikrishna committee on Financial sector legislative reforms (FSLRC).  Statement 5 is wrong.

Statement A is correct as PPI is of two forms:

1. Input PPI – calculated at the point where goods and services leave the production process
2. Output PPI – calculated at the point where goods and services leave the production process

Statement B is correct – as WPI doesn’t include services while PPI includes services as well

Statement C is correct – as PPI accounts only for the basic prices and excludes the taxes, transport costs and trade margins incurred which are accounted for in the CPI.

Statement D is wrong –as the weights of items in PPI are calculated from Supply Use Tables while those in WPI are calculated through Net Traded Value, in CPI Consumer Expenditure Surveys.

Explanation: T – bills or Treasury bills are issued by RBI on behalf of Government of India for short term borrowing, with a maximum maturity of one year. For long term borrowing, government bonds are issued.

All companies cannot issue Commercial papers. Only listed company with a working
capital of not less than Rs. 5 crore can issue Commercial papers.

Both the statements are not correct.

Disinflation is the decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation’s gross domestic product over time.

Deflation is the prolonged and widespread decline in prices that causes producers and consumers to curb spending waiting for prices to fall further.

Statement 1 is wrong: To curb inflation, governments have to make credit dearer and follow tighter monetary policy which means increase in repo rates. The cost of borrowing increases and the money supply in the market decreases, thus curbing inflation.

Statement 2 is correct: As reduction in import duties means more imports and supply can meet the demand. No case of too many people chasing fewer goods.

Statement 3 is correct: Ban on exports implies sale of goods in the domestic markets. Supply meets demand.

Statement 4 is correct:  Hoarding is the purchase of large quantities of a commodity by a speculator with the intent of pushing up the price. Dishoarding hence reduce the prices of commodities.

The above definition refers to Cash Management Bills which are issued by the Central Bank on behalf of the Government of India for a period of less than 91 days.

Statement C is wrong:

Base rate is calculated using return/profit margin while MCLR is calculated using tenor premium

A bank that is set up for the purpose of buying the bad loans of other banks along with other NPAs at market prices is known as “Bad Bank”. By transferring the bad loans to the bad bank, a bank will be able to clear its balance sheet from bad loans. Thus it solves NPAs and Twin Balance Sheet problem (option 2 is right)

Economic Survey 2017-18 proposed PARA – Public Sector Asset Rehabilitation Agency to function as a Bad bank. It will function similar to Asset Reconstruction Companies that buy stressed assets and auction them off for cash.

However, India is not the first country to propose the idea of Bad bank. First done in USA in 1988.

If a bad bank is established it will function in parallel to the Insolvency and Bankruptcy code to solve the problem of NPAs.

Explanation: Statement 1 is wrong because tighter monetary policy is used by RBI (which is essentially cutting down the money supply in the market) to control both Demand-pull and cost-push inflations.

Statement 2 is correct as Cash Reserve Ratio (CRR), Statutory liquidity Ratio (SLR), Repo Rate all can be increased to control the money supply – which is tighter or dearer monetary policy.

Statement 3 is wrong as the prices of items of everyday use cannot be controlled with monetary policy (nobody purchases such goods by borrowing money from banks). The prices of goods like cement, iron, steel can be controlled by monetary policy.

NBFCs whose asset size is of ₹ 500 cr or more as per last audited balance sheet are considered as systemically important NBFCs.

Statement 1 is wrong – WPI is computed by Office of Economic Advisor, Department of Industrial Policy and Promotion, Ministry of Commerce.

Decreasing order of weightage Manufacturing> Primary articles> Fuel and Power

In the New series of WPI (2011-12)

• Items have been increased from 676 to 697.
• Weight of Manufactured items has decreased from to 64.2 %
• Weight of fuel and power has decreased to 13.1%
• Weight of primary items has increased to 22.6%

Statement 1 and 4 are wrong

The Overdraft facility has been increased from Rs 5000/- to Rs 10000/-

Jan Dhan Yojana has been made an open ended scheme which means it will continue indefinitely.

Statement 1 and 3 are wrong.

Indian Post Payment Bank has been incorporated as public sector company under the department of posts with 100% government equity and is governed by the Reserve Bank of India.

It will not offer any ATM Debit card. Instead, it will provide its customer a QR Code based biometric card.

Statement 2 is wrong

It will focus on providing banking and financial services to people in rural areas, by linking all the 1.55 lakh post office branches with India Post Payment Bank services by the end of 2018.

E-Kuber is the Core Banking solution of the RBI implemented in 2012.

Core Banking System will allow the customers to access their accounts from anywhere , irrespective of where they have physically opened the accounts.

All branches of Commercial Banks and Regional Rural Banks are brought under the core banking fold.

The FSDC is headed by the Finance Minister and comprises the RBI Governor, the SEBI Chairman, and heads of regulators such as PFRDA, IRDAI and the Chairman of the Insolvency and Bankruptcy Board.

It is not a statutory body.

The number of tax returns filed has surged to 6.85 crore in FY 2017-18, an 80% growth since FY 2013-14.

The number of taxpayers reporting income greater than ₹1 crore has reached 1,40,139, an increase of 60% between assessment year (AY) 2014-15 and 2017-18.

Collections have grown at a decent compound rate of about 13% per annum.

The average income reported by rich Indians (those in the highest tax slab) has decreased. The share of the richest top 1% in the total tax collected has decreased by almost four percentage points.

Source: https://www.thehindu.com/opinion/op-ed/who-pays-taxes-and-who-doesnt/article25363404.ece

BreatheLife is a joint campaign led by the World Health Organization (WHO), United Nations Environment and the Climate & Clean Air Coalition (CCAC) to mobilize cities and individuals to protect our health and planet from the effects of air pollution.

The campaign combines public health and climate change expertise with guidance on implementing solutions to air pollution in support of global development goals.

The campaign aims to support the leadership, policy and technical work of the WHO, UN Environment and the Coalition in advancing three core strategic goals:

• Engage citiy, subnational and national governments to commit to achieving WHO Air Quality Guidelines by 2030
• Halve the number of air pollution related deaths by 2030
• Slow the pace of climate change by 0.5 degrees Celsius by 2050

Migingo Island

• It is claimed both by Kenya and Uganda
• It is a 2,000-square-metre island, in Lake Victoria

Exercise Dharma Guardian

To promote Military cooperation, India and Japan are all set to hold the first ever joint military exercise ‘DHARMA GUARDIAN-2018’ involving the Indian Army and Japan Ground Self Defence Force.

‘Moscow format’ is a Russian initiative, seen as a significant move to finding a regional solution to the protracted Afghan war.

Source: https://www.thehindu.com/opinion/lead/salvaging-a-strategic-partnership/article25172539.ece

It is published by the International Monetary Fund (IMF).

The Asia-Africa Growth Corridor or AAGC is an economic cooperation agreement between the governments of India, Japan and multiple African countries.

ACSA – https://thediplomat.com/2018/10/india-japan-begin-negotiations-over-military-base-sharing-agreement/

US-2i amphibious aircraft – https://www.thehindubusinessline.com/economy/policy/india-may-agree-to-buy-japanese-us2i-aircraft-for-13-b/article9854479.ece

J.S. Verma Committee

• It was constituted to recommend amendments to the Criminal Law so as to provide for quicker trial and enhanced punishment for criminals accused of committing sexual assault against women.
• It made recommendations on laws related to rape, sexual harassment, trafficking, child sexual abuse, medical examination of victims, police, electoral and educational reforms.
• It was formed in the aftermath of the December 16 Nirbhaya gangrape in 2012.

Graded Response Action Plan (GRAP) for Delhi and NCR

• A graded response lays down stratified actions that are required to be taken as and when the concentration of pollutants, in this case particulate matter, reaches a certain level.
• The plan puts governments under the lens and holds out the promise of improvement in air quality.
• The actions are to be implemented in the entire NCR. Besides, action related to stubble burning is to be implemented by Government of Punjab.
• It comprises measures such as prohibition on entry of trucks into Delhi; ban on construction activities, introduction of odd and even scheme for private vehicles, shutting of schools, closure of brick kilns, hot mix plants and stone crushers; shutting down of Badarpur power plant, ban on diesel generator sets, garbage burning in landfills and plying of visibly polluting vehicles etc.
• The plan was prepared by the Supreme Court-mandated Environment Pollution Control Authority (EPCA)