💥Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

GS Paper: GS3

  • Fully Accessible Route (FAR)

    The Reserve Bank of India (RBI) has introduced a separate channel, namely ‘Fully Accessible Route’ (FAR), to enable non-residents to invest in specified government bonds with effect from April 1.

    Fully Accessible Route (FAR)

    • The move follows the Union Budget announcement that certain specified categories of government bonds would be opened fully for non-resident investors without any restrictions.
    • Under FAR, eligible investors can invest in specified government securities without being subject to any investment ceilings.
    • This scheme shall operate along with the two existing routes, viz., the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR).

    Benefits

    • This will substantially ease access of non-residents to Indian government securities markets and facilitate inclusion in global bond indices.
    • This would facilitate inflow of stable foreign investment in government bonds.

    Back2Basics

    Voluntary Retention Route (VRR)

    1. RBI had announced a separate scheme called VRR to encourage Foreign Portfolio Investors (FPIs) to undertake long-term investments in Indian debt markets.
    2. Under this scheme, FPIs have been given greater operational flexibility in terms of instrument choices besides exemptions from certain regulatory requirements.
    3. The details are as under:
    • The aggregate investment limit shall be ₹ 40,000 crores for VRR-Govt and ₹ 35,000 crores for VRR-Corp.
    • The minimum retention period shall be three years. During this period, FPIs shall maintain a minimum of 75% of the allocated amount in India.
    • Investment limits shall be available on tap for investments and shall be allotted by Clearing Corporation of India Ltd. (CCIL) on ‘first come first served’ basis.

  • Foreign Trade Policy 2015-2020 extended for one year

    The Union Commerce and Industry Ministry has announced changes in India’s Foreign Trade Policy (FTP). The Govt. has decided to continue relief under various export promotion schemes by granting an extension of the existing Policy.

    Foreign Trade Policy 2015-20

    • It provided a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in keeping with the “Make in India” vision of Prime Minister.
    • The focus of the new policy is to support both the manufacturing and services sectors, with a special emphasis on improving the ‘ease of doing business’.
    • It described the market and product strategy and measures required for trade promotion, infrastructure development and overall enhancement of the trade ecosystem.

    Features of the FTP 

    • Goods – Earlier there were 5 different schemes (Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip, VKGUY) for rewarding merchandise exports with different kinds of duty scrips with varying conditions attached to their use.
    • Duty-free scrips are paper authorisations that allow the holder to import inputs which are used to manufacture products that are exported, or to manufacture machinery used for producing such goods, without paying duty equivalent to the printed value of the scrip.
    • For instance, a duty-free scrip valued at Rupees 1 lakh allows the holder to import goods without paying duty of up to Rupees 1 lakh on the goods.
    • Under the new Foreign Trade Policy, all these schemes have been merged into a single scheme, namely the Merchandise Export from India Scheme (“MEIS“) and there is no conditionality attached to scrips issued under the MEIS.
    • Services – The Served From India Scheme has been replaced with the Service Exports from India Scheme (“SEIS“).
    • SEIS is stated to apply to ‘Service Providers located in India’ instead of ‘Indian Service Providers’.
    • Therefore, SEIS rewards to all service providers of notified services, who are providing services from India, regardless of the constitution or profile of the service provider.
    • Special Economic Zones – The policy outlines extended incentives for Special Economic Zones in India
    • Export Houses – The nomenclature of Export House, Star Export House, Trading House, Star Trading House, Premier Trading House certificate has been simplified and changed to One, Two, Three, Four and Five Star Export House.
    • Status Holders – Business leaders who have excelled in international trade and have successfully contributed to India’s foreign trade are proposed to be recognized as Status Holders and given special privileges to facilitate their trade transactions, in order to reduce their transaction costs and time.
    • Resolving Complaints – In an effort to resolve quality complaints and trade disputes between exporters and importers, a new chapter on Quality Complaints and Trade Disputes has been incorporated into the Foreign Trade Policy.
    • There would be no conditionality attached to any scrips issued under these schemes.
    • For grant of rewards under MEIS, the countries have been categorized into 3 Groups, whereas the rates of rewards under MEIS range from 2% to 5%.
    • Under SEIS the selected Services would be rewarded at the rates of 3% and 5%.

  • Covid-19 Quarantine Alert System (CQAS)

    The Department of Telecommunications (DoT) has shared a Standard Operating Procedure (SOP) with all telecom service providers regarding the application called COVID-19 Quarantine Alert System (CQAS).

    • CQAS collects phone data, including the device’s location, on a common secured platform and alerts the local agencies in case of a violation by COVID patients under watch or in isolation.

    Quarantine Alert System (CQAS)

    • Developed By: The DoT and the Centre for Development of Telematics (C-DOT), in coordination with telecom service providers, have developed and tested the application.
    • Working: The CQAS prepares a list of mobile numbers, segregates them on the basis of telecom service providers, and the location data provided by the telecom companies are run on the application to create geo-fencing.
    • Geo-fencing is a location-based service in which an app or other software uses GPS, RFID, Wi-Fi or cellular data to trigger a pre-programmed action when a mobile device or RFID tag enters or exits a virtual boundary set up around a geographical location, known as a geofence.
    • Geo-fencing will only work if the quarantined person has a mobile phone from Airtel, Vodafone-Idea or Reliance Jio, as “BSNL/MTNL” do not support location-based services. BSNL and MTNL are government-owned.
    • The location information is received periodically over a secure network for the authorised cases with “due protection of the data received”.
    • The System triggers e-mails and SMS alerts to an authorised government agency if a person has jumped quarantine or escaped from isolation, based on the person’s mobile phone’s cell tower location. The “geo-fencing” is accurate by up to 300 m.

    Use of Powers under the Indian Telegraph Act, 1885

    • The Centre is using powers under the Indian Telegraph Act to “fetch information” from telecom companies every 15 minutes to track COVID-19 cases across the country.
    • The States have been asked to seek the approval of their Home Secretaries under the provisions of Section 5(2) of the Indian Telegraph Act, 1885, for the specified mobile phone numbers to request the DoT to provide information by email or SMS in case of violation of “geo-fencing”.
    • Section 5(2) authorises State or Centre to access information of a user’s phone data in case of “occurrence of any public emergency or in the interest of the public safety.”

    Protection of Data

    • As per the SOP, the phone number should be deleted from the system after the period for which location monitoring required is over and the data would be deleted four weeks from thereon.
    • The data collected shall be used only for the purpose of Health Management in the context of COVID-19 and is strictly not for any other purposes. Any violation in this regard would attract penal provisions under the relevant laws.

    Centre for Development of Telematics

    • C-DOT was established in August 1984 as an autonomous Telecom R&D Centre of DoT.
    • It is a registered society under the Societies Registration Act, 1860.
    • It is a registered ‘public-funded research institution’ with the Department of Scientific and Industrial Research, Ministry of Science & Technology.

    Global Positioning System

    • The Global Positioning System is a Global Navigation Satellite System (GNSS), used to determine the ground position of an object.
    • It is a US-owned utility that provides users with Positioning, Navigation, and Timing (PNT) services.

    Radio-Frequency Identification

    • Radio-Frequency Identification (RFID) is the use of radio waves to read and capture information stored on a tag attached to an object.
    • A tag can be read from up to several feet away and does not need to be within the direct line-of-sight of the reader to be tracked.

    Wi-Fi

    • Wi-Fi is the name of a wireless networking technology that uses radio waves to provide wireless high-speed Internet and network connections.
    • WiFi network enables a connection between two or more devices wirelessly for data sharing purposes.

  • Why has Kerala sought a relaxation of FRBM rules?

    Kerala CM has urged the Centre to provide Kerala with flexibility under the Fiscal Responsibility and Budget Management (FRBM) Act so as to ensure that the State’s finances are not adversely impacted.

    FRBM Act

    • The FRBM is an act of the parliament that set targets for the Government of India to establish financial discipline, improve the management of public funds, strengthen fiscal prudence and reduce its fiscal deficits.
    • It was first introduced in the parliament of India in the year 2000 by Vajpayee Government for providing legal backing to the fiscal discipline to be institutionalized in the country.
    • Subsequently, the FRBM Act was passed in the year 2003.

    Features of the FRBM Act

    • It was mandated by the act that the following must be placed along with the Budget documents annually in the Parliament:
    1. Macroeconomic Framework Statement
    2. Medium Term Fiscal Policy Statement and
    3. Fiscal Policy Strategy Statement

    Fiscal Indicators

    It was proposed that the four fiscal indicators be projected in the medium-term fiscal policy statement viz.

    1. Revenue deficit as a percentage of GDP,
    2. Fiscal deficit as a percentage of GDP,
    3. Tax revenue as a percentage of GDP and
    4. Total outstanding liabilities as a percentage of GDP

    Why is Kerala seeking flexibility under the FRBM?

    • Kerala was one of the earliest States to announce an economic package of ₹20,000 crore to mitigate the impact on livelihoods and overall economic activity.
    • Kerala’s current fiscal position means that it can borrow about ₹25,000 crore during the financial year 2020-21.
    • However the State government is understandably concerned that the stringent borrowing cap under the fiscal responsibility laws should not constrain its borrowing and spending ability over the remaining 11 months.
    • This is a crucial period when the state would have to meet other expenditure for routine affairs related to the running of the State’s socio-economic programmes as well as the post pandemic recovery.

    How does a relaxation of the FRBM work?

    • The law does contain what is commonly referred to as an ‘escape clause’.
    • Under Section 4(2) of the Act, the Centre can exceed the annual fiscal deficit target citing grounds that include national security, war, national calamity, collapse of agriculture, structural reforms and decline in real output growth of a quarter by at least three percentage points below the average of the previous four quarters.
    • The ongoing pandemic could be considered as a national calamity.
    • This would allow both the Union government and States including Kerala to undertake the much-needed increases in expenditure to meet the extraordinary circumstances.

    When have the FRBM norms been relaxed in the past?

    • There have been several instances of the FRBM goals being reset.
    • But the most significant FRBM deviation happened in 2008-09, in the wake of the global financial crisis, when the Centre resorted to a focused fiscal stimulus: tax relief to boost demand and increased expenditure on public projects.
    • This was aimed to create employment and public assets, to counter the fallout of the global slowdown.
    • This led to the fiscal deficit climbing to 6.2%, from a budgeted goal of 2.7%.
    • Simultaneously, the deficit goals for the States too were relaxed to 3.5% of GSDP for 2008-09 and 4% of GSDP for fiscal 2009-10.

  • Sodium Hypochlorite as Coronavirus disinfectant

    In Uttar Pradesh, migrant workers travelling to their home states, or their belongings, were sprayed with a disinfectant, apparently to sanitise them.  The chemical in the spray was a sodium hypochlorite solution.

    Sodium hypochlorite

    • Sodium hypochlorite is commonly used as a bleaching agent, and also to sanitise swimming pools.
    • As a common bleaching agent, sodium hypochlorite is used for a variety of cleaning and disinfecting purposes.
    • It releases chlorine, which is a disinfectant. Large quantities of chlorine can be harmful.
    • The concentration of the chemical in the solution varies according to the purpose it is meant for.
    • A normal household bleach usually is a 2-10% sodium hypochlorite solution.
    • At a much lower 0.25-0.5%, this chemical is used to treat skin wounds like cuts or scrapes. An even weaker solution (0.05%) is sometimes used as a handwash.

    Note: The common bleaching powder is chemically referred to as Calcium hypochlorite and not Sodium hypochlorite.

    Is the chemical safe?

    • Sodium hypochlorite is corrosive and is meant largely to clean hard surfaces.
    • It is not recommended to be used on human beings, certainly not as a spray or shower. Even a 0.05% solution could be very harmful for the eyes.
    • A 1% solution can cause damage to the skin of anyone who comes in contact with it.
    • If it gets inside the body, it can cause serious harm to lungs.

    Does the chemical get rid of the novel coronavirus?

    • The WHO recommends homemade bleach solutions of about 2-10% concentration to clean hard surfaces to clear them of any presence of the novel coronavirus.
    • Cleaning hard surfaces with this solution can disinfect them not just from novel coronavirus but also help prevent flu, food born illnesses, and more.

  • Moratorium Option for payment of installments

    The RBI has permitted banks to allow moratorium of three months on payment of instalments in respect of all loans including home, car and personal loan among others.

    What exactly this moratorium means?

    • Both the loan principal and interest are covered under the moratorium. This applies to all loans outstanding on March 1.
    • We must note that this is a postponement, not a waiver.
    • RBI’s wordings clearly say that the tenor for term loans across the board may be shifted by three months. This essentially means the loan will end 3 months later than was originally slated.
    • Essentially, it means that payees won’t be treated as a defaulter even if you don’t pay your EMI till May 2020, and your CIBIL score won’t be affected.
    • This moratorium period will not come free, and since the interest will continue to accrue on the outstanding portion of the loan during the moratorium period, it may increase the customers’ burden significantly.

    The installments include:

    1. principal and/or interest components;
    2. bullet repayments;
    3. Equated Monthly installments;
    4. credit card dues

  • Amid the Lockdown, How can we efficiently manage our Agriculture and Livestock sector

    Context

    Amid lockdown, we need an action plan to manage our agriculture, livestock sectors.

    Need for an immediate action plan to manage the agriculture and livestock sector

    • The country produces around 52 crore litres of milk daily.
    • There are also 80 crore-odd live poultry, both broilers and layers, at any given time, supplying meat and eggs to consumers.
    • Link with the other producers: These birds and animals, in turn, support the livelihoods of poultry and dairy farmers, as well as those producing maize, soybean, mustard, groundnut, cotton and other coarse grains that are ingredients for livestock feed.
    • It is the government’s responsibility to ensure that farmers are able to keep their animals alive and market the crop that has been, or will be, harvested during the lockdown period.
    • We need an immediate action plan to manage our agriculture and livestock sectors in the interest of both producers and consumers.

    Issue of implementation

    • Ensuring free movements: The first thing is to ensure free movement of farm produce, livestock feed and veterinary medicines.
    • Implementing the already taken decision: It is obvious that not all issues can be addressed overnight. But the minimum the government can do is to ensure ground-level implementation of already-taken decisions.
    • The problem of implementation: Many essential services, for instance, were kept out of the purview of the lockdown. Food, feed and agricultural inputs have been specifically notified as essential services.
    • But there are several problems at the level of implementation that are coming to notice.
    • The Centre has issued various directives/notifications, many of them brief and general in nature.
    • Many of these have either not reached the local authorities and police personnel or are not clearly worded. As a result, the smooth movement of essential items has been affected.
    • There are also reports of conflict between the police and citizens, including people involved in the transportation and delivery of food as well as inputs to farms.
    • Why good food supply line matters? The government must do to ensure that people don’t go hungry and the measures it must take to make sure people don’t crowd a few outlets, increasing the chances of the virus spreading.
    • The government has announced that the beneficiaries of the public distribution system can avail three months’ ration at one go.
    • The challenge of delivery: The challenge is to ensure that fair price shops deliver the provisions in an orderly manner and their supply lines remain intact.

    Issue of poultry and maize farmers

    • Sharp fall in poultry items: In such times, prices of essential food items are known to shoot up. But in India, prices of food items like chicken meat and eggs have registered a sharp fall.
    • In Delhi’s Gazipur Mandi, for example, the price of broiler chicken has fallen from Rs 55/kg in January 2020 to Rs 24/kg in March.
    • This has also pushed the maize prices down as poultry is largely fed packaged maize.
    • The government may have to think of compensating poultry and maize farmers in due course.

    Suggestions for improving the implementation issue

    • Issue a single notification: The Centre must issue a single notification relating to food items in a standard format and uniform language so that all ambiguities are removed.
    • This needs to be finalised after consultations with the stakeholders and the state governments can release it to officials working at the grassroots.
    • The focus should be to address the problems arising from restrictions on the transport — between and within states — of agri-produce and inputs related to them.
    • Invoke the ESMA: Another suggestion is that the Essential Services Maintenance Act (ESMA) be invoked for the delivery of all essential services relating to food to prevent disruption of supplies.
    • Home delivery option: Home (street) delivery of these provisions, to avoid crowding, is a good option.
    • Roping in civil society: This is also an occasion to rope in civil society. NGOs, resident welfare associations, religious organisations and paramilitary forces can be engaged for orderly and safe distribution of food — both pre-cooked and fresh.
    • NGOs with experience in food preparation and distribution, such as Akshaya Patra, could guide local authorities.
    • People involved in this endeavour should be provided with safety gears.
    • The challenge of supplying perishables: These perishables-like fruits, vegetables and milk- must be sold in a packaged form in mobile vans. The weekly markets need to be temporarily suspended lest they spread the virus.
    • Vegetable vendors can work with civil society organisations as well as e-commerce players to do this job in a safe manner.
    • Retail distribution lines: Retail distribution lines need to be seamlessly linked to wholesale supply lines.
    • How to manage rabi season procurement? Procurement operations for rabi crops are around the corner.
    • Training and safety measures: The FCI and other procuring agencies need to be trained about safety measures and supplied safety gear.
    • Providing incentives to farmers for staggered selling: Farmers could be given Rs 50/quintal per month as an incentive to stagger bringing their produce to the market — say after May 10.
    • They will also need to be screened, given training and equipped with safety gear.

    Suggestions to prevent post-lockdown chaos

    • What will happen after the lockdown ends? Many plants are now shut or working at low capacity utilisation. Consumption by hotels and other institutions, too, is low. Nor is any export or import happening. But once the lockdown ends, there will be a rush to procure raw material, trucks and rail rakes.
    • Smooth recovery: Smooth recovery from the lockdown is as important as managing supplies during the lockdown.
    • Here are a few suggestions to ensure that the common man does not have to suffer hardships during and after the lockdown:
    • First– Place all food items, agri-inputs, packaging material and transport services under ESMA for a six-month period to prevent profiteering.
    • The MRP that was applicable in February should remain till October.
    • In the case of farm produce, it helps that we are looking at a bumper crop, which makes it all the more necessary to ensure its smooth marketing.
    • Second-Suspend APMC (agricultural produce market committee) laws for the next six months.
    • Traders with APMC licence are bound to act as cartels during rush hour, which will hurt both farmers and consumers.
    • Third-ESMA should apply to all utilities and transport services. State governments can make exemptions on a case to case basis: These exemptions should be subject to public scrutiny under the Right to Information Act.
    • The government should announce the above measures well in advance.

    Conclusion

    The government must start planning now to prevent post-lockdown chaos, especially profiteering in the event of shortages. Smooth recovery from the lockdown is as important as managing supplies during the lockdown.

     

  • A smarter supply line

    Context

    The government must ensure that people don’t go hungry and take measures to make sure that people don’t crowd a few outlets, increasing the chances of the virus spreading.

    Need for the package to compensate losses

    • Welfare package: The government has announced relief measures. Last week, the Finance Minister announced a welfare package of Rs 1.7 lakh crore.
    • This is too small to cope with the onslaught of the virus.
    • How much a comprehensive package would cost? A package to compensate all losses, including business losses, should amount to at least Rs 5 to 6 lakh crore, if not more.
    • How will the government find funds for this package?
    • Funds accrued as a result of oil price crash: The windfall gains that have accrued to it as a result of the crash in crude oil prices could come in handy.
    • Diver all the subsidies and development funds: The government could divert all subsidies and some development funds to fund this package and ask the country’s corporate leaders to help with funds.
    • Issue clarion call for voluntary donation: The prime minister could even issue a clarion call to those with a fixed income (say above Rs 50,000/month) to voluntarily donate at least 10 per cent of their salaries to fund the battle against the virus.

    Focus on supply lines of food and ways to achieve it

    • Why good food supply line matters? The government must do to ensure that people don’t go hungry and the measures it must take to make sure people don’t crowd a few outlets, increasing the chances of the virus spreading.
    • The government has announced that the beneficiaries of the public distribution system can avail three months’ ration at one go.
    • The challenge of delivery: The challenge is to ensure that fair price shops deliver the provisions in an orderly manner and their supply lines remain intact.
    • Home delivery option: Home (street) delivery of these provisions, to avoid crowding, is a good option.
    • Roping in civil society: This is also an occasion to rope in civil society. NGOs, resident welfare associations, religious organisations and paramilitary forces can be engaged for orderly and safe distribution of food — both pre-cooked and fresh.
    • NGOs with experience in food preparation and distribution, such as Akshaya Patra, could guide local authorities.
    • People involved in this endeavour should be provided with safety gears.
    • The challenge of supplying perishables:  These perishables-like fruits, vegetables and milk- must be sold in a packaged form in mobile vans. The weekly markets need to be temporarily suspended lest they spread the virus.
    • Vegetable vendors can work with civil society organisations as well as e-commerce players to do this job in a safe manner.
    • Retail distribution lines: Retail distribution lines need to be seamlessly linked to wholesale supply lines.
    • Buffer stocks: The government godowns are overflowing with wheat and rice — about 77 million metric tonnes (MMT) on March 1, against a buffer stock norm of 21.4 MMT on April 1.
    • How to manage rabi season procurement? Procurement operations for rabi crops are around the corner.
    • Training and safety measures: The FCI and other procuring agencies need to be trained about safety measures and supplied safety gear.
    • Providing incentives to farmers for staggered selling: Farmers could be given Rs 50/quintal per month as an incentive to stagger bringing their produce to the market — say after May 10.
    • They will also need to be screened, given training and equipped with safety gear.

    Challenge of mandi operations for fresh produce in large mandis

    • This pertains to mandi operations for fresh produce in large APMC mandis like Azadpur in Delhi and Vashi near Mumbai.
    • These mandis are usually overflowing with fruits and vegetables and the labour force at these centres usually handles the produce without safety gears.
    • The challenge of screening and providing safety kits to these workers is doubly daunting. The country is not fully prepared in this respect.
    • The safety of workers in mandis — and other workers who handle agricultural produce — should be accorded as much priority as the safety of frontline health warriors.
    • Suspend the APMC Act: We should also use this opportunity to suspend the APMC Act and encourage NGOs, civil society and corporate houses to directly procure from farmers.

    Issue of poultry and maize farmers

    • Sharp fall in poultry items: In such times, prices of essential food items are known to shoot up. But in India, prices of food items like chicken meat and eggs have registered a sharp fall.
    • In Delhi’s Gazipur Mandi, for example, the price of broiler chicken has fallen from Rs 55/kg in January 2020 to Rs 24/kg in March.
    • This has also pushed the maize prices down as poultry is largely fed packaged maize.
    • The government may have to think of compensating poultry and maize farmers in due course.

    Conclusion

    When things settle, it will be worth knowing how the virus spread from Wuhan to Iran, Italy, Washington, India and other parts of the world. Which organisation or nation failed to blow the whistle and alert the world in time? Was it China’s failure? Or that of WHO? Or was it the failure of all governments around the world to respond quickly to the outbreak? We need better global governance for pandemics to avert the next crisis.

  • Species in news: Himalayan Ibex

    A recent study by scientists of the Zoological Survey of India (ZSI) has proved that Himalayan Ibex, distributed in the trans-Himalayan ranges of Jammu and Kashmir, Ladakh and Himachal Pradesh, is a distinct species from the Siberian Ibex.

    Himalayan Ibex

    IUCN/WPA Status:    Least Concern / Schedule I

    • Himalayan Ibex (Capra ibex sibirica) is widely found in arid and rocky mountain of Karakoram, Hindukush and Himalayas of Gilgit-Baltistan.
    • The males are characterized by heavy body, large horns, long bears while females have small body small horns.
    • The threats that Himalayan ibex face are the illegal hunting, human disturbance, habitat loss and competition for forage with domestic livestock.

  • Will RBI’s big-bang monetary easing work?

    Context

    On Tuesday, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) convened for an emergency meeting, ahead of schedule, to discuss its response to the economic challenges posed by the Covid-19 outbreak.

    Bond market reaction to the RBI announcement

    • The MPC deliberated for three full days, but its decision would most probably have been sealed right at the onset.
    • For that day, the Indian bond market saw no trades in the first twenty minutes.
    • Fear and uncertainty in the market: The gap between the asking price and bids was so wide that the first trade for the day took place at 9:33 am. Gripped by uncertainty and fear about the future following the outbreak, the market had frozen.

    Measures by the RBI

    • Injecting the liquidity of Rs. 3.74 trillion: Responding to the market signal, the RBI rolled out a slew of measures from its armoury that will release liquidity of up to ₹3.74 trillion, or nearly 2% of gross domestic product, in the financial system.
    • This will facilitate the market’s orderly functioning.
    • Condition on LTRO-created-liquidity: In particular, the condition that the liquidity created through the Long Term Repo Operations (LTRO) tool must only be deployed in corporate debt securities was a direct response to the disruption in the markets seeing heavy sell-offs in the midst of thin trading volumes.
    • Comparison with measures by the Fed.: The US Federal Reserve, which has launched an unconventional asset sales programme for $4 trillion, has announced it will also directly buy corporate bonds to ease the tight market.
    • RBI has refrained from following suit, instead of passing the buck to banks via the conditional LTRO liquidity.
    • Banks are unlikely to step in to ease the tight corporate securities market.
    • Repo rate below the level seen in 2008: To combat the economic consequences of the Covid-19 pandemic, the MPC has dropped its policy interest rate by 75 basis points, taking it down to 4.4%, a multi-year low.
    • The rate is now lower than it was in April 2009, when the central bank had taken it down to 75%, responding to the global financial crisis.
    • In 2008, just four days ahead of a scheduled policy review, RBI had cut the policy repo rate by 1 percentage point, sending an extraordinarily strong signal.

    How the challenge this time is different from the 2008 crisis?

    • The nature of the current economic challenge is a lot different.
    • Economy at standstill: The shock back then had depressed demand, but the economy had not been brought to a standstill as it has now, with resources, including labour and capacities idling.

    Why the measures would not kickstart the economy

    • Effect of rate cut: When all economic activity has halted, and uncertainty about the future is soaring, there’s no way a rate cut—no matter how steep—can kickstart the economy.
    • Businesses cannot plan for the future and will not borrow.
    • Banks will hold on too, fearful of the risk of loans going bad.
    • As it is, even before Covid-19 struck, credit disbursement was sluggish.
    • Now, with a host of companies facing the threat of credit rating downgrades, the probability of lenders turning a little less risk-averse is even lower.
    • Who would be the beneficiary of the rate cut? The biggest beneficiary of RBI’s rate cut—which was bigger than market expectations—would be the government.
    • Reduced borrowing cost for the government: In one stroke, the MPC has altered the fiscal deficit calculation by reducing the government’s borrowing cost.
    • There will be savings on its outgo on interest payments for new and rollover borrowings.

    Three-month moratorium and issue with it

    • RBI also permitted banks and non-bank financial institutions to grant a three-month moratorium on loan repayments and reclassification of stressed loans as non-performing assets (NPAs).
    • This will provide relief by cushioning cash flow pressures for firms and individuals when incomes and revenues have dropped sharply due to the lockdown.
    • The forbearance on downgrading these loans will prevent a sharp spike in NPA levels for banks and NBFCs.
    • There could be a sharp rise in the bad loans: The risk now is that a few quarters after the end of the moratorium there could be a sharp rise in bad loans.
    • It could give rise to the NPA problem: In that sense, it amounts to kicking the problem of a potential spike in NPAs down the road.
    • The problem of evergreening: On balance, it is the right call given the extraordinary challenge of the lockdown—provided a new cycle of evergreening of loans by banks is not allowed in a repeat of what happened in the aftermath of the global financial crisis.

    Way forward

    • What more could RBI have done? Special credit windows for the worst-hit sectors like aviation, hotels and tourism may soon be required.

    Conclusion

    While prioritising financial stability is fine, the MPC’s inflation projection is puzzling. While refraining from providing estimates on growth and inflation, given that the spread, intensity and duration of Covid-19 remain uncertain, RBI said it expects food price pressures to soften going ahead on account of a blow to demand during the lockdown. The projection seems unreasonable when there are unprecedented supply-side bottlenecks.