June 2020
M T W T F S S
1234567
891011121314
15161718192021
22232425262728
2930  

Foreign Policy Watch: India-China

India-China Border Dispute: A Conflict that has been in the making for years

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Nathu La and Cho La

Mains level: Paper 2- India-China border dispute

This article chronicles the border dispute between the two countries. It began in 1914 and ever after more than a hundred years it still continues. But the latest clash was the deadliest after 1967. Let’s go through past incidents over the border issue.

1914: A border China never agreed to

  • The conflict stretches back to at least 1914.
  • In 2014 representatives from Britain, the Republic of China and Tibet gathered in Simla to negotiate a treaty that would determine the status of Tibet and effectively settle the borders between China and British India.
  • The Chinese, unhappy at proposed terms that would have allowed Tibet to be autonomous and remain under Chinese control, refused to sign the deal.
  • But Britain and Tibet signed a treaty establishing what would be called the McMahon Line, named after a British colonial official, Henry McMahon, who proposed the border.
  • India maintains that the McMahon Line, a 550-mile frontier that extends through the Himalayas, is the official legal border between China and India.
  • But China has never accepted it.

1962: India-China War and origin of LAC

  •  Tensions rose throughout the 1950s.
  • The Chinese insisted that Tibet was never independent and could not have signed a treaty creating an international border.
  • There were several failed attempts at peaceful negotiation.
  • China sought to control critical roadways near its western frontier in Xinjiang.
  • India and its Western allies saw any attempts at Chinese incursion as part of a wider plot to export Maoist-style Communism across the region.
  • By 1962, war had broken out.
  • Chinese troops crossed the McMahon Line and took up positions deep in Indian territory, capturing mountain passes and towns.
  • By November China declared a cease-fire, unofficially redrawing the border near where Chinese troops had conquered territory.
  • It was the so-called Line of Actual Control.

1967: In Sikkim, India pushes China back

  • Tensions came to a head again in 1967 along two mountain passes, Nathu La and Cho La, that connected Sikkim — then a kingdom and a protectorate of India — and China’s Tibet Autonomous Region.
  • A scuffle broke out when Indian troops began laying barbed wire along what they recognized as the border.
  • The scuffles soon escalated when a Chinese military unit began firing artillery shells at the Indians.
  • In the ensuing conflict, more than 150 Indians and 340 Chinese were killed.
  • The clashes in September and October 1967 in those passes would later be considered the second all-out war between China and India.
  • But India prevailed, destroying Chinese fortifications in Nathu La and pushing them farther back into their territory near Cho La.
  • The change in positions, however, meant that China and India each had different and conflicting ideas about the location of the Line of Actual Control.
  • The fighting was the last time that troops on either side would be killed. — until the skirmishes in the Galwan Valley on Tuesday.

1987: A crisis averted

  • In 1987, the Indian military was conducting a training operation to see how fast it could move troops to the border.
  • The large number of troops and material arriving next to Chinese outposts surprised Chinese commanders — who responded by advancing toward what they considered the Line of Actual Control.
  • Realizing the potential to inadvertently start a war, both India and China de-escalated, and a crisis was averted.

2013: Stand-off at Daulat Beg Oldi

  • After decades of patrolling the border, a Chinese platoon pitched a camp near Daulat Beg Oldi in April 2013.
  • The Indians soon followed, setting up their own base fewer than 1,000 feet away.
  • The camps were later fortified by troops and heavy equipment.
  • By May, the sides had agreed to dismantle both encampments, but disputes about the location of the Line of Actual Control persisted.

2017: Doklam Stand-off

  • In June 2017, the Chinese set to work building a road in the Doklam Plateau, an area of the Himalayas controlled not by India, but by its ally Bhutan.
  • Indian troops carrying weapons and operating bulldozers confronted the Chinese with the intention of destroying the road.
  • A standoff ensued, soldiers threw rocks at each other, and troops from both sides suffered injuries.
  • In August, the countries agreed to withdraw from the area, and China stopped construction on the road.

2020: Ladakh stand-off

  • In May, melees broke out several times.
  • In one clash at the glacial lake Pangong Tso, Indian troops were badly injured and had to be evacuated by helicopter.
  • China bolstered its forces with dump trucks, excavators, troop carriers, artillery and armored vehicles, Indian experts said.
  • What was clear was that it was the most serious series of clashes between the two sides since 2017 — and a harbinger of the deadly confrontation to come.

Consider the question “Examine the elements that make the border dispute between India and China difficult to resolve.”

Conclusion

Border dispute in two giants could easily escalate into a full-blown war. India has to recalibrate the policy approach after the recent clash and take steps that would prepare it for such an eventuality.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now

Foreign Policy Watch: India-Nepal

Changing Nepal and changing ties with India

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Indian states sharing border with Nepal

Mains level: Paper 2- India-Nepal ties and border issue

Of late, India’s bilateral relations with Nepal has been going south. The latest trigger has been the changes made by Nepal in the map. This article explores the transformation of Nepal and its impact on India-Nepal relations. Despite the efforts by Nepal to explore the options beyond India, ties are still robust between the two countries and this is reflected in more than one ways.

Let’s map the changes in  Nepal with one constant factor: nationalism

1. Democracy

  • The obvious change in Nepal is that it is now a democratic republic after nearly 250 years of being a monarchy.
  • The Nepali Congress and Maoist leader, Prachanda, claim democracy (1990) and the abolition of monarchy (2008) as their legacies.

2. Societal change due to exposure to globalisation

  • More pervasive is the societal change from Nepal’s exposure to globalisation.
  • Geography, too, stands to change, with the Chinese now having the potential to bore through the Himalayas and exhibiting their presence in Kathmandu in economics and politics.

3. Nationalism

  • The constant in Nepal is nationalism which is really a mask for anti-India sentiment.
  • Politicians use it for personal gain, and it is deeply ingrained in the bureaucracy, academia and the media.
  • Today, Prime Minister K.P. Sharma Oli is cementing his legacy as a nationalist by extending Nepal’s map into Indian territory.
  • The cartographic aggression and the embedding of the new map in the country’s national emblem and Constitution are untenable and should have been avoided under all circumstances.
  • In 2015, the Nepali Congress government adopted the new Constitution, ignoring India’s concerns.

4. Identity politics

  • Identity politics with India is also visible within the country.
  • Nepali citizens from the Terai (Madhesis) feel discriminated as being “Indian”.

To Nepal, their attitudes reflect the angst of a small state. To India, Nepal appears incorrigible.

Let’s understand how globalisation changed Nepal

  • After democracy was restored in 1990, passports were more liberally issued, and Nepalis began looking for work opportunities globally, beyond just India.
  • West Asia and South-East Asia specifically became major destinations for labour migration.
  • Security uncertainties with the Maoist insurgency at home also propelled the trend of migration.
  • Students and skilled personnel began moving to Europe, the United States, Australia, Thailand and even to Japan and South Korea.
  • As of 2019, nearly a fifth of Nepal’s population, from all parts of the country, were reportedly overseas.
  • At an estimated $8 billion, global remittances account for nearly 30% of Nepal’s nominal GDP.
  • This makes Nepal one of the most remittance-dependent countries in the world.
  • Leftist ideology and the prominent presence of international non-governmental organisations — ostensibly there to resolve conflict and alleviate poverty — have added to Nepal’s exposure to the world.
  • Nepal’s 2011 Census shows that over 80% of its 28 million-strong population were Hindus, and since 1962, it had formally been a Hindu kingdom.
  • The new Constitution in 2015 makes Nepal a secular country.
  • The proliferation of communication technology has also spread a certain cosmopolitanism but without the accompanying metropolitanism.

Nepal exploring options beyond India

  • Kathmandu has continued its long-standing efforts to spread Nepal’s options beyond India.
  • Multilateral development banks are by far the biggest lenders and players in the country’s development efforts.
  • And in fact, one of Nepal’s largest aid donors is the European Union.
  • India and China are not the only players for big projects either.
  • A long-delayed project to pipe water into Kathmandu was with an Italian company.
  • Major investments in the telecom sector are coming from Malaysia, and the largest international carrier in Nepal is Qatar Airways.

Weakening of natural bond and responsible factors

  • The outward movement of students, along with with the growth of institutions of higher learning at home, has meant that most young people in Nepal, including emerging contemporary leaders in politics, business or academics, have not studied in India.
  • This lack of common collegiate roots removes a natural bond of previous generations that had provided for better understanding and even empathy.
  • While most Nepalis understand Hindi, because of the popularity of Bollywood, articulation is quite another matter.

Robust ties with India, despite diversification

  • Despite Nepal’s efforts to diversify its options globally, its linkages with India remain robust.
  • Nepal’s trade with India has grown in absolute terms and continues to account for more than two-thirds of Nepal’s external trade of around $12 billion annually.
  • This clearly reflects the advantages of geography, both physical and societal.
  • India continues to be the largest aggregate investor in Nepal.
  • The massive under-construction Arun-III 900 MW hydro-electric project is slated to singly produce as much power, when completed in five years, as Nepal produces today.
  • Moreover, the peg with the Indian Rupee provides unique stability to the Nepali Rupee.

Unique advantage to Nepal

  • Nepal’s per-capita income is just above $1,000.
  • While the huge remittance economy has brought a semblance of well-being, the country has a long way to go in reaching prosperity.
  • The relationship with India, with open borders and Nepalis being allowed to live and work freely, provides Nepal a unique advantage and an economic cushion.
  • The latter is particularly important today with COVID-19-caused global contraction positioned to pop the remittance bubble.
  • Neither the Chinese nor any others are likely to write blank cheques.
  • India for its part should also focus on developing its border areas with Nepal, with better roads and amenities of interest (such as shopping malls) to the burgeoning Nepali middle class.
  • This would have economic plusses for both sides and keep ties strong at the people’s level. It would also be an image makeover.

Consider the question “Despite intermittent disagreements over certain issues, India-Nepal ties remain robust. In light of this, elaborate on the ties between the two countries and suggest ways to find the solution to the latest border dispute between the two countries.”

Conclusion

It is important that we update the prism through which we view our relationship with our Himalayan neighbour. We must not forget the past nor turn away from it but, instead, must be mindful of the realities of a changing India and a changing Nepal.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now

Climate Change Impact on India and World – International Reports, Key Observations, etc.

“Assessment of Climate Change over the Indian Region” Report

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Representative Concentration Pathway

Mains level: Climate change assessment for India

The Union Ministry of Earth Sciences (MoES) has released the “Assessment of Climate Change over the Indian Region” Report.

This newscard discusses a very important concept: the Representative Concentration Pathway (RCP). Note its definition.  It can be directly asked as a statement based on prelims MCQ.

Highlights of the report

  • Average surface air temperatures over India could rise by up to 4.4 degrees Celsius by the end of the century as compared to the period between 1976 and 2005, according to the MoES report.
  • The rise in temperatures will be even more pronounced in the Hindu Kush-Himalayan region where the average could reach 5.2°C.
  • The region is already highly vulnerable to climate-related variability in temperatures, rainfall and snowfall.
  • By 2100, the frequency of warm days and warm nights might also increase by 55 per cent and 70 per cent respectively, as compared to the period 1976-2005 under the RCP 8.5 scenario.
  • The incidences of heat waves over the country could also increase by three to four times. Their duration of occurrence might also increase which was already witnessed by the country in 2019.

A 100-year record

  • Between 1900 and 2018, the average temperatures of India rose by 0.7°C.
  • This rise in temperatures has been largely attributed to global warming due to GHG emissions and land use and land cover changes.
  • But it has also been slightly reduced by the rising aerosol emissions in the atmosphere that have an overall cooling characteristic.
  • The report predicts that monsoon rainfall could change by an average of 14 per cent by 2100 that could go as high as 22.5 per cent.
  • The report does not mention if this change will be an increase or a decrease but still represents variability.
  • It further says that the overall rainfall during the monsoon season has decreased by six per cent between 1950 and 2015.

Data on dry spells

  • The assessment also says that in the past few decades, there has been an increased frequency of dry spells during the monsoon season that has increased by 27 per cent between 1981-2011, as compared to 1951-1980.
  • The intensity of wet spells has also increased over the country, with central India receiving 75 per cent more extreme rainfall events between 1950 and 2015. This means that it either rains too little or too much.
  • One of the primary examples of this was the monsoon seasons of 2018 and 2019 where dry spells were broken by extremely heavy rainfall spells, creating a flood and drought cycle in many regions in India.

What is Representative Concentration Pathway (RCP)?

  • A Representative Concentration Pathway (RCP) is a greenhouse gas concentration (not emissions) trajectory adopted by the IPCC.
  • It is defined as a radiative force in watt per square metre due to the rising greenhouse gas (GHG) emissions in the atmosphere.
  • Four pathways were used for climate modelling and research for the IPCC Fifth Assessment Report (AR5) in 2014.
  • The pathways describe different climate futures, all of which are considered possible depending on the volume of greenhouse gases (GHG) emitted in the years to come.
  • The RCPs – originally RCP2.6, RCP4.5, RCP6, and RCP8.5 – are labelled after a possible range of radiative forcing values in the year 2100 (2.6, 4.5, 6, and 8.5 W/m2, respectively).
  • Since AR5 the original pathways are being considered together with Shared Socioeconomic Pathways: as are new RCPs such as RCP1.9, RCP3.4 and RCP7.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now

Coronavirus – Health and Governance Issues

COVID Isolation Coaches and their deployment

Note4Students

From UPSC perspective, the following things are important :

Prelims level: COVID Isolation Coaches

Mains level: Not Much

The Union govt. has declared that 500 COVID isolation coaches would be deployed in Delhi. So far, over 5,000 coaches have been converted into COVID isolation coaches across India.

Practice question for mains:

Q. Health infrastructure in India is hardly capable of handling any  pandemic. Critically comment.

What are these COVID Isolation Coaches?

  • In March, Railways was sounded out by the PMO and the government’s multi-ministerial outbreak-containment apparatus that train coaches could also be used as a last resort to keep isolated patients.
  • So far, 5,321 non-AC sleeper class coaches of ICF variety (older design) have been converted by the 16 zonal railways through their workshops spread across India.
  • These are developed as COVID Care Level 1 centres—as per the Health Ministry classification of COVID facilities—where suspected cases or those with mild symptoms are to be kept.
  • Suspected and confirmed cases will be kept in separate coaches.

How were these coaches selected?

  • Early into the pandemic, health experts were of the view that air-conditioned environments might aid the spread of the virus.
  • Well-ventilated, airy environments were thought to be safer. India’s decision to use non-AC coaches for isolation has to be viewed in that context.
  • As per targets given to the 16 zonal railways, 5,000 older coaches, surplus to Railways’ operational needs, were marked for conversion.

What were the challenges faced?

  • The summer heat in the coach was always a matter of discussion.
  • Several ideas were discussed, including erecting shamianas over the coaches or painting the roof with “solar reflective” paints.
  • Another question was how to dispose of toilet waste if the coaches were in remote areas and whether such waste was potentially infectious.
  • It was agreed that since chlorine tablets are placed in the chambers of the bio toilets, the risk was neutralised.
  • In any case, bio-enzymes in the toilet tanks take care of human waste.
  • Another question was the placement. The batteries of the coaches need to be charged and the water needs to be replenished. Not all areas in India might have such facilities.
  • The idea was that being mobile units, they could be dispatched to any part of the country to pick up patients and come back to their bases.

Deployment of such train

  • Each isolation train will be tied to the nearest hospital.
  • The Centre will not deploy these coaches at will; states will have to request for them.
  • At least 10 coaches, or one train, will have to be deployed in one place. States can request for more.
  • Besides the 500 being deployed in Delhi, Telangana has requested for 60 coaches in three locations, and UP has requested in 24 locations.
  • Many states are said to be informally enquiring about the coaches in zones.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now

Climate Change Impact on India and World – International Reports, Key Observations, etc.

When did CO2 become our planet’s arch enemy?

Note4Students

From UPSC perspective, the following things are important :

Prelims level: CO2 assessment

Mains level: Not Much

Carbon dioxide was always essential for our planet. This newscard discusses when did it become too much.

Try this question from CSP 2017:

Q. In the context of mitigating the impending global warming due to anthropogenic emissions of carbon dioxide, which of the following can be the potential sites for carbon sequestration?

  1. Abandoned and uneconomic coal seams
  2. Depleted oil and gas reservoirs
  3. Subterranean deep saline formations

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

GHGs in atmosphere

  • The Earth’s atmosphere is made up of different gases. The temperature of the atmosphere depends on a balance between the incoming energy from the sun and the energy that bounces back into space.
  • Greenhouse gases (GHG) such as carbon dioxide (CO2), methane and nitrous oxide play an important role in the atmosphere.
  • They absorb some of the sun’s heat and release it back in all directions, including back to the atmosphere.
  • Through this process, CO2 and other GHGs keep the atmosphere warmer than it would be without them.
  • However, fossil fuel-run industries and other human activities add GHGs to the atmosphere. This, in turn, increases atmospheric temperature, causing global warming.

Assessing the carbon level

  • In 1958, American scientist Charles David Keeling calculated the amount of CO2 in our atmosphere.
  • When he started his measurements in 1958, the CO2 levels were around 315 parts per million (PPM).
  • When he died in 2005, the project was taken over by his son Ralph Keeling. By 2014, CO2 levels had increased to about 400 PPM.
  • With his systematic study of atmospheric CO2, Keeling became the first person to alert the world about the increasing levels of CO2 in the atmosphere.

Reasons for rising CO2 levels

  • Scientists first argued that the increasing release of methane and CO2 was due to agriculture and livestock.
  • But, with the start of the Industrial Revolution in the 18th century, the use of fossil fuels and CO2 levels rose simultaneously.
  • Nations that underwent the Industrial Revolution used huge amounts of fossil fuels and became centres of high CO2 emissions, while nations with an agrarian economy emitted less GHGs.
  • Over the years, as CO2 levels increased, it sparked off debates and arguments between the GHG-emitting rich industrial nations and the victims of global warming — the poorer nations.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now

Animal Husbandry, Dairy & Fisheries Sector – Pashudhan Sanjivani, E- Pashudhan Haat, etc

Species in news: Hilsa Fish

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Hilsa Fish`

Mains level: NA

Fishermen in West Bengal are in for a pleasant surprise amid the COVID-19 gloom as they have exuded hope of a bumper yield of Hilsa, known as “maacher rani” (queen of fish).

Try this question from CSP 2019:

Q. Consider the following pairs:

Wildlife Naturally found in
1. Blue-finned Mahseer Cauvery River
2. Irrawaddy Dolphin Chambal River
3. Rusty-spotted Cat Eastern Ghats

Which of the pairs given above are correctly matched?

a) 1 and 2 only

b) 2 and 3 only

c) 1 and 3 only

d) 1, 2 and 3

Hilsa Fish

IUCN status: Least Concerned

  • The Hilsa is a species of fish related to the herring, in the family Clupeidae.
  • It is a very popular and sought-after food fish in the Indian Subcontinent.
  • It is the national fish of Bangladesh and state symbol in the Indian states of West Bengal and Tripura.
  • The fish contributes about 12% of the total fish production and about 1.15% of GDP in Bangladesh.

What’s so special about Hilsa?

  • Hilsa has a history of migrating to Allahabad in the Ganga river system from Bangladesh.
  • Though it’s a saltwater fish, it migrates to sweet waters of the Ganges from the Bay of Bengal.
  • It travels upstream of the river during the mating seasons and returns to its natural abode after spawning.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now

Festivals, Dances, Theatre, Literature, Art in News

Traditional art of Talamaddale

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Yakshagana, Talamaddale

Mains level: NA

The traditional art of ‘Talamaddale’, a variant of Yakshagana theatre, has gone virtual in times of COVID-19.

Try this question from CSP 2017:

Q.With reference to Manipuri Sankirtana, consider the following statements:

  1. It is a song and dance performance.
  2. Cymbals are the only musical instruments used in the performance.
  3. It is performed to narrate the life and deeds of Lord Krishna.

Which of the statements given above is/are correct?

(a) 1, 2 and 3.

(b) 1 and 3 only

(c) 2 and 3 only

(d) 1 only

Talamaddale theatre

  • Tala-Maddale is an ancient form of performance dialogue or debate performance in Southern India in the Karavali and Malnad regions of Karnataka and Kerala.
  • The plot and content of the conversation is drawn from popular mythology but the performance mainly consists of an impromptu debate between characters involving sarcasm, puns, philosophy positions and humour.
  • The main plot is sung from the same oral texts used for the Yakshgana form of dance- drama.
  • Performers claim that this was a more intellectual rendition of the dance during the monsoon season.

How it is different from Yakshagana?

  • Unlike the Yakshagana performance, in the conventional ‘talamaddale,’ the artists sit across in a place without any costumes and engage in testing their oratory skills based on the episode chosen.
  • If music is common for both Yakshagana performance and ‘talamaddale’, the latter has only spoken word without any dance or costumes.
  • Hence it is an art form minus dance, costumes and stage conventions.
  • It has an ‘arthadhari’ who is an orator, a ‘bhagavatha’ (singer-cum-director), and a ‘maddale’ player.

Back2Basics: Yakshagana

  • It is the oldest theatre form popular in Karnataka.
  • It emerged in the Vijayanagara Empire and was performed by Jakkula Varu
  • It is a descriptive dance drama.
  • It is presented from dusk to dawn.
  • The stories are drawn from Ramayana, Mahabharata and other epics from both Hindu and Jain tradition.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

What explains the new mark crosses by our Forex reserves

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Forex reserves and exchange rates

Mains level: Paper 3- India's Forex reserves touched ceiling of half-trillion

At first, it seems almost contradictory. And so it is. Our foreign exchange reserves touched new high of $500 billion for the first time, but the time in which this has happened makes it paradoxical. At the time when economies around the world are touching new lows, this rise in the Forex seems all but usual. In this article, you’ll learn about the 4 factors that made it happen.

1. Decreased oil imports

  • Usually, we import a lot of oil.
  • But the payment here is dollar-denominated since very few countries are going to accept our currency (Rupee) as is.
  • So, you have to expend dollars i.e. the foreign exchange reserves to keep the flow of crude oil intact.
  • However, with the nationwide lockdown in place, our import bill has reduced drastically.
  • We simply don’t need as much oil anymore.
  • And considering oil prices have also taken a beating simultaneously, our Forex Reserves have been piling up.
  • Less oil import. More Forex reserves.

2. Dollars coming with foreign investors

  • Contrary to popular opinion, foreign investors have been pouring money into India of late.
  • You could attribute a bulk of these inflows to Reliance Jio.
  • They’ve been enticing investors all over the world and they’ve been doing it at a pace that belies all rational expectations.
  • They’ve raised close to $15 Bn over the course of a few months and it doesn’t look like they’re stopping anytime soon.
  • So technically, dollar inflows have spiked and therefore, Forex reserves get a boost once again.

3. RBI preparing itself for a bad time

  • Another popular explanation is that the RBI is preparing a war chest to stave off future uncertainties.
  • At a time when the world economy is reeling from an unprecedented crisis, it’s perhaps prudent to build up reserves for a rainy day.
  • So the RBI buys gold and dollar-denominated assets using our national currency and builds up the foreign exchange reserves.
  • Inadvertently, this increases the money supply within the economy.
  • There will be more “Rupees” floating around.
  • As more Indian currency keeps entering the ecosystem, the value of the rupee depreciates.
  • And yes, the value of rupee has tumbled recently, but we are not in dire straits yet.
  • But if India’s economy takes a turn for the worse, it becomes incumbent on the RBI to ensure price stability.
  • Imagine the value of the rupee starts fluctuating wildly because of economic uncertainties.
  • The RBI has to intervene.
  • It has to exchange the foreign reserves for the Indian currency.
  • If they keep mopping up the excess Rupees floating in the system, they could ensure the value of the rupee remains stable.
  • So long as the value of the rupee remains stable, prices of commodities will follow the same cue, all things remaining equal that is.
  • Now, there’s still no clear consensus on what kind of reserves we might need if things do go south.
  • Although there have been recommendations made in the past about hoarding too much, it’s still the RBI’s call at the end of the day.

4. The RBI is doing it for the government

  • The RBI can turn a profit if it wants to.
  • And once it does turn a profit, it can transfer a part of the surplus to the government — as dividends.
  • Now if the RBI wanted to offer the government a higher dividend, it has to simply turn a higher profit.
  • One way to accomplish this is to simply let the value of the rupee depreciate. Do not intervene.
  • Do not forego the reserves. Let the rupee tumble.
  • And so long as you don’t intervene, all the dollar-denominated assets you own will be worth more in rupee terms.
  • Consider the hypothetical example-suppose the exchange rate was 1$= Rs. 71 in March 2020, then the rupee loses value and you see the same line item once again in June 2020 will be 1$=Rs. 76.
  • The extra ₹ 5 is treated as a profit. And this profit could be ploughed back to the government.

Consider the question “With the economy in the tailspin amid pandemic, the news of India’s Forex reserves touching the $500 billion mark for the first time provided the semblance of solace. Examine the factors that could explain this increase.”

Conclusion

Though there will always be the debate over the optimum value of the Forex reserves, the new level it reached in such an uncertain time for the economy is, nonetheless, a cause for celebration.

 


Reference Source : https://finshots.in/archive/india-foreign-exchange-reserves/

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now

JOIN THE COMMUNITY

Join us across Social Media platforms.

💥Mentorship New Batch Launch
💥Mentorship New Batch Launch