Note4Students
From UPSC perspective, the following things are important :
Prelims level: Factors affecting currency's value
Mains level: Paper 3- Factors affecting rupee's value
The article explains the factors affecting the Indian rupee’s value against the dollar in implications of change in value for the Indian economy.
Factor’s affecting rupee’s value
- First, India’s foreign exchange reserves need to be considered, which have been increasing quite rapidly.
- Second, there are daily fluctuations caused by foreign portfolio investment (FPI) flows.
- Third, there is the external factor of the dollar, when the US currency strengthens against the euro, the rupee tends to decline and vice-versa.
- Fourth, there is the concept of the real effective exchange rate (REER), a construct of economists in which relative inflation comes into play.
- If inflation in India is higher than in countries associated with its export basket of currencies, then the rupee is overvalued and will correct through depreciation.
- Fifth, at what stage will the RBI intervene by buying or selling dollars to stabilize the Indian currency also matters.
Let’s look at some of these factors in detail.
Impact of the U.S. economy and Fed
- The dollar is driven by the US economy as well as its Federal Reserve’s policies.
- The Fed’s recent indication that it would raise its policy rate of funds in the years ahead was enough to strengthen the dollar and weaken the rupee. As an increase in US rates could see global investor money flocking back to the US, the dollar gained in relative value.
- The dollar should logically be strengthening, given improving US growth, now reinforced by the Fed.
Inflation factor
- The inflation factor, however, has been curious.
- Indian inflation will be high in India and hence also the rupee’s REER.
- To the extent the market understands this concept and uses it for valuation, it should be pushing the rupee downwards.
- But the pressure will be less this time as global inflation is also being raised by rising commodity prices.
- Indian inflation may not be so much higher as to warrant a deep depreciation.
Increase in Forex reserves
- An increase in forex reserves is an indication that India is getting in more dollars than we are spending.
- This also means that our combined current and capital accounts are in surplus zone.
- However, India’s current account will go into a deficit this year, as imports will be greater than exports, but will not be very high. Maybe 0.5-1% of GDP.
- The capital account can get tricky.
- Inward foreign direct investment was high in 2020-21.
- At $60 billion in equity and $80 billion overall, it was one of the world’s highest.
- Therefore, capital flows should remain strong.
- External commercial borrowings could slow down amid weak investment within India.
- So the fundamentals suggest that the rupee should be stable, with a tilt towards depreciation.
The RBI intervention
- The RBI’s surplus liquidity and accommodative stance have not worked in favour of the rupee.
- In response to its April policy, when RBI affirmed its dovish stance, the rupee began falling on expectations that if RBI kept rates low at a time of high inflation and excessive market borrowing by the government, investors will potentially move out.
- This pushed the rupee towards the 75 level against the dollar, but reverted with time as RBI kept infusing liquidity and managed the yield curve.
- In April, RBI bought $4.2 billion worth of the US currency.
- Exports have grown smartly in the first two months of 2021-22, and at this stage, the central bank would not want to that trend by stalling the rupee’s depreciation.
Conclusion
Taking all these factors into account, one can foresee the rupee moving in the range of ₹74-75 to the dollar, unless there’s a shock of some sort, though none looks likely at present.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: MFIs
Mains level: Paper 3- Freeing up microfinance institutions
The microfinance institutions (MFI) faced several restrictions by RBI which were not applicable to banks, NBFC and small finance banks. This denied the MFIs level playing field. A recent Consultative document by the RBI frees MFIs from such restrictions. The article explains this in detail.
Background of regulation of MFI’s by RBI
- RBI first allowed informal self-help groups to open savings accounts in banks and bank lending to these groups in 1991-92.
- In 2000, RBI permitted all types of institutions to offer microcredit and bank loans extended to these institutions for on-lending were treated as part of the priority sector lending.
- Beyond these, RBI was unwilling to bring in any regulations on the plea that as long as these are not deposit-taking institutions there is no need to regulate them.
- That was the stand of various RBI-appointed committees too, including the Vyas Committee of 2004.
- Based on the Malegam Committee recommendations, RBI came out with detailed guidelines for microfinance institutions (not the microfinance sector) in 2011.
- These guidelines introduced a new category of NBFCs, viz NBFC-MFIs (microfinance institutions).
- It also set norms for income criteria for clients of MFIs, repayment period, borrower loan limits, interest rate norms and caps, limits on a number of lenders to a borrower and a host of other norms and criteria.
How these norms created the issue of a level playing field?
- After 2015-16, the entry of small finance banks, eight of which were MFIs, into the microfinance space started to create issues.
- MFIs discovered to their dismay that while they had to adhere to a set of regulations, it was a free-for-all for non-MFIs (banks, SFBs and NBFCs).
- The main issue was that non-MFIs need not adhere to the norm of number of lenders (two in the case of NBFC-MFIs) and per-borrower loan limits.
- It prompted non-MFIs to target borrowers identified and nurtured by MFIs with higher loan amounts, leading to high levels of borrower indebtedness.
- In addition, the interest rate cap (2.75 times the base rate declared quarterly by RBI) was squeezing the margins of small and medium MFIs, as none of them get loans from the biggest banks.
Way forward
- The recent Consultative Document by RBI frees MFIs from the restriction imposed by the 2011 regulations and gives them a level-playing field.
- Another important feature for MFIs is that by doing away with the 50% income generation loans criteria and the repayment period norms.
- RBI is facilitating credit flow into lifecycle needs like housing, water sanitation, education, health, renewable energy, etc, which are now as important as income generation.
- On the interest rate front, initially, some upward correction could be there by medium and small MFIs based on their borrowing rates.
- The document enhances the role for the regulator as the adoption of Board-approved policies to determine the norms of household indebtedness and to fix a transparent rate of interest by each institution and their implementation need a rigorous supervisory oversight
Conclusion
Providing a level playing field to the MFI is critical to their development, the document by RBI rightly does that. It will help in providing credit to those who remain outside the formal banking network.
Source:
https://www.financialexpress.com/opinion/unfettering-microfinance-recent-rbi-consultative-document-frees-mfis-from-shackles-imposed-by-2011-regulations/2277925/
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Delta plus variant
Mains level: COVID
The Maharashtra government has tightened the Covid-19 unlocking process in the wake of a rise in cases of the Delta Plus variant.
What is Delta Plus?
- A variant that has emerged as a new threat, especially in India, Delta Plus (B.1.617.2.1/(AY.1) is a new mutant strain of the Delta variant of SARS-CoV-2.
- It is technically the next generation of SARS-COV-2.
- The Delta variant that was first detected in India eventually became a huge problem for the whole world.
- However, the Delta Plus variant, at present, is limited to smaller areas in the country. This mutant of Delta was first detected in Europe in March 2021, but it came to light on June 13.
- Although it is still under investigation, experts believe that the Delta Plus variant has increased transmissibility.
What is known so far?
- The new Delta plus variant has been formed due to a mutation in the Delta or B.1.617.2 variant.
- Delta Plus (AY.1) is resistant to monoclonal antibodies cocktail.
- Since it’s a new variant, its severity is still unknown.
- 63 genomes of Delta (B.1.617.2) with the new K417N mutation have been identified by the GISAID (global science initiative) so far.
- The mutation is in the spike protein of SARS-COV-2, which helps the virus enter and infect the human cells.
- People reported symptoms like headaches, sore throats, runny noses, and fever.
Are COVID-19 vaccines effective against the Delta Plus variant?
- Medical experts say it is too early to predict the effectiveness of the existing vaccines on the new variant.
- A detailed study would be required to establish any effect of the mutant on the immune system.
- However, Union Health Ministry says that both Indian vaccines — Covishield and Covaxin are effective against the Delta variant.
- There is fear that this new variant Delta Plus may spark the third wave of COVID-19, but there is a very low incidence of such cases, so there is no certainty.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: IBC, Registered Valuers
Mains level: Financial frauds these days
A valuation report by a registered valuer is at the heart of the recent controversy surrounding a Rs 4,000 crore share allotment decision by PNB Housing Finance.
Who is a Registered Valuer?
- A registered valuer is an individual or entity which is registered with the Insolvency and Bankruptcy Board of India (IBIBI) as a valuer in accordance with the Companies (Registered Valuers and Valuation) Rules, 2017.
- Under Section 458 of the Companies Act, IBBI has been specified as the authority by the central government.
- The concept of registered valuer was introduced in the Companies Act in 2017 in order to regulate the valuation of assets and liabilities linked to a company and to standardize the valuation procedure in line with global valuation standards.
- Before the concept of registered valuer became part of the Companies Act, valuation was done in an arbitrary manner, often leading to question marks over the authenticity of the valuation.
What does the valuation report comprise?
- As per the Companies (Registered Valuers and Valuation) Rules, 2017, the valuer should, in his/its report, state 11 key aspects including disclosure of the valuer’s conflict of interest, if any.
- Among others, it must include the purpose of valuation; sources of information; procedures adopted in carrying out the valuation; valuation methodology; and major factors that influenced the valuation.
Who can become a registered valuer?
- An individual needs to clear the Valuation Examination conducted by IBBI.
- The rules state that an individual who has completed 50 years of age and has been substantially involved in at least ten valuation assignments of assets amounting to Rs 5 crore rupees or more, during the five years preceding the commencement of these rules, shall not be required to pass the Valuation Examination.
- The individual should, however, have a postgraduate degree in the specified discipline (relevant for valuation of the class of asset for which the registration is sought) and should have at least three years of experience in the discipline thereafter.
- As of March 31, 2021 there were 3,967 registered valuers in the country. Only 40 of them are registered entities; the rest are individuals.
For what assets can a registered valuer undertake valuation?
- A registered valuer can get themselves registered for valuation of assets such as land and building; plant and machinery; and securities and financial assets.
- They can get registered for valuation of all three classes, and can undertake valuation of only the assets for which they have got the registration.
Answer this PYQ in the comment box:
Q.Which of the following statements best describes the- term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news? (CSP 2017)
(a) It is a procedure for considering the ecological costs of developmental schemes formulated by the Government.
(b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.
(c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.
(d) It is an important provision in ‘The Insolvency and Bankruptcy Code’ recently implemented by the Government.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Ambergris
Mains level: Not Much
In the past few weeks, there have been two cases where the Mumbai Police has arrested five persons trying to sell Ambergris or whale vomit.
What is Ambergris?
- Ambergris, French for grey amber, is generally referred to as whale vomit.
- It is a solid waxy substance that floats around the surface of the water body and at times settles on the coast.
- A sperm whale eats several thousand squid beaks a day.
- Occasionally, a beak makes it way to the whale’s stomach and into its looping convoluted intestines where it becomes ambergris through a complex process, and may ultimately be excreted by the whale.
Is it Ambergris valuable?
- This excretion is so valuable it is referred to as floating gold.
- As per the latest estimates given by Mumbai Police, 1 kg of ambergris is worth Rs 1 crore in the international market.
- The reason for its high cost is its use in the perfume market, especially to create fragrances like musk.
- It is believed to be in high demand in countries like Dubai that have a large perfume market. Ancient Egyptians used it as incense.
- It is also believed to be used in some traditional medicines.
Why are the laws on Ambergris?
- Due to its high value, Ambergris has been a target for smugglers especially in coastal areas.
- There have been several cases where the coastline of Gujarat has been used for such smuggling.
- Since the sperm whale is a protected species, hunting of the whale is not allowed.
- However, smugglers are known to have illegally targeted the fish in order to obtain the valuable Ambergris from its stomach.
- However, Ambergris is produced only by an estimated one per cent of sperm whales.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Black Sea mapping
Mains level: Not Much
Russia accused Britain of spreading lies over a warship confrontation in the Black Sea.
What is the issue?
- Russia annexed Ukraine’s Crimean Peninsula in 2014, a move that was not recognized by most countries in the world.
- Russia has frequently responded at NATO warships visits near Crimea, casting them as destabilizing.
- NATO members Turkey, Greece, Romania and Bulgaria are in the Black Sea, but warships from the US, UK and other NATO allies also have made increasingly frequent visits in a show of support to Ukraine.
About Black Sea
- The Black Sea is a marginal sea of the Atlantic Ocean lying between Europe and Asia; east of the Balkans (Southeast Europe), south of the East European Plain in Eastern Europe, west of the Caucasus, and north of Anatolia in Western Asia.
- It is supplied by major rivers, principally the Danube, Dnieper, and Don.
- The watersheds of many countries drain into the sea beyond the six that share its coast.
- The Black Sea is bordered by Bulgaria, Georgia, Romania, Russia, Turkey, and Ukraine.
Must answer this PYQ in the comment box:
Q.Consider the following pairs:
|
Sea
|
Bordering country
|
| 1. Adriatic Sea |
Albania |
| 2. Black Sea |
Croatia |
| 3. Caspian Sea |
Kazakhstan |
| 4. Mediterranean Sea |
Morocco |
| 5. Red Sea |
Syria |
Which of the pair given above are correctly matched? (CSP 2020)
(a) 1, 2 and 4 only
(b) 1, 3 and 4 only
(c) 2 and 5 only
(d) 1, 2, 3, 4 and 5
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Various schemes mentioned
Mains level: Urban transformation
The Ministry of Housing and Urban Affairs (MoHUA) has commemorated 6 years of the three transformative Urban Missions vis. Smart Cities Mission (SCM), Atal Mission for Urban Rejuvenation and Urban Transformation (AMRUT) and Pradhan Mantri Awas Yojana-Urban (PMAY-U). All these missions were inaugurated in 2015.
[A] Pradhan Mantri Awas Yojana – Urban (PMAY)
- PMAY is an initiative in which affordable housing will be provided to the urban poor with a target of building 2 crore (20 million) affordable houses by 31 March 2022.
- It has two components: for the urban poor and also for the rural poor.
- This scheme is converged with other schemes to ensure houses have a toilet, Saubhagya Yojana electricity connection, Ujjwala Yojana LPG connection, access to drinking water, and Jan Dhan banking facilities, etc.
[B] Atal Mission for Rejuvenation & Urban Transformation (AMRUT)
- AMRUT was launched with the focus to establish an infrastructure that could ensure adequate robust sewage networks and water supply for urban transformation by implementing urban revival projects.
- The components of the AMRUT consist of capacity building, reform implementation, water supply, sewerage and septage management, stormwater drainage, urban transport, and the development of green spaces and parks.
- During the process of planning, the Urban Local Bodies (ULBs) will strive to include some smart features in the physical infrastructure components.
- Rajasthan was the first state in the country to submit State Annual Action Plan under Atal Mission for Rejuvenation and Urban Transformation (AMRUT).
[C] Smart Cities Mission
- National Smart Cities Mission is an urban renewal and retrofitting program by the Government of India with the mission to develop smart cities across the country, making them citizen-friendly and sustainable.
- The Union Ministry of Urban Development is responsible for implementing the mission in collaboration with the state governments of the respective cities.
- All the participating cities from West Bengal have withdrawn from the Smart Cities Mission.
- Mumbai and Navi Mumbai from Maharashtra have also been withdrawn from the Smart Cities Mission.
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