Note4Students
From UPSC perspective, the following things are important :
Prelims level: Dollar Index
Mains level: Paper 3- Depreciation of Indian rupee
Context
The Indian rupee has depreciated by around 7% against the U.S. dollar, since the start of the year, in response to various domestic and global factors.
What are the factors responsible for decline?
- A widening current account deficit, persistent risk-off sentiment as a result of geopolitical tensions, ‘a strengthening dollar index, and continuous sell-off by foreign portfolio investors have all put pressure on the rupee’.
- Reversal of monetary policy in the US: The runaway inflation levels since last year, which have seen consumer price index (CPI) inflation in the United States reaching a multi-decade high of 9.1% in June 2022, have prompted the reversal in the monetary policy stance of the US Federal Reserve.
- With inflation rising unabated, the Fed is widely expected to continue raising interest rates.
- Higher risk-free return in the US: As a result of higher risk-free returns being available in the U.S., there have been persistent outflows of foreign portfolio capital since October 2021, which, on a cumulative basis, stands at $30 billion this year.
Comparison with the depreciation in the past
- Even as the rupee has fallen sharply against the dollar, the depreciation has been relatively lower compared with past crises.
- During the global financial crisis of 2008, the rupee had weakened by over 20% between December 2007-June 2009 and during the Taper Tantrum of 2013 for seven months from the start of the crisis in May 2013, the rupee had depreciated by over 11%.
- Reduced external vulnerability: The relative lower depreciation this time is attributed to the lowering of India’s external vulnerability measured in terms of a relatively high import cover and low short-term external debt.
- During the Taper Tantrum, India’s import cover stood at over seven months as compared to around 12 months in the current period.
Decline in foreign exchange reserves
- The Reserve Bank of India (RBI) has stepped in to arrest a large depreciation in the currency, with interventions in the spot and forward foreign exchange markets.
- Consequently, India’s foreign exchange reserves have moderated by almost $55 billion from a high of $635 billion seen this year.
- Elevated global crude oil prices have impinged on India’s oil import bill, in turn widening the trade deficit, thus increasing the demand for U.S. dollars, and affecting forex reserves further.
Effects of weak rupee
- Export to become competitive: Among the benefits is the premise that the rupee’s weakening should aid exporters in becoming more competitive.
- However, the concomitant depreciation of currencies of some of India’s competitors such as South Korea, Malaysia and Bangladesh against the dollar, alongwith a high import intensity of some of its key export segments (petroleum, gems and jewellery and electronics), is likely to have blunted the ameliorative impact on India’s exports.
- Increase in the price of imported commodities: a weaker rupee is driving up prices of key import commodities such as coal, oil, edible oil, gold, thus impacting the imported component of inflation.
- Impact on the borrowers: The unhedged component of corporate debt denominated in dollars is also likely to bear the brunt of a weaker rupee.
- Impact on investment: Most importantly, a continuously sliding exchange rate discourages foreign investors from making fresh investments, which keep losing value in dollar terms.
- For this reason, it is ideal to provide confidence to investors by arresting a continuous slide in the exchange rate.
Measure by the RBI to arrest the weakening of rupee
- Apart from intervening in the forex market to arrest the fall in the rupee’s value, the RBI announced a slew of measures recently to liberalise foreign inflows into the country and make them more attractive.
- Measures such include:
- Promoting trade settlements between India and other countries in rupee terms.
- Offering higher interest rates on fresh Foreign Currency Non-Resident (Bank) and Non-Resident External deposits.
- A widening of investible universe of government and corporate debt, a relaxation of the interest rate.
- Amount ceiling for External Commercial Borrowing loans, among others, have contributed to arresting the rupee’s slide against the greenback.
Way forward
- Inclusion of companies in glabal indices: The Government could encourage some of the large market cap companies (private and public sectors) to be included in the major global indices such as MSCI and FTSE.
- This will help increase the weight of Indian equities in these indices, compensating for foreign portfolio outflows to some extent as investors are unlikely to be underweight on India.
- India’s entry into bond indices: The Government could also expedite India’s entry into bond indices such as J.P. Morgan’s Emerging-Market Bond Index and Barclays Global Bond Index.
- This will not only lead to forex inflows but also have a benign impact on interest rates.
- Such measures will keep the forex war chest of the RBI at a comfortable level, providing the central bank the requisite ammunition in case there is further weakness.
- The maintenance of the U.S.-India interest rate differential along with timely forex market interventions by the central bank to manage volatility will prove to be salutary in preserving the rupee value against the greenback.
Conclusion
Even as the rupee is expected to remain under pressure in the near term because of global uncertainty, high commodity prices and rising U.S. interest rates, mitigating measures have to be taken to partly arrest the slide.
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Back2Basics: What is taper tantrum?
- Taper tantrum refers to the 2013 collective reactionary panic that triggered a spike in U.S. Treasury yields, after investors learned that the Federal Reserve was slowly putting the breaks on its quantitative easing (QE) program.
- The Fed announced that it would be reducing the pace of its purchases of Treasury bonds, to reduce the amount of money it was feeding into the economy.
- The ensuing rise in bond yields in reaction to the announcement was referred to as a taper tantrum in financial media.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: NA
Mains level: Global wheat shortage
Kyiv and Moscow penned a landmark agreement with Turkey and the UN to unblock Ukraine’s Black Sea grain exports after a Russian blockade raised fears of a global food crisis.
What is the deal about?
- The deal was agreed through UN and Turkish mediation.
- It establishes safe corridors along which Ukrainian ships can come in and out of three designated Black Sea ports in and around Odessa.
- Both sides also pledged not to attack ships on the way in or out.
Why such move?
- It will bring relief for developing countries on the edge of bankruptcy and the most vulnerable people on the edge of famine.
- The five-month war has already displaced millions and left thousands dead.
- It is being fought across one of Europe’s most fertile regions by two of the world’s biggest grain producers.
- Up to 25 million tonnes of wheat and other grain have been blocked in Ukrainian ports by Russian warships and landmines Kyiv has laid to avert a feared amphibious assault.
Why was the grain export deal signed?
- Ukraine is one of the world’s largest exporters of wheat, corn and sunflower oil, but Russia’s invasion of the country and naval blockade of its ports have halted shipments.
- Some grain is being transported through Europe by rail, road and river, but the prices of vital commodities like wheat and barley have soared during the nearly five-month war.
- Ukrainian and Russian military delegations reached a tentative agreement last week on a UN plan that would also allow Russia to export its grain and fertilizers.
- Ukraine is expected to export 22 million tons of grain and other agricultural products that have been stuck in Black Sea ports due to the war.
What is the grain export deal?
- The deal makes provisions for the safe passage of ships.
- It foresees the establishment of a control center in Istanbul, to be staffed by UN, Turkish, Russian and Ukrainian officials, to run and coordinate the process.
- Ships would undergo inspections to ensure they are not carrying weapons.
- Ukraine has insisted that no Russian ship would escort vessels and that there would be no Russian representative present at Ukrainian ports.
- Ukraine also plans an immediate military response in case of provocations.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Private Members Bill
Mains level: Places of worship act
Opposition members protested against the introduction of a private member’s Bill on the repeal of The Places of Worship (Special Provisions) Act, 1991, in the Rajya Sabha.
Private Member’s Bill
- A private member’s Bill is different from a government Bill and is piloted by an MP who is not a minister. An MP who is not a minister is a private member.
- Individual MPs may introduce private member’s Bill to draw the government’s attention to what they might see as issues requiring legislative intervention.
Difference between private and government Bills
- While both private members and ministers take part in the lawmaking process, Bills introduced by private members are referred to as private member’s Bills and those introduced by ministers are called government Bills.
- Government Bills are backed by the government and also reflect its legislative agenda.
- The admissibility of a Private Bill is decided by the Chairman in the case of the Rajya Sabha and the Speaker in the case of the Lok Sabha.
- Before the Bill can be listed for introduction, the Member must give at least a month’s notice, for the House Secretariat to examine it for compliance with constitutional provisions and rules on legislation.
- While a government Bill can be introduced and discussed on any day, a private member’s bill can only be introduced and discussed on Fridays.
Has a private member’s bill ever become a law?
- No private member’s Bill has been passed by Parliament since 1970.
- To date, Parliament has passed 14 such Bills, six of them in 1956.
- In the 14th Lok Sabha, of the over 300 private member’s Bills introduced, roughly four per cent were discussed, the remaining 96 per cent lapsed without a single dialogue.
- The selection of Bills for discussion is done through a ballot.
Back2Basics: Places of Worship Act, 1991
- It was passed in 1991 by the P V Narasimha Rao-led government.
- The law seeks to maintain the “religious character” of places of worship as it was in 1947 — except in the case of the Ram Janmabhoomi-Babri Masjid dispute, which was already in court.
- The law was brought in at the peak of the Ram Mandir movement, exactly a year before the demolition of the Babri Masjid.
- Introducing the law, then Home Minister S B Chavan said in Parliament that it was adopted to curb communal tension.
What are its provisions?
The objective of the law describes it as an Act to prohibit conversion of any place of worship.
- It aims to provide for the maintenance of the religious character of any place of worship as it existed on the 15th day of August 1947, and for matters connected therewith or incidental thereto”.
- Sections 3 and 4 of the Act declared that the religious character of a place of worship shall continue to be the same as it was on August 15, 1947.
- No person shall convert any place of worship of any religious denomination into one of a different denomination or section.
- Section 4(2) says that all suits, appeals or others regarding converting the character of a place of worship, that was pending on August 15, 1947, will stand abated when the Act commences and no fresh proceedings can be filed.
- However, legal proceedings can be initiated after the commencement of the Act if the change of status took place after the cut-off date of August 15, 1947.
What does it say about Ayodhya, and what else is exempted?
- Act does not to apply to Ram Janma Bhumi Babri Masjid.
Besides the Ayodhya dispute, the Act also exempted:
- any place of worship that is an ancient and historical monument or an archaeological site, or is covered by the Ancient Monuments and Archaeological Sites and Remains Act, 1958;
- a suit that has been finally settled or disposed of;
- any dispute that has been settled by the parties or conversion of any place that took place by acquiescence before the Act commenced.
What has the Supreme Court said about the Act?
- In the 2019 Ayodhya verdict, the Constitution Bench led by former CJI Ranjan Gogoi referred to the law and said it manifests the secular values of the Constitution and strictly prohibits retrogression.
- In providing a guarantee for the preservation of the religious character of places, Parliament determined that independence from colonial rule furnishes a constitutional basis for healing the injustices of the past.
- The law addresses itself to the State as much as to every citizen of the nation. Its norms bind those who govern the affairs of the nation at every level.
- Those norms implement the Fundamental Duties under Article 51A and are hence positive mandates to every citizen as well.
Why is the law under challenge?
- A politician has challenged the law on the ground that violates secularism.
- He has also argued that the cut-off date of August 15, 1947, is “arbitrary, irrational and retrospective” and prohibits Hindus, Jains, Buddhists, and Sikhs from approaching courts to “reclaim” their places of worship.
- Such places, he argued, were “invaded” and “encroached” upon by “fundamentalist barbaric invaders”.
- The right-wing politicians have opposed the law even when it was introduced, arguing that the Centre has no power to legislate on “pilgrimages” or “burial grounds” which is under the state list.
- Another criticism against the law is that the cut-off is the date of Independence, which means that the status quo determined by a colonial power is considered final.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Transitional Tax Credit
Mains level: Not Much
Taxpayers who had missed out on getting the benefit of transitional tax credits during India’s switchover to the Goods and Services Tax (GST) regime five years ago, will now get a fresh window to avail them.
What is Transitional Tax Credit?
- A tax credit is a component of a company’s tax payment that can be applied to offset a subsequent tax obligation.
- When India moved to the GST regime in 2017, companies had to transition the credit sitting on their books.
- So, the closing balance in the old tax regime would become the opening credit balance under GST.
- When India moved from the old indirect tax regime to GST, a one-time transition of credit was allowed.
- That is, companies could set off part of the taxes paid during the old tax regime against future GST liabilities.
- Many companies claimed that they had simply forgotten to claim the transitional credit.
Why in news?
- The Supreme Court has directed the revenue authorities to facilitate such credits.
- The move is likely to benefit hundreds of GST assessees who had hitherto not been able to avail such credits.
- They will be given two-month window to claim during September and October.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Doctrine of Lapse
Mains level: Not Much
A 19th-century painting of Raja Serfoji and his son Sivaji, which was stolen from Saraswathi Mahal, Thanjavur, a few years ago has been traced to the Peabody Essex Museum, Massachusetts, in the US.
Who was Raja Serfoji?
- For long, the rulers of Thanjavur had been devoid of absolute power.
- Serfoji, placed by the British on the throne over his stepbrother Amar Singh, died in 1832.
- His only son Sivaji ruled until 1855.
- However, he had no male successor.
- Thanjavur became a casualty of Lord Dalhousie’s infamous ‘Doctrine of Lapse’, and it got absorbed into British-ruled Indian provinces.
- The painting, which has Raja Serfoji and his young son, according to some historians, was probably painted between 1822 and 1827 and kept in the Saraswathi Mahal.
Back2Basics: Doctrine of Lapse
- Between 1848 and 1856, Lord Dalhousie, the Governor-General of India, devised the Doctrine of Lapse as an annexation policy.
- It was an idea to annex those states which have no heir.
- They lose the right of ruling, and it will not be reverted by the adoption of a child.
- It was one of the key components that added to the 1857 revolt.
Features of the doctrine
- Any princely state or any territory under the direct influence of the British, as a vassal state under the British Subsidiary System, would inevitably be annexed if the ruler was either “manifestly incompetent or died without a direct heir”.
- It ousted the age-old right of an Indian ruler without an heir to select a successor.
- Additionally, the British decided whether potential rulers were competent enough or not.
Annexations made under this policy
Annexation Year
Satara 1848
Jaitpur 1849
Sambalpur 1849
Baghat 1850
Udaipur 1852
Jhansi 1853
Nagpur 1854
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