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  • J&K – The issues around the state

    Panel notifies new J&K Assembly Constituencies

    | Polity | Mains Paper 2: Federalism

    The Jammu and Kashmir Delimitation Commission has notified the new boundaries, names and number of Assembly constituencies in Jammu and Kashmir, paving the way for the first-ever Assembly election in the Union Territory.

    What is Delimitation and why is it needed?

    • Delimitation is the act of redrawing boundaries of an Assembly or Lok Sabha seat to represent changes in population over time.
    • The Delimitation Commission is appointed by the President of India and works in collaboration with the Election Commission of India.
    • This exercise is carried out by a Delimitation Commission, whose orders have the force of law and cannot be questioned before any court.
    • The objective is to redraw boundaries (based on the data of the last Census) in a way so that the population of all seats, as far as practicable, be the same throughout the State.
    • Aside from changing the limits of a constituency, the process may result in a change in the number of seats in a state.

    How is it carried out?

    • Under Article 82, the Parliament enacts a Delimitation Act after every Census.
    • Article 170 provides that States also get divided into territorial constituencies as per Delimitation Act after every Census.
    • Once the Act is in force, the Union government sets up a Delimitation Commission.
    • The first delimitation exercise was carried out by the President (with the help of the Election Commission) in 1950-51.
    • The Delimitation Commission Act was enacted in 1952.
    • Delimitation Commissions have been set up four times — 1952, 1963, 1973 and 2002 under the Acts of 1952, 1962, 1972 and 2002.
    • There was no delimitation after the 1981 and 1991 Censuses.

    Delimitation in J&K

    • Assembly seats in J&K were delimited in 1963, 1973 and 1995.
    • Prior to August 5, 2019, carving out of J&K’s Assembly seats was carried out under the J&K Constitution and Jammu and Kashmir Representation of the People Act, 1957.
    • Until then, the delimitation of Lok Sabha seats in J&K was governed by the Constitution of India.
    • However, the delimitation of the state’s Assembly was governed by the J&K Constitution and J&K Representation of the People Act, 1957.
    • There was no census in the state in 1991 and hence no Delimitation Commission was set up by the state until 2001 census.

    Why is it in the news again?

    • After the abrogation of J&K’s special status in 2019, the delimitation of Lok Sabha and Assembly seats in the newly-created UT would be as per the provisions of the Indian Constitution.
    • On March 6, 2020, the government set up the Delimitation Commission, headed by retired Supreme Court judge Ranjana Prakash Desai, which was tasked with winding up delimitation in J&K in a year.
    • As per the J&K Reorganization Bill, the number of Assembly seats in J&K would increase from 107 to 114, which is expected to benefit the Jammu region.

    Next step: Assembly polls

    • With the final order now notified, all eyes will be on the EC and the Union government regarding the timing of Assembly elections.
    • Though mainstream parties in the Valley have criticised the report, it is likely that this will make space for political engagement in the UT.

    What changes have been made?

    • ASSEMBLY: The Commission has increased seven Assembly seats — six in Jammu (now 43 seats) and one in Kashmir (now 47). It has also made massive changes in the structure of the existing Assembly seats.
    • LOK SABHA: The Commission has redrawn the boundaries of Anantnag and Jammu seats. Jammu’s Pir Panjal region, comprising Poonch and Rajouri districts and formerly part of Jammu parliamentary seat, has now been added to Anantnag seat in Kashmir. Also, a Shia-dominated region of Srinagar parliamentary constituency has been transferred to Baramulla constituency, also in the Valley.
    • KASHMIRI PANDITS: The Commission has recommended provision of at least two members from the community of Kashmiri Migrants (Kashmiri Hindus) in the Legislative Assembly.
    • Seats for POK migrants: It has also recommended that Centre should consider giving representation in the J&K Legislative Assembly to the displaced persons from Pakistan-occupied Kashmir, who migrated to Jammu after Partition.

    Why has the exercise been controversial?

    • Jammu vs. Kashmir: Concerns had been expressed over how the delimitation process may end up favoring the Jammu region over Kashmir in terms of the seats.
    • Under-representation of Ladakh: Arguments have been made on how Ladakh has been underrepresented, with demands for statehood/sixth schedule.
    • Non-proportionate reservations: It is argued that seats for STs should’ve been divided in both Jammu province & Kashmir province, as the ST population is almost equal.
    • Frozen till 2026: Constituency boundaries are being redrawn only in J&K when delimitation for the rest of the country has been frozen until 2026. The last delimitation exercise in J&K was carried out in 1995.
    • Issue over reorganization: Again, political parties in Jammu and Kashmir have been pointing out that the Delimitation Commission is mandated by the Reorganisation Act, which is sub judice.

     

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  • Cyber Security – CERTs, Policy, etc

    How India’s new VPN rules change the Status Quo?

    Prelims Only | Security Issues | Mains Paper 3: Cyber Security

    Recently, the Indian Computer Emergency Response Team (Cert-In) issued new directives that require Virtual Private Network (VPN) providers to store user data for five years.

    What is VPN?

    • VPN describes the opportunity to establish a protected network connection when using public networks.
    • It encrypts internet traffic and disguise a user’s online identity.
    • This makes it more difficult for third parties to track your activities online and steal data.
    • The encryption takes place in real time.

    How does a VPN work?

    • A VPN hides your IP address by letting the network redirect it through a specially configured remote server run by a VPN host.
    • This means that if you surf online with a VPN, the VPN server becomes the source of your data.
    • This means your Internet Service Provider (ISP) and other third parties cannot see which websites you visit or what data you send and receive online.
    • A VPN works like a filter that turns all your data into “gibberish”. Even if someone were to get their hands on your data, it would be useless.

    Why do people use VPN?

    • Secure encryption: A VPN connection disguises your data traffic online and protects it from external access. Unencrypted data can be viewed by anyone who has network access and wants to see it. With a VPN, hackers and cyber criminals can’t decipher this data.
    • Disguising whereabouts: VPN servers essentially act as your proxies on the internet. Because the demographic location data comes from a server in another country, your actual location cannot be determined.
    • Data privacy is held: Most VPN services do not store logs of your activities. Some providers, on the other hand, record your behaviour, but do not pass this information on to third parties. This means that any potential record of your user behaviour remains permanently hidden.
    • Access to regional content: Regional web content is not always accessible from everywhere. Services and websites often contain content that can only be accessed from certain parts of the world.
    • Secure data transfer: If you work remotely, you may need to access important files on your company’s network. For security reasons, this kind of information requires a secure connection. To gain access to the network, a VPN connection is often required.

    What does the new CERT-IN directive say?

    • VPN providers will need to store validated customer names, their physical addresses, email ids, phone numbers, and the reason they are using the service, along with the dates they use it and their “ownership pattern”.
    • In addition, Cert is also asking VPN providers to keep a record of the IP and email addresses that the customer uses to register the service, along with the timestamp of registration.
    • Most importantly, however, VPN providers will have to store all IP addresses issued to a customer and a list of IP addresses that its customers generally use.

    What does this mean for VPN providers?

    • VPN services are in violation of Cert’s rules by simply operating in India.
    • That said, it is worth noting that ‘no logs’ does not mean zero logs.
    • VPN services still need to maintain some logs to run their service efficiently.

    Does this mean VPNs will become useless?

    • The Indian government has not banned VPNs yet, so they can still be used to access content that is blocked in an area, which is the most common usage of these services.
    • However, journalists, activists, and others who use such services to hide their internet footprint will have to think twice about them.

    Why such move?

    • Crime control: For law enforcement agencies, a move like this will make it easier to track criminals who use VPNs to hide their internet footprint.
    • Curbing dark-net activities: Users these days are shifting towards the dark and deep web, which are much tougher to police than VPN services.

    Back2Basics: Indian Computer Emergency Response Team (CERT-IN)

    • CERT-IN is an office within the Ministry of Electronics and Information Technology.
    • It is the nodal agency to deal with cyber security threats like hacking and phishing. It strengthens the security-related defense of the Indian Internet domain.
    • It was formed in 2004 by the Government of India under the Information Technology Act, 2000 Section (70B) under the Ministry of Communications and Information Technology.

     

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  • Monetary Policy Committee Notifications

    Inflation control needs another model

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Context

    At the conclusion of the April meeting, the Monetary Policy Committee had already warned that the focus will henceforth be on inflation. Yesterday it raised the repo rate somewhat sooner than was expected by the market.

     Discourse on inflation engaged in by the western central banks

    • Inflation reflects an excess of output over its ‘natural’ level.
    • Inflation targeting refers to the policy of controlling inflation by raising the interest rate over which the central bank has control, i.e. the rate at which it lends to commercial banks, the ‘repo rate’.
    • This, it is argued, will induce firms to stay their investment plans and reduce inventories, lowering production.
    • As economy-wide output declines, becoming equal to the natural level of output, inflation will cease.
    • This story does not just legitimise a policy of output contraction for inflation but sees it as optimal.
    • The natural level of output itself is the productive counterpart of the natural level of employment, the level that obtains in a freely functioning labour market.
    • So, at the natural level of output, the economy is deemed to be at full employment.
    • Salient in the context is the fact that the natural level of output is unobservable.
    • Hence inflation as a reflection of an “overheating” economy is something that must be taken on trust.

    Inflation control in India

    • Not surprisingly for a theory based on an unobservable variable, the proposition that inflation is due to an overheating economy fares poorly when put to a statistical test for India. 
    • There is not a single demonstration of the empirical validity of the model of inflation presented in the RBI report of 2014, which recommended a move to inflation targeting.
    • On the other hand inflation in India can be explained in terms of the movement of the prices of agricultural goods and, to a lesser extent, imported oil.
    • How effective is monetary policy in controlling inflation: The implication of this finding is damaging for the claim that monetary policy can control inflation, for neither the price of agricultural goods nor that of imported oil is under the central bank’s control.
    • The only route by which monetary policy can, in principle, control inflation is by curbing the growth of non-agricultural output, which would in turn lower the growth of demand for agricultural goods.
    • As the demand for agricultural goods slows, so will inflation, but this comes at the cost of output and employment.
    • At least, this is the theory.
    • Whether this takes place in practice depends upon the extent to which changes in the repo rate are transmitted to commercial bank lending rates.

    Way forward

    • Focus on supply of agricultural goods: The implication for the policymaker that inflation is driven by agricultural goods prices, as is the case in India presently, is that the focus should be on increasing the supply of these goods.
    • Growing per capita income in India has shifted the average consumption basket towards foods rich in minerals, such as fruits and vegetables, and protein, such as milk and meat.
    • But the expansion of the supply of these foods has been lower than the growth in demand for them.
    • So a concerted drive to increase the supply of food other than rice and wheat holds the key.
    • Costly food threatens the health of the population, as people economise on their food intake, and holds back the economy, as only a small part of a household’s budget can be spent on non-agricultural goods.

    Conclusion

    Monetary policy manoeuvres, typified by the RBI’s raising of the repo rate is not an efficient solution for agricultural price-driven inflation. Any lasting inflation control would require placing agricultural production on a steady footing, with continuously rising productivity.

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  • RBI Notifications

    With repo rate hike, RBI has done what’s necessary

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Context

    The RBI has decided to take the bull by the horns. It has raised the repo rate by 40 basis points and the cash reserve ratio (CRR) by 50 basis points to fight inflation.

    Why major central banks across the world are hiking rates?

    • Across the world, major central banks have of late gone on a rate hike spree, waking up to the realisation of inflationary pressures not being transitory in nature.
    • Record high inflation in the US: The US Fed has been on the offensive battling a 40-year high surge in prices.
    • It has tapered its bond purchase programme drastically while suggesting in no uncertain terms the pace of rate hikes needed to combat inflation.
    • The European Union has been slow to respond but voices are growing to correct the path at the earliest.
    • Banks like the Central Bank of Brazil or the Russian Central Bank have increased the interest rate to double digits.
    • Emerging economies have been doubly hit — the days of easy liquidity are well behind them even as their economic resources remain constrained to support an uneven proportion of population hit by pandemic.
    • Including the RBI’s decision today to push the benchmark rate to align with the current market realities, 21 countries have increased interest rates so far.

    Analysing the RBI’s decision to hike interest rates

    • To this extent, the decision by the RBI to frontload the rate hikes ahead of the Fed decision is again an attempt to stem capital outflows.
    • Accommodative policy stance; The most interesting aspect of the rate hike today is the continuation of the accommodative policy stance.
    • The CRR hike may be just an attempt to build up a war chest on the liquidity front.
    • Liquidity inflows to the financial system could be either policy induced by the central bank for example changes in reserves, open market operations etc or non-policy induced such as foreign exchange reserves, government cash balances, and currency in circulation.
    • Given that non-policy induced liquidity inflows have been recently impacted (outflows of portfolio capital) and given the huge size of the government borrowing programme, the RBI also needs to support the market through some means.
    • Impounding bank reserves through the CRR (Rs 87,000 crore) could give some space to the central bank to conduct open market purchases of bonds from banks and thus inject concomitant liquidity some time in the future if the need so arises.
    •  The CRR rate hike is thus an important tool to possibly manage G-sec yields.

    Inflation dynamics in India

    • The inflationary pressures can be attributed mainly to adverse cost-push factors, coming from supply-side shocks in food and fuel prices.
    • The RBI statement thus cites food inflation as a major source of discomfort.
    • Additionally, nominal rural wages for both agricultural and non-agricultural labourers picked up during the second half 2021-22.
    • However, such wage growth has remained soft.
    • Measures to ameliorate supply-side cost pressures would be thus critical at this juncture, especially in terms of a calibrated reduction of taxes on petrol and diesel.
    • On the policy side, however, it would mean that even after rate hikes, inflation may continue to remain high for some time.
    • The MCLR (Marginal Cost of Funds based Lending Rate) linked loans have a share of around 53 per cent in the overall loan kitty.
    • With the rise in CRR and expected future hikes in the benchmark rates, there would be an increase in MCLR due to a negative carry.

    Conclusion

    The RBI has acted prudently in responding to market forces that could impact India’s growth prospects if inflationary concerns were not addressed now. At the same time, by pledging to remain accommodative to spur, and reinvigorate growth, it has reaffirmed its commitment to being a trusted partner in the growth of the country.

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  • Death Penalty Abolition Debate

    President has no role to play in Perarivalan’s plea: SC

    | Polity | Mains Paper 2: Indian Constitution – historical underpinnings, evolution, features, amendments, significant provisions and basic structure

    The Supreme Court has disagreed with the Central government’s suggestion that the court should wait till the President took a call on former PM’s assassination case convict A.G. Perarivalan’s mercy plea referred to him by the Tamil Nadu Governor for a decision.

    Why in news now?

    • The Bench of the Supreme Court said that the Centre had missed the obvious question posed by the court by a mile.
    • The pertinent question was whether the Governor had, in the first place, the authority to refer the mercy plea to the President.
    • Under Article 161 of the Constitution, the Governor was bound by the aid and advice given by the TN Council of Ministers in September 2018.
    • The Governor prima facie had no authority to transfer the mercy plea to the President.

    What does Pardon mean?

    • A pardon is a government/executive decision to allow a person to be absolved of guilt for an alleged crime or other legal offense as if the act never occurred.

    Why need a Pardon?

    • Pardons can be granted when individuals are deemed to have demonstrated that they have “paid their debt to society”, or are otherwise considered to be deserving of them.
    • Pardons are sometimes offered to persons who were either wrongfully convicted or who claim that they were wrongfully convicted.
    • Pardons are sometimes seen as a mechanism for combating corruption, allowing a particular authority to circumvent a flawed judicial process to free someone that is seen as wrongly convicted.

    What does Article 161 say?

    • Article 161 of the Constitution provides the Governor with the power to remit or commute the sentence of any prisoner.
    • The Governor’s decision will be subject to judicial review by the constitutional courts.

    Supreme court’s observations

    • The Constitution Bench in 2015, in a majority decision, had held that the States cannot unilaterally remit the sentences of life convicts in cases investigated by a Central agency under a Central law.
    • The assassination case was probed by the CBI.
    • In compliance with the 2015 verdict, the Tamil Nadu government wrote to the Centre in 2016, proposing the grant of remission to the convicts. The State wanted the Centre to concur.
    • After a wait of over two years, the Centre rejected the State’s proposal, saying this was an unparalleled act in the annals of crimes committed in this country.

    Arguments in Perarivalan’s petition seeking pardon

    • Perarivalan had been pleading for release citing that he was 19 when he was arrested.
    • He was the only male child of his parents, there were no records of criminal antecedents, and that he had excellent conduct in his entire prison life.
    • His petition also cited UG and PG degrees, and that he was the university topper, Gold medalist in diploma in DTP, and that he completed more than eight diploma and certificate courses during his prison term.
    • His probation officer gave a report about lapses in recording his confession statement that handed out maximum punishment in his case.

    Basis of his innocence

    • Perarivalan cannot be called innocent before the law as he continues to be a convicted prisoner serving imprisonment.
    • He was accused of having bought two battery cells for the LTTE man who masterminded the conspiracy.
    • He was sentenced to death based on this crucial confession statement.

    Significance of the convicts’ release

    • The release of seven convicts is a demand raised by not only the ruling party of TN but the main opposition too.
    • All TN politicians voiced that the judiciary should be able to reform and let them live as good citizens to uphold the high values of reformatory justice and restitution.

    Back2Basics: Pardoning Powers in India

    • Under the Constitution of India (Article 72), the President of India can grant a pardon or reduce the sentence of a convicted person, particularly in cases involving capital punishment.
    • A similar and parallel power vests in the governors of each state under Article 161.

    (1) President

    • Article 72 says that the president shall have the power to grant pardons, reprieves, respites or remissions of punishment or to suspend, remit or commute the sentence of any person convicted of any offence.
    • The pardoning powers of the Indian President are elucidated in Art 72 of the Indian Constitution. There are five different types of pardoning which are mandated by law.
    1. Pardon: means completely absolving the person of the crime and letting him go free. The pardoned criminal will be like a normal citizen.
    2. Commutation: means changing the type of punishment given to the guilty into a less harsh one, for example, a death penalty commuted to a life sentence.
    3. Reprieve: means a delay allowed in the execution of a sentence, usually a death sentence, for a guilty person to allow him some time to apply for a Presidential Pardon or some other legal remedy to prove his innocence or successful rehabilitation.
    4. Respite: means reducing the quantum or degree of the punishment to a criminal in view of some special circumstances, like pregnancy, mental condition etc.
    5. Remission: means changing the quantum of the punishment without changing its nature, for example reducing twenty-year rigorous imprisonment to ten years.

    (2) Governor

    • As per Article 161, the Governor of a State has the power to grant pardons, reprieves, respites or remissions of punishment or to suspend, remit or commute the sentence of any person convicted of any offence against any law.
    • It must be relating to a matter to which the executive power of the state extends.
    • Please note that President can grant pardon to a person awarded death sentence. But a governor of a state does not enjoy this power.

     

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  • Medical Education Governance in India

    Tamil Nadu NEET Exemption Bill sent to Home Ministry

    | Polity | Mains Paper 2: Federalism

    The CM informed the Tamil Nadu Legislative Assembly that Governor has forwarded the NEET exemption Bill to the Union Home Ministry to be sent to the President of India for his assent.

    What is the TN Bill about?

    • The Bill exempts medical aspirants in Tamil Nadu from taking NEET examination for admission to UG degree courses in Indian medicine, dentistry and homeopathy.
    • Instead, it seeks to provide admission to such courses on the basis of marks obtained in the qualifying examination, through “Normalization methods”.
    • The aim of the Bill is to ensure “social justice, uphold equality and equal opportunity, protect all vulnerable student communities from being discriminated”.
    • It seeks to bring vulnerable student communities to the “mainstream of medical and dental education and in turn ensure a robust public health care across the state, particularly the rural areas”.

    Why TN is against NEET?

    • Non-representative: TN opposes because NEET undermined the diverse societal representation in MBBS and higher medical studies.
    • Disfavors the poor: It has favored mainly the affordable and affluent sections of the society and thwarting the dreams of underprivileged social groups.
    • Exams for the elite: It considers NEET not a fair or equitable method of admission since it favored the rich and elite sections of society.
    • Healthcare concerns: If continued, the rural and urban poor may not be able to pursue medical courses.

    Can any state legislate against NEET?

    • Admissions to medical courses are traceable to entry 25 of Concurrent List, Schedule VII of the Constitution.
    • Therefore, the State can also enact a law regarding admission and amend any Central law on admission procedures.

    Why is it going for President’s assent?

    • The question is not whether the State government can amend a law falling under the Concurrent List.
    • The question is whether the State government can exempt Section 10D of the IMC Act, which is a parliamentary law that falls under the Central List (Entry 66).
    • Moreover, the Supreme Court has also upheld NEET as a requirement.
    • Mere statistics highlighting that a majority of the stakeholders do not want NEET in Tamil Nadu is not an answer for exempting the examination.

    Again, it is State and Centre are at crossroads

    • Normally, a Bill requires assent from the Governor to become a law. Stalin’s contention is that this Bill deals with education, which is a Concurrent List subject.
    • Admissions to medical courses fall under Entry 25 of List III, Schedule VII of the Constitution, and therefore the state is competent to regulate the same.
    • Yet, as far as matters relating to the determination of standards for higher education are concerned, the central government has the power to amend a clause or repeal an Act.
    • So, just the passing of the Bill doesn’t enable the students to get exempted from writing NEET.
    • Already, Union Higher Education Secretary has held that if any State wants to opt out of the exam, it has to seek permission from the Supreme Court.

    Options for Tamil Nadu

    • Data is necessary only when there is power to legislate on the subject concerned.
    • Since the Bill, which will become an Act only after the President’s nod, will come into effect only from the next academic year, the battle for and against the NEET requirement will continue in courts.
    • Hopefully, the courts will determine the legality and have a definite solution to the question of medical admissions within the next year.
    • Till such time, students who wrote NEET will fill the seats under the State quota.

     

    Also read:

    Bill assent, a delay and the Governor’s options

     

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  • Goods and Services Tax (GST)

    GST Compensation dues

    | Economics | Mains Paper 3: Mobilization Of Resources

    The West Bengal CM has said that slashing State levies on petrol and diesel will be possible only if the Centre clears its outstanding dues of over ₹97,000 crore, which includes compensation for implementing the Goods and Services Tax (GST).

    What is GST?

    • GST launched in India on 1 July 2017 is a comprehensive indirect tax for the entire country.
    • It is charged at the time of supply and depends on the destination of consumption.
    • For instance, if a good is manufactured in state A but consumed in state B, then the revenue generated through GST collection is credited to the state of consumption (state B) and not to the state of production (state A).
    • GST, being a consumption-based tax, resulted in loss of revenue for manufacturing-heavy states.

    Compensation under GST regime

    • Due to the consumption-based nature of GST, manufacturing states like Gujarat, Haryana, Karnataka, Maharashtra and Tamil Nadu feared a revenue loss.
    • Thus, GST Compensation Cess or GST Cess was introduced by the government to compensate for the possible revenue losses suffered by such manufacturing states.
    • However, under existing rules, this compensation cess will be levied only for the first 5 years of the GST regime – from July 1st, 2017 to July 1st, 2022.
    • Compensation cess is levied on five products considered to be ‘sin’ or luxury as mentioned in the GST (Compensation to States) Act, 2017 and includes items such as- Pan Masala, Tobacco, and Automobiles etc.

    Distributing GST compensation

    • The compensation cess payable to states is calculated based on the methodology specified in the GST (Compensation to States) Act, 2017.
    • The compensation fund so collected is released to the states every 2 months.
    • Any unused money from the compensation fund at the end of the transition period shall be distributed between the states and the centre as per any applicable formula.

    Significance of GST compensation

    • States no longer possess taxation rights after most taxes, barring those on petroleum, alcohol, and stamp duty were subsumed under GST.
    • GST accounts for almost 42% of states’ own tax revenues, and tax revenues account for around 60% of states’ total revenues.
    • Finances of over a dozen states are under severe strain, resulting in delays in salary payments and sharp cuts in capital expenditure outlay amid the pandemic-induced lockdowns and the need to spend on healthcare.

    What is the status of the outstanding GST compensation due to the States?

    • The Finance Ministry said that outstanding GST compensation dues to States for 2021-22 stood at ₹78,704 crore.
    • This means that dues have been remitted to States for the eight-month period of April 2021 till November 2021.
    • Normally, compensation for 10 months from April-January of any financial year is released during that year and the compensation for February-March is released only in the next financial year.
    • The pending amount will also be released as and when the amount from cess accrues in the compensation fund.

    Also read:

    [Burning Issue] GST Compensation

     

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  • Monetary Policy Committee Notifications

    RBI surprises with 40 bps rate increase in Repo Rate

    DOMR | Economics | Mains Paper 3: Indian Economy

    The Reserve Bank of India (RBI), in a sudden move, raised the repo rate by 40 basis points (bps) to 4.4% citing inflation that was globally rising alarmingly and spreading fast.

    Why in news?

    • The repo rate increase was the first since August 2018.
    • The MPC retained its ‘accommodative’ policy stance even as it focuses on withdrawal of accommodation to keep inflation within the target range while supporting growth.
    • Due to Ukraine War, persistent and spreading inflationary pressures are becoming more acute with every passing day.

    Hues over the REPO spike

    • The move — to have such a meeting and to raise the interest rates — is, at two different levels, both surprising and obvious.
    • It is surprising because the RBI’s MPC meets once every two months — and the meeting this week was not scheduled.

    What is Repo Rate?

    • Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
    • It is used by monetary authorities to control inflation.
    • In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank.
    • This ultimately reduces the money supply in the economy and thus helps in arresting inflation.

    How does the repo dynamics work?

    • When there is a shortage of funds, commercial banks borrow money from the central bank which is repaid according to the repo rate applicable.
    • The central bank provides these short terms loans against securities such as treasury bills or government bonds.
    • This monetary policy is used by the central bank to control inflation or increase the liquidity of banks.
    • The government increases the repo rate when they need to control prices and restrict borrowings.
    • An increase in repo rate means commercial banks have to pay more interest for the money lent to them and therefore, a change in repo rate eventually affects public borrowings such as home loan, EMIs, etc.
    • From interest charged by commercial banks on loans to the returns from deposits, various financial and investment instruments are indirectly dependent on the repo rate.

    What is accommodative stance of policy?

    • Accommodative monetary policy is when central banks expand the money supply to boost the economy. Monetary policies that are considered accommodative include lowering the Federal funds rate.
    • These measures are meant to make money less expensive to borrow and encourage more spending.

    What triggered the RBI to take sudden decision?

    • Inflation has been rising for over two years: By law, the RBI is supposed to target retail inflation at 4%. Inflation constantly above 4% since last year.
    • Inflation has not been “transitory”: The reasons for high inflation have tended to change over the months due to wide range of reasons like war, crude oil prices rise, taxes on fuels etc.
    • Spike in crude oil prices is not new: The RBI has pointed to high crude oil prices in the wake of the Ukraine war, as one of the key reasons for high inflation in India.
    • High core inflation: The core inflation which is essentially the inflation rate stripped of the effect of fuel and food prices has been rising up. This is more worrisome for RBI since it cannot be altered overnight.
    • Monetary policy has lags. RBI waited too long: If the RBI wanted to contain inflation in May, it should have acted in February or at least in April. Raising rates right now may not bring down the inflation rate immediately.

    Try this PYQ from CSP 2020:

    Q.If the RBI decides to adopt an expansionist monetary policy, which of the following it would NOT do?

    1. Cut and optimize the statutory liquidity ratio
    2. Increase the Marginal Standing Facility Rate
    3. Cut the Bank Rate and Repo Rate

    Select the correct answer using the code given below:

    (a) 1 and 2 only

    (b) 2 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

     

    Post your answers here:

     

     

     

    Back2Basics: Monetary Policy Committee (MPC)

    • The Monetary Policy Committee (MPC) is a committee of the RBI, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level.
    • The RBI Act, 1934 was amended by Finance Act (India), 2016 to constitute MPC to bring more transparency and accountability in fixing India’s Monetary Policy.
    • The policy is published after every meeting with each member explaining his opinions.
    • The committee is answerable to the Government of India if the inflation exceeds the range prescribed for three consecutive months.
    • Suggestions for setting up a MPC is not new and goes back to 2002 when YV Reddy committee proposed to establish an MPC, then Tarapore committee in 2006, Percy Mistry committee in 2007, Raghuram Rajan committee in 2009 and then Urjit Patel Committee in 2013.

    Composition and Working

    • The committee comprises six members – three officials of the RBI and three external members nominated by the Government of India.
    • The meetings of the Monetary Policy Committee are held at least 4 times a year and it publishes its decisions after each such meeting.
    • The Governor of RBI is the chairperson ex officio of the committee.
    • Decisions are taken by a majority with the Governor having the casting vote in case of a tie.
    • They need to observe a “silent period” seven days before and after the rate decision for “utmost confidentiality”.

     

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  • Coronavirus – Health and Governance Issues

    Civil Registration System Report, 2020

    DOMR | Governance | Mains Paper 2: Health & Education

    The Civil Registration System (CRS) report 2020 was released at least a month before its schedule.

    What is Civil Registration System (CRS)?

    • The CRS collates data on all births and deaths registered with local authorities across India.
    • The CRS report is released by the Registrar-General of India.
    • It releases its report around 18 months after a year ends.

    Significance of the 2020 Report

    • The 2020 report was released at least a month before schedule.
    • Such data can be of significance during a pandemic as possible covid-19 deaths may not have been categorized as such in official records.
    • The CRS can help us reach an estimate by using the “excess deaths” approach.
    • It is the difference between the total number of deaths registered in a pandemic year and the number of deaths that normally take place in a year.

    Why was the data released ahead of schedule?

    • India and the WHO are locked in a tussle over the latter’s excess death estimates that would give a sense of pandemic-linked fatalities globally in 2020-21.
    • India has reportedly stalled WHO’s efforts to release the data, claiming flawed methodology.
    • WHO is set to release its estimates today, a possible reason that India released CRS data early.

    Why is India contesting the WHO approach?

    • One key objection by India is that WHO has classified it as a Tier 2 country and hence used a different modelling process to estimate excess deaths from that used for Tier 1 countries.
    • WHO says all countries that made available their full all-cause mortality data for the pandemic period were classified as Tier 1.
    • India is in Tier 2 because it didn’t share official data with WHO.
    • Hence, alternative data and modelling methods had to be adopted, adjusting for factors such as income levels, covid-19 reporting rates, and test positivity rates.

    What does the 2020 data show?

    (a) Covid deaths

    • The CRS report for 2020 has recorded deaths of 8.12 million Indians, 6.2% more than 2019.
    • Normally, an unusual increase in deaths would be linked to the pandemic. However, in India, not all deaths are registered.
    • Thus, a rise could simply be because of more families getting deaths registered.
    • The CRS for 2021, which saw more Covid deaths, may not be out until next year.

    (b) Improvements in sex ratio

    • Highest Sex Ratio at Birth (SRB) based on registered events has been reported by Ladakh (1,104) followed by Arunachal Pradesh (1,011), A&N Islands (984), Tripura (974), and Kerala (969).
    • The lowest sex ratio was reported by Manipur (880), followed by Dadra and Nagar Haveli and Daman and Diu (898), Gujarat (909), Haryana (916) and Madhya Pradesh (921).

     

     

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  • Foreign Policy Watch: India – Germany

    India-Germany relations

    op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    Context

    Prime Minister Narendra Modi’s visit to Berlin for the sixth Indo-German Inter-Governmental Consultations (IGC) is significant for its timing and substantial results.

    Strategic and economic importance of India-German ties

    • The timing of the IGC, which Germany chose not to delay, showed outreach to India and the Indo-Pacific.
    • Impact of pandemic on economy: The pandemic hit German economy and sanctions on Russia will further dent its prospects.
    • The country requires new markets for trade and investment.
    • India is an important partner in this regard due to its sustained economic growth and market size.
    • Ukraine crisis: The Ukraine crisis created an urgency to engage with India as part of Germany’s fledgling Indo-Pacific policy.

    Opportunities for India

    • As Germany does the reassessment of China’s role in world affairs it creates an opportunity for India.
    • The Bundestag will discuss the situation of Uyghurs in China’s Xinjiang on May 7.
    • Any departures from China will bring business engagement to India.
    • Germany and India do not have a traditional strategic partnership.
    • It is a green partnership based on trade, investment, technology, functional collaboration, skill development, and sustainability.
    • There are several initiatives like the Indo-German energy forum, environmental forum, partnership on urban mobility, skill development and science and technology.
    • The biggest gain from the IGC has been the Joint Declaration of Intent (JDI) establishing the Green and Sustainable Development Partnership.
    • This will raise the quality and quantum of the existing partnership between the two countries.
    • Germany is reaching out with new and additional financing of €10 billion to fund green projects in India under public, private and PPP models.
    • To support this, a ministerial segment is being introduced under the IGC.
    • The IGC is the only such format that India has with any country.
    • Another significant development is the JDI on Triangular Development Cooperation for projects in third countries.
    • This will provide avenues to work together in the Indo-Pacific, Africa and beyond.
    • The Indo-German Education Partnership, which the German Bundestag passed in 2016 as a New Passage to India, has borne fruit — from about 4,000 students in 2015, there are nearly 29,000 Indian students in Germany.
    • The Indo-German Science and Technology Centre has made valuable contributions.
    • Now, under the energy partnership, the Green Hydrogen Task Force will develop a Green Hydrogen Roadmap.
    • This will attempt to take R&D to the level of commercialisation.
    • The JDI on migration and mobility is an important step taken during this IGC.

    Conclusion

    A new period is reflecting new priorities in view of crises like the pandemic, the economic downturn and now, Ukraine. The German response to India as evidenced through the IGC has been promising. Both sides may justifiably call it a defining moment in the Indo-German partnership.

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