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Type: Prelims Only

  • Banking Sector Reforms

    When does RBI step in to monitor a Bank?

    Prelims Only | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: CAR, Basel Norms

    Mains level: Not Much

    The Reserve Bank of India (RBI) has placed a private bank under tight monitoring and greater public scrutiny.

    What is the news?

    • The XYZ Bank’s capital to risk weighted assets ratio (CRAR) dropped to around 13% at the end of March this year from 14.5% a year ago.
    • This has dropped below the Basel III in the past and it has even been placed under the prompt corrective action framework (PCA) by the RBI to deal with serious deteriorations in its financial position.
    • Under Basel-III norms banks are supposed to maintain their CRAR at 9% or above.

    What is Capital Adequacy Ratio (CAR)?

    • Capital adequacy ratio is an indicator of the ability of a bank to survive as a going business entity in case it suffers significant losses on its loan book.
    • The CRAR is a ratio that compares the value of a bank’s capital (or net worth) against the value of its various assets weighted according to how risky each asset is.
    • It is used to gauge the risk of insolvency faced by a bank.

    How do it affects bank functioning?

    • A bank cannot continue to operate if the total value of its assets drops below the total value of its liabilities as it would wipe out its capital (or net worth) and render the bank insolvent.
    • So, banking regulations such as the Basel-III norms try to closely monitor changes in the capital adequacy of banks in order to prevent major bank failures which could have a severe impact on the wider economy.
    • The capital position of a bank should not be confused with cash held by a bank in its vaults to make good on its commitment to depositors.

    Alternatives for bank

    • The said Bank has been trying to issue additional shares in the open market through a rights issue in order to deal with its capital adequacy woes.
    • Through a rights issue, the bank will be able to raise more equity capital from existing shareholders.
    • This is in contrast to an initial public offering where shares are issued to new shareholders.

    Back2Basics: Basel Norms

    • Basel is a city in Switzerland. It is the headquarters of the Bureau of International Settlement (BIS), which fosters co-operation among central banks with a common goal of financial stability and common standards of banking regulations.
    • Basel guidelines refer to broad supervisory standards formulated by this group of central banks – called the Basel Committee on Banking Supervision (BCBS).
    • The set of the agreement by the BCBS, which mainly focuses on risks to banks and the financial system is called Basel accord.
    • The purpose of the accord is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses.
    • India has accepted Basel accords for the banking system.

    Basel I

    • In 1988, BCBS introduced a capital measurement system called Basel capital accord, also called as Basel 1.
    • It focused almost entirely on credit risk. It defined capital and structure of risk weights for banks.
    • The minimum capital requirement was fixed at 8% of risk-weighted assets (RWA).
    • RWA means assets with different risk profiles.
    • For example, an asset-backed by collateral would carry lesser risks as compared to personal loans, which have no collateral. India adopted Basel 1 guidelines in 1999.

    Basel II

    • In June ’04, Basel II guidelines were published by BCBS, which were considered to be the refined and reformed versions of Basel I accord.
    • The guidelines were based on three parameters, which the committee calls it as pillars:
    • Capital Adequacy Requirements: Banks should maintain a minimum capital adequacy requirement of 8% of risk assets.
    • Supervisory Review: According to this, banks were needed to develop and use better risk management techniques in monitoring and managing all the three types of risks that a bank faces, viz. credit, market and operational risks.
    • Market Discipline: This needs increased disclosure requirements. Banks need to mandatorily disclose their CAR, risk exposure, etc to the central bank. Basel II norms in India and overseas are yet to be fully implemented.

    Basel III

    • In 2010, Basel III guidelines were released. These guidelines were introduced in response to the financial crisis of 2008.
    • A need was felt to further strengthen the system as banks in the developed economies were under-capitalized, over-leveraged and had a greater reliance on short-term funding.
    • Also, the quantity and quality of capital under Basel II were deemed insufficient to contain any further risk.
    • Basel III norms aim at making most banking activities such as their trading book activities more capital-intensive.
    • The guidelines aim to promote a more resilient banking system by focusing on four vital banking parameters viz. capital, leverage, funding and liquidity.

     

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  • Festivals, Dances, Theatre, Literature, Art in News

    The Art of Bhoota Kola

    Prelims Only | History | Mains Paper 1: Arts & Culture

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Bhoota Kola

    Mains level: NA

    bhoota

    There has been a controversy over the folk art of Bhoota Kola recently depicted in a famous Kannada movie.

    What is Bhoota Kola?

    • Bhoota Kola is an animistic ritual dance performance where local spirits or deities are worshipped.
    • It is believed that a person performing the ritual has temporarily become a god himself.
    • This performer is both feared and respected in the community and is believed to give answers to people’s problems, on behalf of the god.
    • There are several ‘Bhootas’ who are worshipped in the Tulu-speaking belt of Dakshina Kannada, Uttara Kannada and Udupi districts.
    • It is usually performed in small local communities and rural areas.

    How is it performed?

    • The Kola (or dance performance for the Gods) is basically performed in an area near the temple of the village deity which is usually close to large open fields.
    • The ritual involves music, dance, recital, and elaborate costumes.
    • Recitals in Old Tulu recount the origins of the deity and tell the story of how it came to the present location.
    • The divine medium start their traditional performances as the local folklore called ‘paddanas’ are recited.

     

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  • River Interlinking

    In news: Sukapaika River

    Prelims Only | Enviro & Biodiversity | Mains Paper 3: Conservation, Environmental Pollution & Degradation, Eia

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Sukapaika River

    Mains level: Rejuvenation of River

    sukapaika

    Sukapaika, a small river that stopped flowing 70 years ago in Odisha’s Cuttack district is set to be rejuvenated.

    Sukapaika River

    • The Suka-paika (the dead) River originated from another river, the Mahanadi, near Ayatpur village.
    • It flowed 27.5 km before meeting the Mahanadi again at Bankala.
    • In the 1950s, the State’s water resource engineers had in their wisdom closed the Sukapaika river mouth enabling development of the Taladanda Canal System, a major canal of the State.
    • This led to the river mostly drying up.
    • The process was aggravated by agricultural encroachments that had sprung up on the riverbanks.

     

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  • Genetically Modified (GM) crops – cotton, mustards, etc.

    Five new varieties to expand India’s Basmati platter

    Prelims Only | Science Tech | Mains Paper 3: Awareness in various sc and tech fields

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Basmati Rice

    Mains level: Not Much

    basmati

    Five new Basmati varieties, developed by a group of scientists from Indian Agriculture Research Institute (IARI), in 2020 and 2021 are all set to bring revolutionary changes in the way this type of paddy is cultivated in the country.

    About Basmati Rice

    • Basmati, pronounced is a variety of long, slender-grained aromatic rice which is traditionally grown in India, Pakistan, and Nepal.
    • As of 2019, India accounted for 65% of the international trade in basmati rice, while Pakistan accounted for the remaining 35%.
    • Many countries use domestically grown basmati rice crops; however, basmati is geographically exclusive to certain districts of India and Pakistan.
    • India accounts for over 70% of the world’s basmati rice production.
    • The areas which have a geographical indication are in the states of Punjab, Haryana, Himachal Pradesh, Delhi, Uttarakhand, Western Uttar Pradesh and Jammu and Kashmir

    Export potential of Basmati

    • Basmati rice has a market abroad and brings about ₹30,000 crore in foreign exchange every year.
    • While 75% of the export is to West Asian countries, European Union countries also import Indian Basmati.
    • However, recently, the export to EU countries faced certain hurdles due to the increase in the pesticide residue levels in the rice from India.

     

     

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  • Indian Missile Program Updates

    India tests medium-range ballistic missile Agni Prime

    Prelims Only | Science Tech | Mains Paper 3: Achievements Of Indians In S&T

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Agni Missiles

    Mains level: Not Much

    agni

    India has successfully test-fired indigenously-developed new generation medium-range ballistic missile Agni Prime from the Odisha coast.

    Agni-Prime Missile

    • Agni-P is a new generation advanced variant of the Agni class of missiles.
    • It is the sixth missile in the Agni series of ballistic missile.
    • It is a two-staged canisterised missile with a range capability between 1,000 and 2,000 km.
    • Many advanced technologies including composites, propulsion systems, innovative guidance and control mechanisms and state-of-the-art navigation systems have been introduced.
    • Significantly, it weighs 50 per cent less than the Agni 3 missile and has new guidance and propulsion systems
    • The missile strengthens India’s credible deterrence capabilities.

    Back2Basics: Agni Missiles

    agni

    • Agni missiles are long range, nuclear weapons capable surface to surface ballistic missile.
    • The first missile of the series, Agni-I was developed under the Integrated Guided Missile Development Program (IGMDP) and tested in 1989.
    • After its success, Agni missile program was separated from the IGMDP upon realizing its strategic importance.
    • It was designated as a special program in India’s defence budget and provided adequate funds for subsequent development.

    Variants of Agni missiles

    1. Agni I: It is a Medium Range Ballistic Missile with a Range of 700-800 km.
    2. Agni II: It is also a Medium Range Ballistic Missile with a Range more than 2000 km.
    3. Agni III: It is also an Inter-Medium Range Ballistic Missile with Range of more than 2,500 Km
    4. Agni IV: It is also an Inter-Medium Range Ballistic Missile with Range is more than 3,500 km and can fire from a road mobile launcher.
    5. Agni-V: Currently it is the longest of Agni series, an Inter-Continental Ballistic Missile (ICBM) with a range of over 5,000 km.
    6. Agni- VI: The longest of the Agni series, an Inter-Continental Ballistic Missile (ICBM) with a range of ICBM 11,000–12,000 km.

     

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  • Wildlife Conservation Efforts

    Species in news: Great Indian Bustards

    Prelims Only | Enviro & Biodiversity | Mains Paper 3: Conservation, Environmental Pollution & Degradation, Eia

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Great Indian Bustard

    Mains level: NA

    bustard

    The recent sighting of three Great Indian Bustards (GIBs) deep in Pakistan’s Cholistan desert has given rise to speculation that the endangered birds might have flown across the international border from India.

    Great Indian Bustards

    • GIBs are the largest among the four bustard species found in India, the other three being MacQueen’s bustard, lesser florican, and the Bengal florican.
    • GIBs’ historic range included much of the Indian sub-continent but it has now shrunken to just 10 percent of it. Among the heaviest birds with flight, GIBs prefer grasslands as their habitats.
    • GIBs are considered the flagship bird species of grassland.

    Protection accorded

    • Birdlife International: uplisted from Endangered to Critically Endangered (2011)
    • Protection under CITES: Appendix I
    • IUCN status: Critically Endangered
    • Protection under Wildlife (Protection) Act: Schedule I

    Threats

    • Overhead power transmission: This has resulted in the electrocution of the bustards.
    • Poor vision: Due to their poor frontal vision, can’t detect powerlines in time and their weight makes in-flight quick maneuvers difficult.
    • Windmills: Coincidentally, Kutch and Thar desert are the places that have witnessed the creation of huge renewable energy infrastructure.
    • Noise pollution: Noise affects the mating and courtship practices of the GIB.
    • Changes in the landscape: by way of farmers cultivating their land, which otherwise used to remain fallow due to frequent droughts in Kutch.
    • Cultivation changes: Cultivation of cotton and wheat instead of pulses and fodder are also cited as reasons for falling GIB numbers.

    Try this PYQ:

    Q.Consider the following pairs:

    Protected Area: Well-known for

    1. Bhitarkanika, Odisha — Salt Water Crocodile
    2. Desert National Park, Rajasthan — Great Indian Bustard
    3. Eravikulam, Kerala — Hoolock Gibbon

    Which of the pairs given above is/are correctly matched? (CSP 2014)

    (a) 1 only

    (b) 1 and 2

    (c) 2 only

    (d) 1, 2 and 3

     

    Post your answers here.

     

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  • Tax Reforms

    What are Gift Taxes?

    Prelims Only | Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Gift Tax

    Mains level: NA

    The Supreme Court recently ruled that shares within the lock-in period are not ‘quoted shares’, and thus they need to be valued as ‘unquoted shares’ to determine the gift tax liability.

    What are quoted and unquoted shares?

    • According to the Wealth Tax Act, ‘quoted share’ in relation to an equity share or a preference share means a share quoted on any recognised stock exchange with regularity from time to time.
    • The quotations of such shares are based on current transactions made in the ordinary course of business.
    • An ‘unquoted share’ is simply a share that is not a quoted share.
    • So according to the SC order, if the locked-in shares of the promoter falls in the ‘unquoted share’ category, their price treatment can’t be that of the ‘quoted shares’, and so gift tax will not be applicable.

    What are Gift Taxes?

    • Gift tax is a provision introduced by the Parliament of India in 1958.
    • It was introduced to impose tax on giving and receiving gifts under certain circumstances which is specified under the act.
    • These gifts can be in any form including cash, jewellery, property, shares, vehicle, etc.

    Gift Tax on Transfers

    • The gift tax is also applicable on certain transfers that is not considered as a gift.
    • The transfer of existing movable or immovable property in money or money’s worth qualifies for gift tax.

    Certain exemptions

    • Though gift tax is applicable on gifts whose value exceeds Rs.50,000, the gift is exempted from tax if it was given by a relative.
    • The income tax rule specifies who can be considered as a relative and the list is mentioned below.
    1. Parent
    2. Spouse
    3. Siblings
    4. Spouse’s siblings
    5. Lineal descendants
    6. Lineal descendants of the spouse

    Listed below are other situations in which the gift will be exempted from tax.

    1. Gifts received during weddings are usually exempted from tax.
    2. Gifts received as part of inheritance is exempted from tax.
    3. Cash or rewards received by local authorities or educational institutions on the basis of merit is exempted from tax.

     

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  • Innovations in Sciences, IT, Computers, Robotics and Nanotechnology

    What is Web 3.0?

    Prelims Only | Science Tech | Mains Paper 3: Awareness in various sc and tech fields

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Web 3.0

    Mains level: Not Much

    web

    India has a rapidly-growing Web3 ecosystem with more than 450 active start-ups in the space that raised $1.3 billion in funding till April 2022.

    What is Web 3.0?

    • Web3 help users interact with decentralized applications built on blockchain technology.
    • Web3 technologies like distributed ledgers, artificial intelligence, Metaverse and others aim to create the next-generation internet, which is accessible to everyone and offers benefits.
    • Web2 is what we know and use today.

    Why need Web 3?

    • Centralization has helped onboard billions of people to the World Wide Web (www) and created the stable, robust internet infrastructure.
    • At the same time, a handful of centralized entities have a stronghold on large swathes of the World Wide Web.
    • They unilaterally decide what should and should not be allowed over Internet.

    Key features of a Web3

    • Immutable ecosystem, i.e., trust that people will download the digital product just as the original creator intended.
    • Enhanced transparency and security,
    • Quicker browsing performance,
    • Complete user anonymity and confidentiality,
    • Integrating cryptocurrency wallets with multiple blockchains,
    • Complete control over the content due to decentralization.

    Evolution of (world-wide) web

    • The Web most of us know today is quite different from originally imagined.
    • To understand this better, it’s helpful to break the Web’s short history into loose periods—Web 1.0 and Web 2.0.

    (1) Web 1.0: Read-Only (1990-2004)

    • The first inception of ‘Web 1.0’, occurred roughly between 1990 to 2004.
    • It was mainly static websites owned by companies, and there was close to zero interaction between users – individuals seldom produced content – leading to it being known as the read-only web.

    (2) Web 2.0: Read-Write (2004-now)

    • The Web 2.0 period began in 2004 with the emergence of social media platforms.
    • Instead of a read-only, the web evolved to be read-write.
    • Instead of companies providing content to users, they also began to provide platforms to share user-generated content and engage in user-to-user interactions.
    • As more people came online, a handful of top companies began to control a disproportionate amount of the traffic and value generated on the web.
    • Web 2.0 also birthed the advertising-driven revenue model.
    • While users could create content, they didn’t own it or benefit from its monetization.

    How is Web3 prospected to be?

    • The premise of ‘Web 3.0’ was coined by Ethereum co-founder Gavin Wood shortly after Ethereum launched in 2014.
    • Gavin put into words a solution for a problem that many early crypto adopters felt: the Web required too much trust.
    • That is, most of the Web that people know and use today relies on trusting a handful of private companies to act in the public’s best interests.

    Core ideas of Web3

    Although it’s challenging to provide a rigid definition of what Web3 is, a few core principles guide its creation.

    • Web3 is decentralized: instead of large swathes of the internet controlled and owned by centralized entities, ownership gets distributed amongst its builders and users.
    • Web3 is permission-less: everyone has equal access to participate in Web3, and no one gets excluded.
    • Web3 has native payments: it uses cryptocurrency for spending and sending money online instead of relying on the outdated infrastructure of banks and payment processors.
    • Web3 is secure: It operates using incentives and economic mechanisms instead of relying on trusted third-parties.

    Why is Web3 important?

    • Ownership: Web3 gives you ownership of your digital assets in an unprecedented way. Web3 allows for direct ownership through non-fungible tokens (NFTs).
    • Censorship resistance: The power dynamic between platforms and content creators is massively imbalanced.
    • Decentralized autonomous organizations (DAOs): As well as owning your data in Web3, you can own the platform as a collective, using tokens that act like shares in a company.

     

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  • Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

    Competition panel penalizes Google

    Prelims Only | Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: CCI

    Mains level: Not Much

    The Competition Commission of India (CCI) has imposed a ₹1,337.76-crore penalty on Google for abusing its dominant position in multiple markets in the Android mobile device ecosystem.

    What did Google do?

    • Google had abused its dominance in the licensing of its operating system for smart mobile devices, app store market for Android smart mobiles among others.
    • The CCI examined various practices of Google with respect to its licensing and various proprietary mobile applications, including Play Store, Google Search, Google Chrome, YouTube, etc.

    About Competition Commission of India

    • CCI is the competition regulator in India.
    • It is a statutory body responsible for enforcing The Competition Act, 2002 and promoting competition throughout India and preventing activities that have an appreciable adverse effect on competition in India.
    • It was established on 14 October 2003. It became fully functional in May 2009.

    Its establishment

    • A need was felt to promote competition and private enterprise especially in the light of 1991 Indian economic liberalization.
    • The idea of CCI was conceived and introduced in the form of The Competition Act, 2002 by the Vajpayee government.
    • The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, follows the philosophy of modern competition laws.
    • The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises, and regulates combinations (acquisition, acquiring of control, and Merger and acquisition), which causes or likely to cause an appreciable adverse effect on competition within India.

     

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  • Right To Privacy

    TN bans online ‘Games of chance’ and Gambling

    Prelims Only | Governance | Mains Paper 2: Governance, Transparency & Accountability, Citizens Charters

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Game of chance

    Mains level: Online gaming and related issues

    Online gambling and online games of chance have been banned in Tamil Nadu. At the same time, the other online games will be regulated.

    What is Online Gaming?

    • Online games refer to games that are played over some form of computer network, most often the Internet.

    Types of gaming

    • The types of online gaming include:
    1. E-sports (well-organized electronic sports which include professional players) ex. Chess
    2. Fantasy sports (choosing real-life sports players and winning points based on players’ performance) ex. MPL cricket
    3. Skill-based (mental skill) ex. Archery
    4. Gamble (based on random activity) ex. Playing Cards, Rummy

    Online gaming sector in India

    • In the past few years, India’s nascent online gaming industry witnessed an unprecedented rise, catapulting it to the top five mobile gaming markets in the world.
    • Registering a growth rate of 38%, online gaming is the next sunrise industry.
    • Currently, there are more than 400 gaming companies in India, and it is home to 420 million online gamers, second only to China, according to an analysis by KPMG.

    Why is the gaming industry booming in India?

    1. Digital India boom in the gaming industry
    2. Narrowing of the digital divide
    3. IT boom

    Other factors promoting the boom

    1. Growing younger population
    2. Higher disposable income
    3. Inexpensive internet data
    4. Introduction of new gaming genres, and
    5. Increasing number of smartphone and tablet users

    Prospects of online gaming

    • State List Subject:  The state legislators are, vide Entry No. 34 of List II (State List) of the Seventh Schedule, given exclusive power to make laws relating to betting and gambling.
    • Distinction in laws: Most Indian states regulate gaming on the basis of a distinction in law between ‘games of skill’ and ‘games of chance’.
    • Classification on dominant element: As such, a ‘dominant element’ test is utilized to determine whether chance or skill is the dominating element in determining the result of the game.
    • Linked economic activity: Staking money or property on the outcome of a ‘game of chance’ is prohibited and subjects the guilty parties to criminal sanctions.
    • ‘Game of Skill’ debate: Placing any stakes on the outcome of a ‘game of skill’ is not illegal per se and may be permissible. It is important to note that the Supreme Court recognized that no game is purely a ‘game of skill’ and almost all games have an element of chance.

    Need for regulation

    • No comprehensive regulation:  India currently has no comprehensive legislation with regards to the legality of online gaming or boundaries that specify applicable tax rates within the betting and gambling industry.
    • Ambiguity of the sector: The gaming sector is nascent and is still evolving, and many states are bringing about legislation seeking to bring about some order in the online gaming sector.
    • State list subject: Online gaming in India is allowed in most parts of the country. However, different states have their own legislation with regards to whether online gaming is permitted.
    • Economic advantage: Well-regulated online gaming has its own advantages, such as economic growth and employment benefits.

    Issues with online gaming

    • Gaming addiction: Numerous people are developing an addiction to online gaming. This is destroying lives and devastating families.
    • Compulsive gaming: Gaming by children is affecting their performance in schools and impacting their social lives & relationships with family members. Ex. PUBG
    • Impact on psychological health: Online games like PUBG and the Blue Whale Challenge were banned after incidents of violence and suicide.
    • Threat to Data privacy: Inadvertent sharing of personal information can lead to cases of cheating, privacy violations, abuse, and bullying.
    • Betting and gambling: Online games based on the traditional ludo, arguably the most popular online game in India, have run into controversy, and allegations of betting and gambling.

    Why hasn’t a comprehensive law yet materialized?

    • Earlier, states like Tamil Nadu, Telangana, Andhra Pradesh, and Karnataka also passed laws banning online games.
    • However, they were quashed by state High Courts on grounds that an outright ban was unfair to games of skill:
    1. Violation of fundamental rights of trade and commerce, liberty and privacy, speech and expression;
    2. Law being manifestly arbitrary and irrational insofar as it did not distinguish between two different categories of games, i.e. games of skill and chance;
    3. Lack of legislative Competence of State legislatures to enact laws on online skill-based games.

    Way forward

    • Censoring: Minors should be allowed to proceed only with the consent of their parents — OTP verification on Aadhaar could resolve this.
    • Awareness: Gaming companies should proactively educate users about potential risks and how to identify likely situations of cheating and abuse.
    • Regulating mechanism: A Gaming Authority in the central government should be created.
    • Accountability of the gaming company: It could be made responsible for the online gaming industry, monitoring its operations, preventing societal issues, suitably classifying games of skill or chance, overseeing consumer protection, and combatting illegality and crime.
    • All-encompassing legislation: the Centre should formulate an overarching regulatory framework for online games of skill. India must move beyond skill-versus-chance debates to keep up with the global gaming industry.

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