News: July 14, 2020

Sub: Economics
Topic: Banking, Finance and Tax System Finance and Banking - India
Weightage:
Category: Prelims & Mains

 

News: 1/5

Reserve Bank of India (RBI)

Established under Reserve Bank of India Act, 1934, RBI controls monetary and other banking policies of the government.

RBI has four subsidiaries, earlier National Housing Bank(NHB) was also a subsidiary of RBI

  1. Deposit Insurance and Credit Guarantee Corporation of India(DICGC)
  2. Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL)
  3. Reserve Bank Information Technology Private Limited (ReBIT)
  4. Indian Financial Technology and Allied Services (IFTAS)

Initiatives in focus

Payments Infrastructure Development Fund (PIDF)

  • To encourage acquirers to deploy Points of Sale (PoS) infrastructure - both physical and digital modes - in tier-3 to tier-6 centres and north eastern states.
  • RBI will make an initial contribution of ₹250 crore to the PIDF, covering half of the fund, while the remaining contribution will be from card-issuing banks and card networks operating in the country
  • PIDF will be governed through an Advisory Council and managed and administered by RBI.
  • RBI will also contribute to yearly shortfalls, if necessary.

RBI loan moratorium scheme

  • As per the RBI circular, banks and other financial institutions are permitted to provide a moratorium of three months for all term loan installments which are due for payment between 1 March and 31 May.
    • It has been extended till August
    • Banks can restructure loans from large corporates, MSMEs, and individuals to help stem the rising stress on incomes and balance sheets. Individual borrower's loan can be extended by 2 years by year end.
  • Term loans will include all kinds of retail loans such as vehicle loan, home loan, and personal loan, agricultural term loans as well as crop loans. It will also include credit card dues
  • The RBI has asked all banks, financial institutions including housing finance companies, non-banking finance companies, small finance banks, regional rural banks, small finance banks, local area banks to provide moratorium.
  • Interest will continue to be charged during the moratorium

Others

  • All urban and multi-State cooperative banks to come under the direct supervision of the RBI
    • Currently cooperative banks are regulated by their respective states under Registrar of Cooperative Societies
  • RBI has asked all banks / NBFCs to disclose names of all digital lending platforms on their websites. Also immediately, after sanction but before execution of the loan agreement, the sanction letter shall be issued to the borrower on the letter head of the bank/ NBFC concerned

Terminology

  • MFIs - MFI are small lending institutions that give tiny loans to low-income borrowers typically at an interest rate of 22-25 percent. They mainly source money from banks.
  • Moratorium  - A moratorium period is a time during the loan term when the borrower is not required to make any repayment.

Tools

RBI uses many tools to regulate credit and monetary policy in country.

  • Repo Rate -The rate of interest at which RBI lends money to banks, RBI buys government bonds and agrees to sell them back to banks at a fixed rate.
    • Repo Linked Lending Rate (RLLR) = Repo Rate + Margin charged by the bank.
    • Repo Rate is used for controlling inflation, and Reverse Repo Rate is used for controlling money supply. 
  • Reverse Repo Rate: The interest rate at which RBI borrows funds from banks for the short term, often for one day. Reverse Repo Rate is always lower than Repo Rate. An increase in Reverse Repo Rate provides incentive to banks to park their surplus funds in RBI and buy government bonds in return. thus decrease liquidity in market.
  • Open Market Operations (OMO): Open Market Operations is the sale and purchase of government securities and treasury bills by RBI to regulate money supply in economy
  • Long Term Repo Operations (LTRO): Under LTRO, RBI provides longer term (one to three year) loans to banks at the prevailing Repo Rate. As banks get long-term funds at lower rates, their cost of funds falls. In turn, they reduce interest rates for borrowers.
    • Targeted LTRO / TLRTO: Under Targeted LRTO funds are to be deployed in investment grade bonds, commercial paper (CPs) and non-convertible debentures (NCDs) of Non-Banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs)
  • Operation Twist
    • Operation twist involves the simultaneous purchase and sale of government securities to bring down long-term interest rates, and push up short-term rates. Business investment and housing demand are primarily determined by longer-term interest rates, so this is done to reduce long term interest rates,
    • RBI will sell short term bonds and use the funds to buy long term bonds. This raises their demand and hence prices., and this inflated price reduces the yield (interest) of the borrower, thus lowering the interest on long term bonds.
      • Bond yields and prices are inversely correlated.

Fund lending

  • Base Rate
    • Base Rate is the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI.
    • It varied from bank to bank.
    • Base rate calculation is based on cost of funds, margin or profit, operating expenses and cost of maintaining cash reserve ratio
  • MCLR (Marginal Cost of funds based Lending Rate) - From financial year 2016-17 banks in country shifted from base rate to MCLR to compute their lending rate, as banks were reluctant to change their base rates to reflect Repo Rate.
    • MCLR refers to the minimum interest rate of a bank below which it cannot lend
    • MCLR is a tenor linked internal benchmark. The actual lending rates are determined by adding the components of spread to the MCLR. Banks will review and publish their MCLR of different maturities, every month, on a pre-announced date. 
      • Tenor means the amount of time left for the repayment of a loan
    • MCLR is based on marginal cost of funds, tenor premium, operating expenses and cost of maintaining cash reserve ratio.
      • Marginal cost of funds = (92% x Marginal cost of borrowings) + (8% x Return on net worth) 
      • Marginal cost of borrowing refers to - average rates at which deposits of a similar maturity were raised in the specified period preceding the date of review, weighed by their outstanding balance in the bank’s books. It is based on  interest rate which banks pay to depositors.
    •  MCLR is largely determined by marginal cost of funds and especially by deposit rates and Repo Rates
    • Banks were still lethargic to lower their rates, and usually offered home loans linked to six month or one-year MCLR, So RBI, in October 2019 announced that all new floating rate personal or retail loans (housing, auto etc.) shall be linked to an external benchmark. 
  • External benchmark rate (EBR): Lending rate based on an external benchmark.
    • Banks are free to choose from any of the external benchmark mentioned below:
      • RBI's Repo Rate
      • Government of India 3-Months Treasury Bill yield published by the Financial Benchmark India Private Ltd (FBIL)
      • Government of India 6-Months Treasury Bill yield published by the FBIL
      • Any other benchmark market interest rate published by the FBIL
    • Interest rate applicable on home loans = external benchmark + bank's spread (margin) + risk premium

[In News]

  • June, 20
    • A supreme court bench asked RBI, whether the moratorium would eventually lead to payment of interest on interest deferred for six months. Solicitor-General said that moratorium is a deferment and not a waiver, and waiving the interest completely will not be easy for banks and MFIs as they have to pay interest to their depositors.
    • In wake of PMC scam, and to bring more transparency, all urban and multi-State cooperative banks under the direct supervision of the RBI. CPI(M) is opposing the move
    • RBI comes heavily on banks/NBFCs as it found violations of fair practices (high interest, low transparency) by digital platforms that were acting as agency of theses lenders.
  • July, 20
    • RBI says it deployed several tools to maintain abundant liquidity in market.
  • Aug, 20
    • RBI allows loan restructuring but has not extended the moratorium in its third review of the monetary policy since the COVID-19 pandemic

Sub: Science And Technology
Topic: Physics And Chemistry
Weightage:
Category: Prelims & Mains

 

News: 2/5

COVID Control

Drugs

  • Dexamethasone
    • Is an anti-inflammatory drug, and has gained traction for its success against corona virus
    • UK's 'RECOVERY Trial' study showed success with low doses of Dexamethasone to target lung inflammation
    • As per Clinical Management Protocol, it can be used as an alternative to methylprednisolone for managing moderate to severe cases.
    • Dexamethasone is part of the National List of Essential Medicines (NLEM)
  • Hydroxychloroquine (HCQ)
    • Anti-malarial drug, which was seen as part of preventive treatment against COVID
      • WHO in June said HCQ shows very limited success in reducing mortality rate of COVID patients. Following this, India lifted all bans on its export.
    • Cleared by Ministry of Health and Family Welfare for treatment of COVID-19 patients under emergency use
  • Methylprednisolone - anti-inflammatory drug used in COVID-19 treatment
  • Favipiravir
    • Sold under brand FabiFflu, is an anti-viral drug for COVID-19 patients from age group 18-75 with mild to moderate symptoms
    • Originally developed to treat influenza
  • Itolizumab 
    • From biocon, approved by ICMR for patients with moderate to severe acute respiratory distress
    • Normally used to cure skin ailment psoriasis
  • Remdesivir
    • Antiviral drug, cleared by Ministry of Health and Family Welfare for treatment of COVID-19 patients under emergency use for patients in moderate stage requiring oxygen support
    • As part of the agreements, the drugmakers will receive technology transfer of the manufacturing process for Remdesivir, and get to set their own prices for the generic product they produce.
    • The licenses are royalty-free until the World Health Organization (WHO) declares the end of the Public Health Emergency of International Concern regarding COVID-19 or until an alternative is approved to treat or prevent COVID-19, whichever is earlier.
  • Tocilizumab
    • Antiviral drug, cleared by Ministry of Health and Family Welfare for treatment of COVID-19 patients with moderate disease with progressively increasing oxygen requirements and in mechanically ventilated patients not improving despite use of steroids
    • Thwarts pro-inflammatory cytokines released by immune system
  • Covaxin
    • Drug Controller General of India (DCGI), Central Drugs Standard Control Organisation(CDSCO) has permitted phase-I and II of human clinical trials of ‘Covaxin’, the country’s first vaccine candidate for COVID-19, developed by Bharat Biotech in collaboration with ICMR-National Institute of Virology
    • It is an inactivated vaccine, wherein a dead virus is injected into the body to generate an antibody response
  • Sputnik V
    • The vaccine is based on an adenoviral vector which normally causes respiratory viral infections. Vectors are vehicles, which can induce a genetic material from another virus into a cell.
    • The gene from adenovirus, which causes the infection is removed, while a gene with the code of a protein from another virus spike is inserted. This inserted element is safe for the body but still helps the immune system to react and produce antibodies, which protect us from the infection.
    • Sputnik V uses two vaccines using two different vectors, the second vaccination takes place in 21 days for long lasting immunity

Initiatives

  • Clinical Management Protocol for COVID-19
    • By Directorate General of Health Services, Ministry of Health and Family Welfare
    • Symptoms - fever, cough, fatigue, shortness of breath, sore throat and diarrhoea. They have also complained of loss of smell (anosmia) or loss of taste (ageusia)
    • Risk factors - For ages more than 60 years, and in those with underlying non-communicable disease like diabetes, hypertension, cardiac arrest, etc.
    • Treatment
      • Mild COVID-19 cases - may be given symptomatic treatment such as antipyretic (Paracetamol) for fever and pain.
      • Moderate COVID019 cases - patients will be isolated in Dedicated Covid Health Centre (DCHC) or District hospital or Medical College hospitals.
      • Severe - Hydroxychloroquine (HCQ) may be considered for any of those having high risk features for severe disease
  • Policy Responses to COVID19: Policy tracker by International Monetary Fund, summarizes the key economic responses, governments are taking to limit the human and economic impact of the COVID-19 pandemic
  • COVID-19 Economic Stimulus Index (CESI)
    • By Columbia University and World Bank, the index standardises the economic responses taken by governments, thus allowing use to study cross-country differences in policies
    • The two main components of index are: fiscal stimulus package (as a percentage of GDP) and the interest rate cut by the monetary policy authority 

Terminology

  • Pre-symptomatic spread - Pre-symptomatic spread is the transmission of the virus by people who don't look or feel sick, but will eventually get symptoms later. 
  • Asymptomatic spread  - Asymptomatic spread is the transmission of the virus by people who do not have symptoms and will never get symptoms from their infection.
  • Spike protein / S protein - A protein that protrudes from the surface of SARS-CoV-2 virus that attaches it to human enzyme ACE2 receptor, after which the virus enters the cell and makes multiple copies of itself.

Tests

  • Enzyme-Linked Immuno-Sorbent Assay antibody test (ELISA)
    • developed by National Institute of Virology in Pune along with Zydus Cadila. 
    • The blood sample is placed inside the small wells of an ELISA plate. These plates are coated with the antigen or the inactivated form of the virus. If the blood contains antibodies, it binds to the antigen and a substrate solution is added to the well. The reaction usually produces a colour change, thus detecting antibodies.
    • In India, the ELISA test for Covid-19 is only approved for serosurveys - which estimate the proportion of the population exposed to infection, and for surveys in high-risk areas and segments like containment zones
  • Rapid Antigen Detection Test (RADT)
    • Approved by ICMR. RADT checks for antigen production from a nasal swab.
      • An antigen means any toxin in the body which produces an immune response.
    • It takes about 30 minutes to give result. However rapid test has been found to have a higher chance of false negatives.
  • Real Time Reverse Transcription–Polymerase Chain Reaction (RT-PCR)
    • Real time RT–PCR is one of the most precise (and expensive) laboratory methods for detecting the COVID-19 virus.
    • Cleared by ICMR, it takes about 1 day to get result
    • Once the swab is taken, RT–PCR checks for virus's RNA
    • RT–PCR cannot be used for detecting past infections, only for active infections.
  • TrueNat
    • Commonly used for tuberculosis and HIV 
    • Cleared by ICMR, it works on same principle of RT-PCR. It involves taking nasal or oral swabs
    • The TrueNat machine is small and portable, mostly running on batteries, and provides result within 60 minutes.

A positive result from ELISA or rapid antibody test may not mean the person needs isolation or is infectious; it may simply mean the person was exposed to the virus and has developed antibodies. These two tests, being cheaper than RT-PCR, are employed in large-scale population surveys

Treatment

  • Convalescent plasma therapy
    • Convalescent plasma therapy is a passive immunisation process. It is simply the transfusion of plasma containing antibodies from immune survivors of infectious diseases to the affected individuals
    • As per protocol by Ministry of Health and Family Welfare , Convalescent plasma therapy may be considered for patients with moderate illness with no improvement in condition despite the use of steroids.

[In News]

  • June, 20
    • SARS-COVID 2, COVID-19
    • Drug approvals
  • July, 20
    • Russian vaccine clears first phase clinical trial.
    • ICMR cautions itolizumab, tocilizumab over claims of significantly reducing mortality rates
    • A new research shows spike protein changing its shape to hairpin form after attaching to ACE2 receptors
  • Aug, 20
    • Russia registers first COVID-19 vaccine

Sub: Economics
Topic: Indian Economy Evolution of Indian Economy
Weightage:
Category: Prelims & Mains

 

News: 3/5

Inflation

Inflation indices

India calculates its inflation on two price indices, i.e., the Wholesale Price Index (WPI) and Consumer Price Index (CPI).

Wholesale Price Index (WPI)

Wholesale Price Index (WPI) measures the average change in the prices of commodities for bulk sale at early stage of transaction. The index basket of the WPI covers commodities falling under the three major groups namely Primary Articles, Fuel and Power and Manufactured products. The base year for index basket calculation is taken as 2011-12

  • It is taken as Headline Inflation Rate in India.
  • It is calculated by Office of Economic Advisor  (OEA), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry
  • WPI is used as deflator for many sectors of the economy including for estimating GDP by Central Statistical Organisation (CSO).
  • Key Highlights of WPI with 2011-12 as base year
    • New definition of wholesale price index does not include taxes in order to remove impact of fiscal policy
    • A separate ‘WPI Food Index’ was also created. WPI Food Index along with CPI Food Price Index helps monitor the food inflation effectively
      • Globally, food price index is being released by Food and Agriculture Organization 

Consumer Price Index (CPI)

Consumer Price Index is a measure of change in retail prices of goods and services consumed by defined population group in a given area with reference to a base year. Depending upon the socio-economic differentiations among consumers, India has four differing sets of CPI

  1. CPI for Industrial workers (CPI-IW) : CPI-IW measures change over time, in prices of a fixed basket of goods and services, consumed by Industrial Workers. It is compiled by Labour Bureau, Ministry of Labour & Employment
  2. CPI for Agricultural Labourers (CPI-AL) and CPI for  Rural Labourers (CPI-RL) : Compiled by Labour Bureau, Ministry of Labour & Employment with 1986-87 as base year
  3. CPI-U and CPI-R : Compiled by Central Statistics Office, Ministry of Statistics and Programme at base year 2010 . These indices reflect the changes in the price levels of various goods and services consumed by the urban and rural population respectively.
  4. Consumer Food Price Index (CFPI) : CFPI is a measure of change in retail prices of food products consumed by a defined population with reference to base year. It is compiled by Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation (MOSPI), with base year 2012.

[In News]

  • June, 20
    • Food inflation accelerates 9.28% in May
  • July, 20
    • CPI - Inflation rises to 6.09% on account of higher prices of food items

Sub: Economics
Topic: Development Companies and Industries
Weightage:
Category: Prelims & Mains

 

News: 4/5

Public Sector Undertakings (PSU)

PSU

  • Export Credit Guarantee Corporation of India Limited (ECGC)
    • Promotes exports by providing credit risk insurance and related services for exports
    • Set up in 1957, under Ministry of Commerce and Industry
  • Indian Railways Construction Ltd / Ircon International Limited  (IRCON)
    • A category 1 Miniratna company, incorporated by Ministry of Railways in 1976
    • Focuses mainly on railways and highway construction in India and abroad

[In News]

  • IRCON had signed MoU with Iranian railways in 2016 during Prime Minister's visit for development of railway project from Chabahar port to Zahedan, along the border with Afghanistan. Iran government has decided to construct the project on their own, because of delay in funding

 

Sub: International Relations
Topic: Geo Politics in Indian Context
Weightage:
Category: Prelims & Mains

 

News: 5/5

West And Central Asia

Geography

  • Iran
    • Port of Shahid Beheshti, Chabahar
    • Makran coast, Chabahar

Work

  • Kafala System: Every country in the Gulf manages migrant residency and employment through the Kafala (sponsorship) system. Under this system, a local citizen or local company (the kafeel) must sponsor foreign workers in order for their work visas and residency to be valid. With tight restrictions like permission required to enter and exit the kingdom, as well as to change jobs. this dependency renders workers vulnerable to exploitation. 

Infrastructure

  • Chabahar port
    • India broached the idea of Chabahar port development in 2002. Things stayed quiet for over a decade because of Iran US relations
    • In the backdrop of BRI, an MoU was signed in 2015 for port development, followed by a trilateral pact with Afghanistan in 2016 for connectivity;
    • A pact was alos signed for development of 1380km Chabahar-Zahedan railway line-connecting Chabahar to Zahedan in Iran, to Zaranj and Delaram in Afghanistan
    • In 2018, India was admitted to Ashgabat Agreement
      • Ashgabat Agreement was signed in 2011 by Uzbekistan, Turkmenistan, Iran, Oman and Qatar. Qatar later withdrew, and Kazakhstan and Pakistan joined in 2016. The agreement came into force in 2016. Ashgabat Agreement envisages for transport and transit corridor between Central Asia and the Persian Gulf.  Ashgabat in Turkmenistan is the depository state for the agreement.
    • India started operating a terminal in Chabahar port in 2019, first time India operating an overseas port.
  •  International North–South Transport Corridor (INSTC)
    • INSTC is a trilateral project of laying a network of ship, rail and road routes. It was jointly initiated by Russia, Iran and India in 2002 to bypass Pakistan.
    • Since then 11 more countries have joined - Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Oman, Syria, Tajikistan, Turkey, and Ukraine. Armenia, Azerbaijan, Belarus. Bulgaria has observer status.

Trade

  • Pakistan-Afghanistan Transit Trade Agreement, 2010: Allows Afghan traders access to eastern Wagah border with India, where Afghan goods are offloaded onto Indian trucks.. Pakistan however has not allowed Indian trucks to send goods to Afghanistan.

[In news]

  • June, 20
    • India to talk about INSTC in meeting of the RIC foreign ministers 
  • July, 20
    • Iran government has decided to construct Chabahar-Zahedan railway line on their own, because of delay in funding from India over fear of US sanctions.
    • 'Trapped' illegal workers in Saudi look to coronavirus for escape

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