ECONOMY

Turning new page, RBI dips into its reserves to transfer record Rs 1.76 lakh crore to govt

The transfer includes Rs 1.23 lakh crore of surplus for 2018-19 and Rs 52,637 crore of excess provisions identified under a revised Economic Capital Framework (ECF).  It is over three times the five-year average of Rs 53,000 crore.

-        Transferred amount is over three times the five year average of 53000 crore.

-        Transfer from the surplus capital parked with RBI was a cause of conflict between RBI and Government.

-        Government had invoked section 7 of RBI act to give directions to RBI board. It caused significant violation of RBI autonomy.

-        To arrive at the surplus amount, the Central Board decided to maintain the realized equity level at 5.5 per cent of the balance sheet as against the existing 6.8 per cent.

-        The committee, under former RBI Governor Bimal Jalan, recommended the realized equity level to be kept within a band of 6.5-5.5 per cent.

-        Raghuram Rajan and Urjit Patel had cautioned against transfer of excess reserves saying this would hit the RBI’s ratings and increase its borrowing cost.

RBI surplus fund:

-        The RBI maintains various types of reserves to cover various risks including market risk, operational risk, credit risk and contingency risk.

-        For the year ending June 2018, RBI had total reserves of Rs 9.59 lakh crore.

Breakup of the surplus fund:

 

Why RBI was against surplus transfer:

-        Using reserves erodes market’s confidence in govt’s commitment to fiscal prudence.

-        Dipping into RBI’s capital creates no new government revenue.

-        It will reduce RBI credibility as central bank.

-        Using RBI money to recapitalize banks creates problems of regulator owning banks.

-        It will increase borrowing cost of the RBI.

-        It also affects the confidence of the financial markets.

-        RBI Deputy Governor Viral Acharya said how a transfer of excess reserves from a central bank to government can be “catastrophic,” as had been proven in the case of Argentina.

-        The transfer of $6.6 billion of its central bank’s reserves to the national treasury, sparked off “the worst constitutional crises in Argentina and led to “a grave reassessment of its sovereign risk.

-        The longer-term fiscal consequences would be the same if the government issued new securities today to fund the expenditure.

Arguments of Finance Ministry:

-        RBI transfer has been arbitrary.

-        It has been conservative in nature.

-        It argues that RBI should transfer the entire surplus to the government after taking into account its capital requirement.

-        Compared with global central banks, the RBI holds much higher total capital as a percentage of its total assets. The finance ministry was of the view that the buffer of 28 per cent of gross assets maintained by the RBI is well above the global norm of around 14 per cent.

-        Both RBI and government needs to be guided by public interest and the requirements of the Indian economy.

-        Former Chief Economic Adviser Arvind Subramanian said in Economic Survey 2016-17 that the RBI is “is already exceptionally highly capitalized.

-        The government has proposed that the use of these funds be decided in consultation with the RBI.

-        These funds can be used, for example, to recapitalise public sector banks, help them expand their loan book and come out of the Prompt Corrective Action framework.

Solution:

-        Government constituted Bimal Jalan committee, a former RBI chairman to assess the optimal size of capital reserves RBI should hold.

-        It will review the economic capital framework (ECF) for the Reserve Bank of India (RBI).

-        It suggested periodic transfers spread over 3-5 years.

-        It will help government to meet its fiscal deficit target.

Reference: https://indianexpress.com/article/business/banking-and-finance/turning-new-page-rbi-dips-into-its-reserves-to-transfer-record-rs-1-76-lakh-crore-to-govt-5939570/

 

 

 

 

INTERNATIONAL

G7 Summit: PM Modi highlights India’s efforts towards eliminating single use plastic

 

Prime Minister Narendra Modi on August 26 highlighted India’s large scale efforts towards eliminating single use plastic, conserving water, harnessing solar energy and protecting flora and fauna for a sustainable future in his address to a G7 session on environment here.

India will achieve most of the Conference of the Parties (COP 21) climate change goals set for 2030 in the next one and a half year.

Indian Commitments in Paris summit:

-        Creation of additional carbon sink of capacity 2.53 billion tonne by developing the forests.

-        Reducing greenhouse gas emission intensity of its GDP by 3335 per cent below 2005 levels by 2030.

-        Share of 40% renewable energy in total energy commissioned by 2030. 

G7 summit:

-        The G7 is the seven largest IMF described advanced economies comprising (USA, France, UK, Germany, Canada, Italy and Japan).

-        It is global challenges such as the economy, foreign policy, the protection of the environment, with a specific focus on tackling inequalities.

-        It  complements global economic coordination carried out by the G20.

-        Russia was member of it till 2014 and it was called G8. 

 Major Issue in this summit:

-        Trade war with China.

-        Increased tension in Iran

-        Issue of readmission of Russia in this group

-        Amazon fire in Brazil: G7 pledged to provide $ 20million to tackle amazon fire. Critics see it as too little and too late.

 

Refernece: https://www.thehindu.com/news/national/g7summitpmmodihighlightsindiaseffortstowardseliminatingsingleuseplastic/article29260473.ece?homepage=true 

 

POLITY

Chattisgarh to launch a pilot project on NYAY scheme

The Nyuntam Aay Yojana (NYAY) or minimum income guarantee scheme, a key promise in the Congress manifesto for the 2019 Lok Sabha elections, is set to make its first appearance in Chhattisgarh.

The Chhattisgarh pilot promises to Rs.72000 per annum to 20% of the poorest families of the State. 

 

Need of the Scheme:

-        Alleviate poverty

-        Re-monetize the economy.

-        Increase purchasing power of the economy

-        It will form basis of Universal Basic Income

-        Provide needed growth to rural wages. 

 

More on UBI (Universal Basic Income):

Definition: A basic income is a regular, periodic cash payment delivered unconditionally to all citizens on an individual basis, without the requirement of work or willingness to work.

 

Three Components:

-        Universal in approach

-        Unconditional in nature

-        Agency (by providing support in the form of cash transfers to respect)

 

Arguments In Favour of UBI:

-        Reduction of Poverty and Vulnerability

-        It provides choice to citizens. It is based on development as per the needs of citizens.

-        Universality ensures proper targeting.

-        It provides safety net against shocks of loss of livelihood, healthcare crisis.

-        It enhances administrative efficiency and reduces discretion, corruption and abuse of authority.

 

Arguments against UBI:

-        It may lead to wasteful spending by households like drinking.

-        It creates a moral hazard and can make citizens lazy in approach.

-        Gender norms in household may create issues. Male members can have higher say in spending than female.

-        Fiscal cost of implementing the UBI can blow the budget.

-        It doesn’t protect from inflation. Subsidies in kind ensures basic goods even in rapid inflation, UBI may fail at this end.

-        Political will to wrap up the UBI in case of it’s failure may not be present.

 

Learning from The SEWA experiment in Indore:

-        Pilot study on UBI in Indore showed that majority of the beneficiaries (over 66 per cent) used the ready cash for constructive purposes.

-        Invested in improving farm income

-        Education became the priority

-        Increased investment in livestock

-        Invested in Sanitation and drinking water supply

-        It also had positive long term change. Small farmers stopped borrowing from money lenders and worked more at their farms. 

-        Enterprises initiated by women began to flourish.

-        Economic Survey 201718 was also inspired from the SEWA study. 

ENVIRONMENT

International protection for ‘cute’ otters: what is CITES, what does it do?

-        CITES has approved a proposal by India, Nepal, and Bangladesh Sunday to prohibit commercial international trade in a species of otter native to the subcontinent and some other parts of Asia.

-        The vote must be confirmed at the Plenary of the meeting, which concludes Wednesday.

-        The Conference also accepted a separate proposal for inclusion of a species of gecko lizard found widely in South and Southeast Asia, the US, and Madagascar for protection as a “species not necessarily threatened with extinction, but in which trade must be controlled in order to avoid utilisation incompatible with their survival”.

-        Smooth coated otter (Lutrogaleperspicillata) has been moved from CITES Appendix II to CITES Appendix I.

Threat to Otter:

-        Degradation and persecution associated with conflict with people (and fisheries).

-        Habitat loss

-        Poaching

-        Illegal trade for use as pets, and for the animals’ fur.

-        Use in traditional medicine.

CITES list:

CITES has three appendixes: appendix I, appendix II and appendix III.

Appendix I:

-        Includes species “threatened with extinction”.

-        Trade in specimens of these species is permitted only in exceptional circumstances.

Appendix II:

-        Provides a lower level of protection.

Appendix III:

-        Protected in at least one country.

-        Other CITES Parties assist in controlling the trade.

About CITES:

-        It was adopted at a meeting of the members of the International Union for Conservation of Nature (IUCN) in 1963.

-        It is also referred to as the Washington Convention.

-        It is an international agreement aimed at ensuring “that international trade in specimens of wild animals and plants does not threaten their survival”.

-        States and regional economic integration organisations adhere voluntarily to CITES.

-        The Convention is legally binding on the Parties in the sense that they are committed to implementing it; however, it does not take the place of national laws.

-        CITES provides a framework for Parties to make domestic legislation to ensure that the Convention is implemented effectively in their national jurisdictions.

Refernece: https://indianexpress.com/article/explained/internationalprotectionforcuteotterswhatisciteswhatdoesitdo5939325/