THE ENVIRONMENT AND ECOLOGY

1.NEW GIN BERRY SPICIES DISCOVERED IN TN

THE CONTEXT: A team of scientists from the Botanical Survey of India (BSI) has discovered a new gin berry species from the Kanyakumari Wildlife Sanctuary in Tamil Nadu.

THE EXPLANATION:

• The species, named Glycosmis albicarpa with a distinct large white fruit, is endemic to the southern Western Ghats. The species belongs to the Orange family, Rutaceae.
• Berries of Glycosmis species have the unique characteristic of ‘gin aroma’ and has gained in popularity as an edible fruit. The species is also a larval host plant for butterflies like other species of Glycosmis.
• The species, an evergreen small tree, was found as undergrowth in Tirunelveli semi-evergreen forests at the Panagudi forest section of the wildlife sanctuary as a single population that covers an area of approximately 2 sq.km.
• Many of the related plants of these taxonomic groups are being utilised for their medicinal values and food. Most commonly related species of these plants are collected from the wild, mainly for local use as food and medicine.
• According to experts, the discovery not only re-emphasises the uniqueness and endemism in Western Ghats’ flora but also add to the growing inventory of the region’s flora.

About Botanical Survey of India (BSI)

• Botanical Survey of India (BSI) was founded in the pre-independence era by the East India Company (EIC) in 1890. It is located in Kolkata, West Bengal. Its parent organization is the Ministry of Environment, Forest, and Climate Change.
• It undertakes survey, research, and conservation of plant wealth of India. It collects and maintains gene banks of endangered and vulnerable plant species.
• India is endowed with rich biodiversity, which is now at threat from anthropogenic pressures. Urgent conservation measures are needed to prevent the loss of unique biodiversity.

THE INTERNATIONAL RELATIONS

2. RUSSIA SEIZES EUROPE’S LARGEST NUCLEAR PLANT: ZAPORIZHZHIA

THE CONTEXT: According to the Ukrainian authorities, the Russian forces have captured Ukraine’s Zaporizhzhia nuclear power plant, the largest in Europe.

THE EXPLANATION:

Russia had already captured the defunct Chernobyl plant north of Kyiv, which spewed radioactive waste over much of Europe when it melted down in 1986.

Where is it located?

The Zaporizhzhia nuclear power plant is located in the southern Ukraine steppe on the Dnieper River, some 550 kilometres (342 miles) southeast of Ukraine’s capital, Kyiv, and about 525km (325 miles) south of Chernobyl, the site of the world’s worst nuclear power plant accident in 1986, which has also now been seized by Russian forces.

THE ECONOMIC DEVELOPMENTS

3. UNION GOVT RETHINKS GOLD MONETISATION SCHEME

THE CONTEXT: The Union government is reconsidering its Gold Monetization Scheme (GMS) as it believes its costs outweigh benefits, and the scheme could not achieve what it set out to do, it is learnt.

THE EXPLANATION:

• RBI has been asked to conduct a structural review of the scheme, including its rationale, associated high costs, and desirability of its continuation.
• The idea behind introducing the scheme, among others, was to wean away investors from buying physical gold, and invest in paper gold, as high gold imports put pressure on the current account deficit, the gap between export and import of goods and services.
• India’s current account deficit in April-September of financial year 2021-22 stood at 0.2 per cent of GDP, as against a surplus of 3 per cent in the year-ago period on the back of a sharp increase in the trade deficit.

About the Sovereign Gold Bond Scheme:

• The sovereign gold bond was introduced by the Government in 2015.
• The government introduced these bonds to help reduce India’s over-dependence on gold imports.
• The move was also aimed at changing the habits of Indians from saving in the physical form of gold to a paper form with Sovereign backing.
• Joint Holder: In the case of joint holding, the investment limit of 4 kg will be applied to the first applicant only.

• Collateral: Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to the ordinary gold loan mandated by the Reserve Bank from time to time.

Merits of investing in gold bonds:

• For investors, it is advisable to invest in gold for portfolio diversification.
• Sovereign gold bonds are considered one of the better ways of investing in gold as along with capital appreciation, an investor gets a fixed rate of interest.
• Apart from this, it is tax-efficient as no capital gains are charged in case of redemption on maturity.
• Sovereign gold bonds are a good way to ensure an investment that does not need physical storage of the gold.

Demerits of sovereign gold bonds

• This is a long term investment, unlike physical gold which can be sold immediately.
• Sovereign gold bonds are listed on an exchange but the trading volumes are not high, therefore it will be difficult to exit before maturity.

THE PRELIMS PERSPECTIVE

4. POLAVARAM PROJECT

THE CONTEXT: Andhra Pradesh Chief Minister announced that ₹5 lakh financial package would be given to the farmers who parted with their lands for the Polavaram irrigation project prior to the enactment of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.

THE EXPLANATION:

The Chief Minister observed that the Polavaram irrigation project would be a lifeline for the entire State of Andhra Pradesh. “The Godavari and Krishna regions would flourish further once the project is commissioned”.

About the Project:

• Polavaram is a multi-purpose irrigation project which is under construction and located on river Godavari near Ramayyapet village of Polavaram Mandal of West Godavari district in Andhra Pradesh. The project has been on cards for almost 75 years. This project is a dream for the 5-crore people of Andhra Pradesh. The project will be a one-stop solution for all the water needs of the state.
• The project reservoir has live storage 75.2 TMCs at canal’s full supply level of 41.15 metres (135 ft) MSL and gross storage of 194 TMCs thereby enabling irrigation of 23,20,000 acres (including stabilisation of existing irrigated lands).
• Polavaram will benefit all the 13 districts of A.P, directly and indirectly.
• Polavaram project dam being built on River Godavari can help divert and utilise Godavari water to Krishna and other rivers. If executed well, this project can make the state drought-free forever.

Features of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.

• First time provision of Social Impact Assessment Study for proposed projects prior to Preliminary Notification.
• Recognize non owners as Affected Families like Share Croppers, Tenants and Agricultural Labourers
• A mode of Acquisition requiring consent of displaced persons ( for private companies 80% and for PPP projects 70%)
• Statutory rehabilitation and resettlement entitlements for the project affected families
• Restricted the grounds on which land may be acquired under the urgency clause
• Recognition of principle of Social cost minimisation
• Special Provision for food security U/S 10 of the Act.
• Return of land to Land Bank/Original Owners as per section 101 of the Act.

THE MISCELLANEOUS

5. THE PRACTICE OF “NOKKUKOOLI”-GAWKING FEE

THE CONTEXT: Various trade unions in Kerala, said that they would take steps to end the anarchic trends in the industry, including ‘Nokkkooli’ and surprise strikes. The organisation also said they would stand by government measures to end practices that hinder industrial growth and increase the productivity of workers.

THE EXPLANATION:

What is Nokkukooli?

• Nokkukooli is a type of wage meant for workers overseeing the work of fellow workers.
• This practice has been widespread among the head-load workers who are basically labourers involved in loading and unloading activities.
• A Registered head-load worker demands Nokkukooli for either doing the loading or unloading work himself or when he gets the job done though his own worker.
• Various laws were also enacted to ensure the rights of working to carry loads for loading and unloading were protected.

What was the reason behind Kerala’s recent decision?

• Nokkukooli became a notorious practice of demanding wages for just simply seeing the work as it was easy to appoint a worker to do the job.
• Head-load workers also started exhorting huge sums from construction sites where machines move heavy objects, on the grounds of denying their right to work.
• In recent years, the growth of infrastructure and other reality projects has allowed head-load workers to earn huge amounts as Nokkukooli.
• But all this is due to decline in the actual work for head-load workers as markets and packaging methods have changed.

THE PRELIMS PRACTICE QUESTIONS

QUESTION OF THE DAY 5^TH MARCH 2022

Q Consider the following statements about UNHRC:

1. It is made up of 47 United Nations Member States elected by the UN General Assembly.
2. Each elected member serves for a term of two years.
3. Countries are disallowed from occupying a seat for more than two consecutive terms.

Which of the statements given above is/are correct?

a)1 only

b) 1 and 3

c) 2 and 3

d) 1, 2 and 3

ANSWER FOR 4^TH MARCH 2022

ANSWER: C)

Explanation:

• Statement 1 is correct: It is a popular ritual form of dance worship in Kerala (North Malabar).
• Statement 2 is incorrect: Theyyam is performed by males, except the Devakoothutheyyam; the Devakoothu is the only Theyyam ritual performed by women.
• Statement 3 is correct: The dance or invocation is generally performed in front of the village shrine. There is no stage or curtain or other such arrangements for the performance.

THE ENVIRONMENT & ECOLOGY

1. A HISTORIC RESOLUTION TO TACKLE PLASTIC POLLUTION

THE CONTEXT: In a historic move, more than 170 countries at the United Nations Environment Assembly (UNEA) in Nairobi, Kenya, agreed to establish an Intergovernmental Negotiating Committee that will develop an international, legally binding agreement to end plastic pollution by 2024.

THE EXPLANATION:

• Plastic pollution has emerged as one of the biggest environmental concerns worlds over. According to the World in Data, the world produced only 2 million tonnes of plastic per year in 1950. Since then, annual production has increased nearly 200-fold, reaching 381 million tonnes in 2015. A lot of plastic finds its way into natural systems and is also known to impact public health. At least 14 million tonnes of plastic end up in the ocean every year, according to the IUCN. Plastic makes up 80% of all marine debris found from surface waters to deep-sea sediments.

India’s Picture:

• According to data submitted in the Parliament in 2019, the Central Pollution Control Board (CPCB) estimates that India generates a whopping 25,940 tonnes of plastic waste per day. Of this, 60% is collected and recycled; the rest is littered in the environment. Some states have placed curbs on the use of some types of plastic. Himachal Pradesh, for instance, was the first state to ban plastic bags in 2009.
• By 2018, Maharashtra, Uttar Pradesh, Himachal Pradesh and Odisha imposed bans on plastic and thermocol.
• Earlier Centre had announced in both 2018 and 2019 that India would phase out single-use plastics by 2022. That, however, has not yet materialized. The environment ministry recently notified the new Plastic Waste Management Amendment Rules 2022, making it mandatory for plastic carry bags to be at least 120 microns thick: this will kick into effect from December 31, 2022. The rules also reportedly prohibit the manufacture, import, stocking, distribution, sale and use of several products with low utility but high littering potential.

Various Causes of Plastic Pollution

• Rapid urbanization and population growth increase the demand of cheap plastics.
• Since it is an affordable and durable material, it is utilized in every other way possible, from packaging materials to plastic bottles and containers, straws to plastic carry bags.
• Plastic takes 400 years and even more to Decompose. The decomposition rate of plastic typically ranges from 500 to 600 years, depending on the type.
• Abandoned Fishing Nets
• Disposal of plastic is often mismanaged; it ends up in landfills.
• Burning plastic is incredibly toxic and can lead to harmful atmospheric conditions and deadly illnesses.

Impact of Plastic Waste on Climate

• In 2015, greenhouse gas emissions from plastics were 1.7 gigatons of CO2 equivalent. By 2050, they’re projected to increase to approximately 6.5 gigatons. That number represents 15% of the whole global carbon budget.
• Plastic can also alter global carbon cycling through its effect on plankton and primary production in marine, freshwater and terrestrial systems.

Impact of Plastic Waste on Economy

• By 2040, there could be a $100 billion annual financial risk for businesses if governments require them to cover waste management costs. It can also lead to a rise in illegal domestic and international waste disposal.

Way forward:

• Policy shifts can reduce plastic pollution by incentivizing changes in both business and consumer behaviour, as well as in plastic design, alternatives and recycling.
• Governments can also impose taxes to deter the production or use of single-use plastics, or offer tax breaks, subsidies and other fiscal incentives to encourage alternatives to single-use plastic products.
• Product standards, certifications and labelling requirements can be designed to educate the public on the environmental impacts of plastic, and on the health and safety hazards involved in their production and use.
• Extended Producer Responsibility (EPR) programs can ensure that manufacturers maintain responsibility for single-use plastic products throughout the whole life cycles of those products.

2. NEW PLASTIC WASTE MANAGEMENT (AMENDMENT) RULES 2022

THE CONTEXT: The Ministry of Environment, Forest and Climate Change has published the Plastic Waste Management (Amendment) Rules, 2022 through which it has notified the guidelines on extended procedure responsibility for plastic packaging.

THE EXPLANATION:

The guidelines pave a roadmap for entities to shift towards sustainable plastic packaging. As per the notification, the new guidelines shall come to effect with immediate effect.

MAJOR HIGHLIGHTS OF PLASTIC WASTE MANAGEMENT (AMENDMENT) RULES, 2022

New Classification for plastic

The Plastic Waste Management (Amendment) Rules, 2022 seek to classify plastic in four primary categories as shown below:

• Category 1 will entail rigid plastic packaging;
• Category 2 shall entail flexible plastic packaging of an individual layer or multilayer (comprising different types of plastics, plastic covers & sheets made of plastic sheet, plastic sachet, carry bags.
• Category 3 shall include Multi-layered plastic packaging (comprising one layer of plastic and one layer of non-plastic).
• Category 4 shall include plastic sheets for carrying bags and packaging produced from compostable plastics.

Mandating PIBOs to share the detail of recycling certificates

• With regards to plastic packaging, the extended producer responsibility encompasses reutilization, recycling, use of recycled plastic content & end-of-life disposal by PIBOs (Producer Importers and Brand Owners).
• As per the new guidelines, the PIBOs shall have to facilitate the details pertaining to the recycling certificates only from authorized recyclers along with the particulars of quantity channelled for end of life disposal by June 30 of subsequent FY while filing annual returns on the web-based portal.

CPCB to launch a centralized web portal: A new web-based portal developed by CPCB shall reflect the plastic packaging material released into the marketplace by PIBOs in the FY. It will also manifest the particulars relating to the audit of the PIBOs and recyclers or other waste processors. The online system would serve as the single window data repository with regards to orders and directions relating to the deployment of EPR for plastic packaging under PWM rules, 2016.

 Environmental compensation will be imposed based upon the polluter pays principle, with regard to non-compliance of EPR targets by PIBOs, to safeguard and improve the quality of the environment and restrain, curb, and lessen the pollution.

Carry forward of unfulfilled EPR directions: It also state that unfulfilled EPR directions for a given year shall be carried forward to the subsequent year for the duration of three years.

Inculcation of new committee by SPCB: According to the new guidelines, the GOI has declared the establishment of a committee formed by the State pollution control board under the chairpersonship of CPCB chairman to suggest measures to the ministry of environment for seamless implementation of EPR including amendments to EPR directions.

Annual Report on EPR: Plastic Waste Management (Amendment) Rules, 2022 mandate SPCBs or PCCs to furnish an annual report on the EPR web portal with regards to its fulfilment by PIBOs (which entail plastic packaging material manufacturers) & plastic waste processors in the State/UT to the CPCB.

THE ECONOMIC DEVELOPMENTS

3. YOUTUBE CREATORS CONTRIBUTED $894 MILLION TO INDIA’S GDP IN 2020

THE CONTEXT: According to Oxford Economics, published a report, where it says, YouTube creator ecosystem contributed Rs 6,800 crore to the Indian economy. The Google-owned online video platform also supported 6,83,900 full-time equivalent jobs in India in 2020.

THE EXPLANATION:

• The report claims that YouTube has become a significant tool for small and medium sized business (SMB’s).” Through their own channel, targeted adverts or simply from watching You Tube content, businesses have successfully grown sales and connected with customers”.
• Terming the YouTube community an “emerging soft power”. “As our creators and artists build the next generation of media companies that are connecting with a global audience, their impact on the economy’s overall success will only continue to accelerate.”

THE INTERNAL SECURITY AFFAIRS

4. VILLAGE DEFENCE COMMITTEE IN JAMMU

THE CONTEXT: The Ministry of Home Affairs’ decision to revive the infamous village defence committees (VDCs) as village defence groups across Jammu and Kashmir contradicts the government’s claims about normalcy in the Union territory.

THE EXPLANATION:

• The Ministry of Home Affairs has approved a “Revised Scheme of Village Defence Groups (VDGs) in J&K” under which the erstwhile village defence committees will be designated as village defence groups.
• In more vulnerable areas the order provides that people who lead these village defence groups will be paid an honorarium of Rs 4,500 per month and other persons who are voluntary members of these groups will be paid an honorarium of Rs 4,000 a month for their participation.
• The use of civilians to aid in law enforcement is not something new in India. The Police Act, 1861, provides for the appointment of special police officers (SPOs) if a magistrate determines they are required. The appointment is more of a conscription as if a person fails to respond to the request they can be punished under the Act. However, their deployment in conflict zones like Jammu and Kashmir does raise certain issues, particularly, from a human rights perspective.
• There are three broad categories of armed forces that may be used in a conflict zone: regular military force, paramilitary force and the police force. The village defence guards will be under the supervision of the local police. Accordingly, they will constitute an extension of the third category.

Background:

• VDCs were first set up in J&K during the 1965 war. They were also used to keep a check on cross-border infiltration during the 1971 war.
• VDC policy in 1995, the Union Home Ministry unveiled a village defence committee (VDC) policy “to organise a small group, of volunteer armed civilians, in the identified villages along the borders as well as in-depth areas of Jammu division… to ensure the safety and security of such villages, infrastructural installations in and around them and to check the trans-border movement”.
• According to MHA, in recent years, as the situation started showing signs of improvement in Jammu and Kashmir, the VDCs also began to lose their clout. Due to paltry pay, which hasn’t been paid to them for nearly four years now, most of the VDCs have become dysfunctional.

THE PRELIMS PERSPECTIVE

5. OLD STONE AGE CULTURE DISCOVERED IN CHINA

THE CONTEXT: Scientists discovered remnants of an Old Stone Age culture, less than 100 miles (160 kilometers) west of Beijing, where ancient hominins used a reddish pigment called ochre and crafted tiny, blade-like tools from stone. The archaeological site, called Xiamabei, offers a rare glimpse into the life of Homo sapiens and now-extinct human relatives who inhabited the region some 40,000 years ago.

THE EXPLANATION:

The newly excavated site lies within the Nihewan Basin, a depression in a mountainous region of northern China. The excavation team found evidence of the culture about 8 feet (2.5 meters) underground, when they spotted a layer of dark, silty sediment that dated to between 41,000 and 39,000 years ago, based on radiocarbon dating and other analyses.

This Stone Age sediment contained a treasure trove of artifacts and animal remains, including more than 430 mammal bones; a hearth; physical evidence of ochre use and processing; a tool made of bone; and more than 380 miniaturized lithics, or small tools and artifacts made of chipped or ground stone.

Based on the available evidence, however, they could not determine exactly how the pigment was used. Ochre can be used in adhesives, for example, or in “symbolic applications” such as rock art paint or paint that’s applied to the body as both cosmetic decoration and sunscreen.

According to excavators, “Distinguishing between symbolic and functional uses of ochre in the material culture record is an ongoing challenge for prehistoric archaeologists.”

Value Addition:

What is Carbon Dating?

Radiocarbon dating or carbon dating or carbon-14 dating is a method for determining the age of an object containing organic material by using the properties of radiocarbon, a radioactive isotope of carbon. Unstable carbon-14 gradually decays to carbon-12 at a steady rate

How does it work?

• Radiocarbon dating works by comparing the three different isotopes of carbon. Isotopes of a particular element have the same number of protons in their nucleus but different numbers of neutrons. This means that although they are very similar chemically, they have different masses.
• The total mass of the isotope is indicated by the numerical superscript. While the lighter isotopes 12C and 13C are stable, the heaviest isotope 14C (radiocarbon) is radioactive. This means its nucleus is so large that it is unstable.

6. MEKEDATU PROJECT

THE CONTEXT: Karnataka plans to construct a balancing reservoir or a storage dam built downstream of the main reservoir to capture excess water that flows out – over the river Cauvery. Estimated to cost around Rs 9,000 crore, also the state believes it would resolve the drinking water shortage in the districts of Bengaluru and Ramanagara and also generate hydroelectricity to meet the power needs of the state.

THE EXPLANATION:

WHAT IS THE MEKEDATU PROJECT ?

Named after the village where the project is expected to be constructed, the reservoir will have a capacity of 284,000 million cubic feet (TMC). It is proposed to be built over the Cauvery River, which is why Tamil Nadu has been vehemently opposing it.

PARCHED BENGALURU

• According to a 2021 report, Karnataka at a Glance by the Directorate of Economics and Statistics, Bengaluru’s urban population was 96.21 lakh in 2011 and was projected to rise to 1.42 crore by 2021. Located in a semi-arid peninsular plateau region, the city relies heavily on two rivers, Cauvery and Arkavathi to meet its water needs.
• Bangalore Water Supply and Sewerage Board (BWSSB) calculates the demand for water to be 1,400 million per day (MLD).
• However, there have been several reports claiming that Bengaluru will go dry in the next few decades.
• An analysis by the Centre for Science and Environment (CSE) also found that the total number of extraction wells in the city had shot up from 5,000 to 4,50,000 in the past 30 years.
• The environmental perspective, it is hugely destructive to the Cauvery wildlife and river life.
• Reports by entities like NITI Aayog claiming that Bengaluru will be among India’s 21 cities to run out of groundwater soon sound alarmist.

THE PRELIMS PRACTICE QUESTIONS

QUESTIONS OF THE DAY 4^TH MARCH  2022

Q. Consider the following statements about Theyyam:

1. It is a popular ritual form of dance worship in Kerala.
2. It is only performed by males.
3. There is no stage for the performance.

Which of the given statements is/are correct?

a) 1 only

b) 2 and 3 only

c) 1 and 3 only

d) All of them

 ANSWER FOR 3^RD MARCH 2022

Answer: 1 & 2

Explanation:

THE CONTEXT: The United States has once again included India in its monitoring list of countries with potentially “questionable foreign exchange policies” and “currency manipulation”.The designation of a country as a currency manipulator does not immediately attract any penalties but tends to dent the confidence about a country in the global financial markets. This article discusses US’s currency watch list and its implications on India.

WHAT DOES THE TERM ‘CURRENCY MANIPULATOR’ MEAN?

• This is a label given by the US government to countries it feels are engaging in “unfair currency practices” by deliberately devaluing their currency against the dollar.
• The practice would mean that the country in question is artificially lowering the value of its currency to gain an unfair advantage over others.
• This is because the devaluation would reduce the cost of exports from that country and artificially show a reduction in trade deficits as a result.

ALL ABOUT US’s CURRENCY WATCH LIST

Why is India on the monitoring list?: 

The US Department of Treasury releases the semi-annual report where it has to track developments in international economies and inspect foreign exchange rates.

• India, which has for several years maintained a “significant” bilateral goods trade surplus with the US, crossed the $20 billion mark, according to the latest report.
• The bilateral goods trade surplus totaled $22 billion in the first four quarters through June 2020.
• Based on the central bank’s intervention data, India’s net purchases of foreign exchange accelerated notably in the second half of 2019.
• Following sales during the initial onset of the pandemic, India sustained net purchases for much of the first half of 2020, which pushed net purchases of foreign exchange to $64 billion–or 2.4% of GDP–over the four quarters through June 2020.

India and Singapore had intervened in the foreign exchange market in a “sustained, asymmetric manner” but did not meet other requirements to warrant designation as manipulators.

What are the parameters used: 

An economy meeting two of the three criteria in the Trade Facilitation and Trade Enforcement Act of 2015 is placed on the Watch List. This includes:

• A “significant” bilateral trade surplus with the US — one that is at least USD 20 billion over a 12-month period.
• A material current account surplus equivalent to at least 2% of gross domestic product (GDP) over a 12-month period.
• “Persistent”, one-sided intervention — when net purchases of foreign currency totaling at least 2% of the country’s GDP over a 12 month period are conducted repeatedly, in at least six out of 12 months.

Consequence: 

• Inclusion in the list does not subject to any kind of penalty and sanctions but it deteriorates the global financial image of the country in the financial markets in terms of foreign exchange policies including undervaluation of currencies to gain export advantages.
• According to some experts, the tag could lead to rupee appreciation as the Reserve Bank of India (RBI) might step back from its dollar purchases.

Other countries on the list:

• The US Department of the Treasury Office of International Affairs, in its latest report to the US Congress, has included India, Taiwan, and Thailand in its Monitoring List of major trading partners that “merit close attention” to their currency practices and macroeconomic policies.
• Other countries in the latest list comprise China, Japan, Korea, Germany, Italy, Singapore, and Malaysia.

UNDERSTANDING CURRENCY MANIPULATION

• Consider the laws of demand and supply. The value of a commodity rises when there’s considerable buying pressure and it tumbles when people start selling it en masse. It’s the age-old maxim that applies to almost everything you see around you, including currencies.
• So when the Reserve Bank of India shows an insatiable desire to buy the Indian currency by selling the US Dollar, then you are most likely to see an appreciation in its value. And when they start selling the rupee in exchange for dollars, then the value of our currency depreciates.
• In general, countries prefer their currency to be weak because it makes them more competitive on the international trade front.
• A lower currency makes a country’s exports more attractive because they are cheaper on the international market. For example, a weak Rupee makes Indian exports less expensive for offshore buyers.
• By boosting exports, a country can use a lower currency to shrink its trade deficit.
• A weaker currency alleviates pressure on a country’s sovereign debt obligations.
• After issuing offshore debt, a country will make payments, and as these payments are denominated in the offshore currency, a weak local currency effectively decreases these debt payments.

IMPACT ON INDIA

WAYFORWARD:

• India has traditionally tried to balance between preventing excess currency appreciation on the one hand and protecting domestic financial stability on the other.
• India being on the watch list could restrict the RBI in the foreign exchange operations it needs to pursue to protect financial stability. This comes when global capital flows threaten to overwhelm domestic monetary policy.
• The two most obvious consequences could be an appreciating rupee as well as excess liquidity that messes with the interest rate policy of the RBI.
• Other things remaining the same, government securities may also gain marginally as the RBI could choose OMOs to provide primary liquidity.

CONCLUSION:

• It will be a tall ask for India to be able to qualify all three conditions of the US Treasury to be tagged as a currency manipulator.
• Thus for India, it would not lead to any meaningful change in diplomatic and trade ties with the US. However, it may keep RBI somewhat guarded on aggressive forex intervention if capital flows continue to flood Indian shores, and thus could be mildly positive for the rupee.

JUST TO ADD IN YOUR KNOWLEDGE

EXCHANGE RATE

• The exchange rate is the price of one currency in terms of another currency.
• It often determines the affordability of buying or selling internationally. For instance, if one wants to buy a car produced in the U.S. that will involve two transactions: one, using rupees to buy dollars; two, using these dollars to buy the car.
• The exchange rate for any currency would be determined by the interplay of its demand and supply. For instance, if more Indians want to buy US goods, there would be a higher demand for the dollar relative to the rupee. This, in turn, would mean the dollar would be “stronger” than the rupee — and gain in strength as the demand increases.
• If demand falls, the dollar would depreciate relative to the rupee (or the rupee would appreciate relative to the dollar).
• Sometimes a central bank of a country intervenes to reduce wild fluctuations in the exchange rate. But excessive and undisclosed interventions are not considered fair.
• For instance, if China’s central bank buys dollars in the forex market, it can artificially weaken the yuan — and Chinese goods will then become more affordable (and competitive) in the international market.