DAILY CURRENT AFFAIRS (AUGUST 01, 2022)

THE INDIAN POLITY AND GOVERNANCE

1. HOUSE PANEL REVIEWS GOA CIVIL CODE

THE CONTEXT: According to sources, the parliamentary panel has reviewed Goa’s uniform civil code and some of its members feel that there are some peculiar and outdated provisions related to matrimony in it.
THE EXPLANATION:
• The Goa Civil Code, a set of civil laws that governs all residents of the coastal State irrespective of their religion and ethnicity, has come under focus amid a call for the implementation of a uniform civil code (UCC) across the country.
• Citing various positives of the Goa Civil Code, Chief Minister said earlier that it could be a model for implementing the UCC across the country.
What is UCC?
• The UCC refers to a common set of laws governing personal matters such as marriage, divorce, adoption, inheritance and succession, that will apply to all citizens irrespective of their religion, caste, and gender.
• The code comes under Article 44 of the Constitution, which lays down that the state shall endeavor to secure a Uniform Civil Code for the citizens throughout the territory of India.
• It is intended to replace the system of fragmented personal laws, which currently govern interpersonal relationships and related matters within different religious communities.

What Do We Have Now?
• Different religious communities in India are currently governed by a system of personal laws, which have been codified over the years through various pieces of legislation.
• These laws largely focus on the following areas: Marriage and divorce Custody and Guardianship, Adoption and Maintenance Succession and Inheritance.
• For example, Hindu personal law is codified in four bills: the Hindu Marriage Act, Hindu Succession Act, Hindu Minority and Guardianship Act, and Hindu Adoptions and Maintenance Act. The term ‘Hindu’ also includes Sikhs, Jains and Buddhists for the purpose of these laws
• Muslim personal law is not codified per se, and is based on their religious texts, though certain aspects of these are expressly recognized in India in acts such as the Shariat Application Act and Dissolution of Muslim Marriages Act.
• Christian marriages and divorces are governed by the Indian Christian Marriages Act and the Indian Divorce Act, while Zoroastrians are subject to the Parsi Marriage and Divorce Act.
• Then, there are more ‘secular’ laws, which disregard religion altogether, such as the Special Marriage Act, under which Inter-religion marriages take place, and the Guardians and Wards Act, which establishes the rights and duties of guardians.
• Furthermore, to protect distinct regional identities, the Constitution makes certain exceptions for the states of Assam, Nagaland, Mizoram, Andhra Pradesh and Goa with respect to family law.
• Goa is, at present, the only state in India with a uniform civil code.
• The Portuguese Civil Code of 1867, which continues to be implemented after India annexed the territory in 1961, applies to all Goans, irrespective of their religious or ethnic community.

2. ELECTORAL BONDS: PARTIES MOP UP OVER RS 10,000 CRORE SINCE 2018

THE CONTEXT: According to data available from State Bank of India (SBI), the donations to political parties through electoral bonds (EBs) have crossed the Rs 10,000-crore mark, with parties getting another Rs 389.5 crore through such bonds in the 21st sale of EBs conducted between July 1 and 10 2022.
THE EXPLANATION:
• With this, the total amount collected by parties has gone up to Rs 10,246 crore from various anonymous donors in 21 phases since 2018 when the EB scheme was introduced.
• Political parties received EBs worth Rs 648.48 crore from donors in the previous sale in April this year.
• As many as 475 EBs worth Rs 389.5 crore were redeemed by parties in the latest phase, SBI, the only bank authorised to sell these bonds, according to RTI sources. Significantly, this amount has been collected by the political parties even though no election is scheduled in any of the states in the near future.
• As per the provisions of the EB Scheme, only the political parties registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951) and have secured not less than 1 per cent of the votes polled in the last general election to the House of the People or the Legislative Assembly, as the case may be, are eligible to receive electoral bonds.
• Non-governmental organisations (NGOs) — Common Cause and Association for Democratic Reforms (ADR) — have legally challenged the scheme that was started in 2018. They, along with several other critics, have been alleging that the introduction of electoral bonds is “distorting democracy” in India. The Supreme Court has agreed to take up for hearing a pending plea challenging the scheme. Only 23 political parties are eligible for redemption of electoral bonds.
• According to the ADR, in the case of continuance of the Scheme, the principle of anonymity of the bond donor enshrined in the Electoral Bond Scheme, 2018 must be done away with. “All political parties which receive donations through Electoral Bonds should declare in their Contributions Reports the total amount of such donations received in the given financial year, along with the detailed particulars of the donors as against each Bond; the amount of each such bond and the full particulars of the credit received against each bond”.
VALUE ADDITION:
What are electoral bonds?
• Electoral Bond is a financial instrument for making donations to political parties.
• The bonds are available for purchase by any person (who is a citizen of India or incorporated or established in India) for a period of ten days each in the months of January, April, July and October as may be specified by the Central Government.
• These can be redeemed only by an eligible party by depositing the same in its designated account maintained with a bank. The bonds are issued by SBI in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore

3. IPC SECTION 295A

THE CONTEXT: Amid controversy surrounding the comments by Political Spokespersons Nupur Sharma and Naveen Jindal has put the spotlight on the law that deals with criticism of or insult to religion. Provisions in the Indian Penal Code (IPC), primarily Section 295A, define the contours of free speech and its limitations with respect to offences relating to religion.

What is IPC Section 295A?
Section 295A defines and prescribes punishment for deliberate and malicious acts, intended to outrage religious feelings of any class by insulting its religion or religious beliefs.
• “Whoever, with the deliberate and malicious intention of outraging the religious feelings of any class of citizens of India by words, either spoken or written, or by signs or by visible representations or otherwise, insults or attempts to insult the religion or the religious beliefs of that class, shall be punished with imprisonment of either description for a term which may extend to [three years], or with fine, or with both.”
• Simply put, Section 295A is one of the key provisions in the IPC chapter to penalize religious offences.
• The chapter also includes offences to penalize damage or defilement of a place of worship with intent to insult the religion (Section 295); trespassing in a place of sepulture (Section 297); uttering, words, etc, with deliberate intent to wound the religious feelings of any person (Section 298); and disturbing a religious assembly (Section 296).
• Section 295A has been invoked on a wide range of issues from penalizing political satire and seeking bans on or withdrawal of books to even political critique on social media.
Note: India does not have a formal legal framework for dealing with hate speech. However, a cluster of provisions, loosely termed hate speech laws, are invoked. These are primary laws to deal with offences against religions.

What are the other similar Sections or Provisions?
• Section 153A IPC penalizes ‘the promotion of enmity between different groups on grounds of religion, race, place of birth, residence, language, etc., and doing acts prejudicial to maintenance of harmony.
• Section 153B IPC penalises ‘imputations, assertions prejudicial to national-integration’.
• Section 505 of the IPC punishes statements conducing to public mischief.
Part VII of the Representation of People Act, 1951 classifies hate speech as an offence committed during elections into two categories: corrupt practices and electoral offences. The relevant provisions regarding hate speech in the RPA are Sections 8, 8A, 123(3), 123(3A) and 125.
• Model Code of Conduct (MCC) Item 1 (General Conduct)- prohibits parties and candidates from making any appeals to caste or communal feelings for securing votes.
Section 66A of the Information Technology Act – In cases of hate speeches online, the section punishes sending offensive messages through communication services is added. In a landmark verdict in 2015, the Supreme Court struck down Section 66A as unconstitutional on the ground that the provision was “vague” and a “violation of free speech”. However, the provision continues to be invoked.

Why is Rangila Rasool case important ?
• Section 295A was brought in 1927. The case which becomes important as it is linked to the origin of Section 295A is the Rangila Rasool case.

THE INTERNATIONAL RELATIONS

4. INDIA, OMAN TO HOLD MILITARY EXERCISE

THE CONTEXT: India and Oman will carry out a nearly two-week military exercise beginning August 1, 2022 with a focus on counter-terror cooperation.
THE EXPLANATION:
• The exercise, ‘AL NAJAH-IV’, will take place in the Mahajan field firing ranges in Rajasthan from August 1 to 13.
• A 60-member team from the Royal Army of Oman has arrived at the site of the exercise.
• The Defence Ministry said the joint military exercise aims to enhance the level of bilateral defence cooperation.
AIM:
• “The joint exercise would focus on counter-terrorism operations, regional security operations and peacekeeping operations under United Nations charter apart from organising joint physical training schedules, tactical drills, techniques and procedures.
• It said the scope of the exercise includes “professional interaction, mutual understanding of drills and procedures, the establishment of joint command and control structures and elimination of terrorist threats”.

THE ECONOMIC DEVELOPMENTS

5. INDIA’S JUTE ECONOMY IS FALTERING WHILE BANGLADESH’S IS FLOURISHING

THE CONTEXT: According the third advanced estimates released by the Union Ministry of Agriculture and Farmers Welfare in May 2022. Production of the cash crop has fallen by over 13 per cent in the past decade — 1.77 million tonnes in 2021-22, from 2.03 million tonnes in 2011-12.
THE EXPLANATION:
• The same is the case with land under jute. The average area under jute in the country was 0.82 million ha between 2000-01 and 2009-10, according to a 2021 report by the Commission for Agricultural Costs and Prices (CACP). This declined to 0.73 million ha between 2010-11 and 2019-20.
• In West Bengal — the country’s largest jute-producing state, which also has 70 of India’s 93 jute mills — the area under jute has reduced by 0.1 million ha between 2009-10 and 2020-21.
• According to farmers “the jute price kept falling. From Rs 30,000-40,000 per tonne in late 2000s, it reduced to Rs 25,000 in 2010-11. This was barely enough to recover the input cost,” he said. Other farmers in the village agreed that jute stopped fetching fair price and was even causing losses.
An Analysis:
• When the prices fell, the Jute Corporation of India (JCI) Ltd, a Government of India enterprise for procurement of raw jute from the growers at the minimum support price, barely intervened.
• This reflected in official procurement figures as well. Between 2007-08 and 2021-22, the quantity procured by JCI decreased to 0.014 million tonnes, from 0.14 million tonnes.
• The poor procurement figures came despite the government being the largest buyer of jute bags, which form the highest share of the total jute products manufactured in the country.
• There is a special law — the Jute Packaging Materials (Compulsory Use in Packing Commodities) Act 1987 (JPMA) — that provides for use of jute packaging material for foodgrains. Under this Act, the government issues orders from time to time for mandatory use of jute packaging.
• Since 2017, the norms provide that 100 per cent of foodgrains and 20 per cent of sugar should only be packed in jute bags. Due to this, jute sacks account for 75 per cent of the total production of the jute industry.
• Ninety per cent of the jute sacks are supplied to the Food Corporation of India and state procurement agencies, according to a Union government press release dated November 10, 2021, while the remaining are exported or sold directly. It also says the government purchases jute sacks worth Rs 8,000 crore every year from mills.
VALUE ADDITION:
• India is the world’s biggest producer of jute , followed by Bangladesh. Jute is primarily grown in West Bengal, Odisha, Assam, Meghalaya, Tripura and Andhra Pradesh.
• The jute industry in India is 150 years old. There are about 70 jute mills in the country, of which about 60 are in West Bengal along both the banks of river Hooghly.
• Jute production is a labour intensive industry. It employs about two lakh workers in the West Bengal alone and 4 lakh workers across the country.
• Jute is the second most abundant natural fibre in the world. It has high tensile strength, acoustic and thermal insulation, breathability, low extensibility, ease of blending with both synthetic and natural fibres, and antistatic properties.
• Jute can be used: for insulation (replacing glass wool), geotextiles, activated carbon powder, wall coverings, flooring, garments, rugs, ropes, gunny bags, handicrafts, curtains, carpet backings, paper, sandals, carry bags, and furniture.
• A ‘Golden Fibre Revolution’ has long been called for by various committees, but the jute industry is in dire need of basic reforms.

THE SCIENCE AND TECHNOLOGY

6. DEBRIS FROM CHINESE ROCKET FALLS TO EARTH

THE CONTEXT: Recently, the Chinese rocket fell back to Earth on over the Indian Ocean, but NASA said Beijing had not shared the “specific trajectory information” needed to know where possible debris might fall.
THE EXPLANATION:
• The Long March 5B blasted off July 24, 2022 to deliver a laboratory module to the new Chinese space station under construction in orbit, marking the third flight of China’s most powerful rocket since its maiden launch in 2020.
• U.S. Space Command said the Long March 5B said the rocket re-entered over the Indian Ocean but referred questions about “reentry’s technical aspects such as potential debris dispersal impact location” to China.
• Earlier analysts said the rocket body would disintegrate as it plunged through the atmosphere but is large enough that numerous chunks will likely survive a fiery re-entry to rain debris over an area some 2,000 km (1,240 miles) long by about 70 km (44 miles) wide.
VALUE ADDITION:
What is space junk?
• Space junk, or space debris, is any piece of machinery or debris left by humans in space.
• It can refer to big objects such as dead satellites that have failed or been left in orbit at the end of their mission. It can also refer to smaller things, like bits of debris or paint flecks that have fallen off a rocket.
• Some human-made junk has been left on the Moon, too.
How much space junk is there?
While there are about 2,000 active satellites orbiting Earth at the moment, there are also 3,000 dead ones littering space. What’s more, there are around 34,000 pieces of space junk bigger than 10 centimetres in size and millions of smaller pieces that could nonetheless prove disastrous if they hit something else.

Concerns
• Can be a hazard to active satellites and spacecraft.
• At orbital velocities, even the tiniest pieces of debris can disable an operational satellite.
• Potential collision threat to the space station.
• Earth orbit could even become impassable if the risk of collision grows too high.
• It could hinder our ability to use weather satellites, and hence to monitor weather changes.
• Currently, an estimated 20,000 objects—including satellites and space debris—are crowding low-Earth orbit.

PRELIMS PERSPECTIVE

Kessler syndrome
• This is an idea proposed by NASA scientist Donald Kessler in 1978.
• It says if there is too much space junk in orbit, it could result in a chain reaction where more and more objects will collide and create new space junk in the process, to the point where Earth’s orbit became unusable – a Domino Effect.
• 12 fragmentation events have already taken place every year for the past two decades.

THE PRELIMS PRACTICE QUESTIONS

QUESTIONS OF THE DAY

Q. Consider the following statements with respect to the electoral Bonds:
1. The bonds are issued by SBI in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore.
2. These bonds are available for purchase all over the year.
Which among the above statements is/are incorrect?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2

ANSWER FOR THE PRACTICE QUESTION

ANSWER: B
EXPLANATION:
ELECTORAL BONDS
• Electoral Bond is a financial instrument for making donations to political parties.
The bonds are available for purchase by any person (who is a citizen of India or incorporated or established in India) for a period of ten days each in the months of January, April, July and October as may be specified by the Central Government.
• These can be redeemed only by an eligible party by depositing the same in its designated account maintained with a bank. The bonds are issued by SBI in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore.




Ethics Through Current Development (01-08-2022)

  1. Are you putting your time to good use? READ MORE
  2. VIOLENT BELIEFS MUST BE REJECTED BY ALL READ MORE



Today’s Important Articles for Geography (01-08-2022)

  1. Karnataka plans to de-notify large tracts of forest land even as it sets ambitious green targets READ MORE
  2. The Supreme Court verdict on mandatory eco-sensitive zones will help forest conservation in India READ MORE
  3. Why the Bedti-Varada river inter-linking project is not technically feasible READ MORE



Today’s Important Articles for Sociology (01-08-2022)

  1. India’s natural farming policy should recognise women’s new role READ MORE
  2. NEP 2020: execution is key to its success READ MORE



Today’s Important Articles for Pub Ad (01-08-2022)

  1. PMLA verdict, an erosion of constitutional buffers READ MORE
  2. Making ease of justice a reality READ MORE
  3. Regulate, not ban, for safe drinking READ MORE
  4. Reassert democratic values READ MORE
  5. ED just got more teeth READ MORE



WSDP Bulletin (01-08-2022)

(Newspapers, PIB and other important sources)

Prelim and Main

  1. New e-waste rules threaten jobs, collection network READ MORE
  2. Meghalaya favours Chinese smart meters: Trinamool READ MORE
  3. Chinese research vessel to dock at Hambantota port in August READ MORE
  4. HAL to supply 12 light utility helicopters to armed forces READ MORE
  5. CoWin to gird universal immunisation READ MORE
  6. Electoral bonds: Parties mop up over Rs 10,000 crore since 2018 READ MORE
  7. Neighbour’s envy: India’s jute economy is faltering while Bangladesh’s is flourishing; here’s why READ MORE

Main Exam

GS Paper- 1

  1. India’s natural farming policy should recognise women’s new role READ MORE

GS Paper- 2

POLITY AND GOVERNANCE

  1. PMLA verdict, an erosion of constitutional buffers READ MORE
  2. Making ease of justice a reality READ MORE
  3. Regulate, not ban, for safe drinking READ MORE
  4. Reassert democratic values READ MORE
  5. ED just got more teeth READ MORE

SOCIAL ISSUES

  1. NEP 2020: execution is key to its success READ MORE

INTERNATIONAL ISSUES

  1. Diplomacy comes of age: India poised for integration into the international system READ MORE
  2. How Does the Sanction Waiver to India Aid US’ Strategic Interests? READ MORE
  3. Bringing Eurasia closer: The International North South Transport Corridor, which aims to bring Eurasia closer together, is a laudable initiative READ MORE

GS Paper- 3

ECONOMIC DEVELOPMENT

  1. India’s ‘wheat waiver’ WTO demand is risk-fraught READ MORE
  2. Core constraints: Infrastructure sectors’ headline growth may be robust, but is not broad-based yet READ MORE
  3. Explained: India’s unique jobs crisis READ MORE
  4. On food inflation, the humble tomato has challenged the mighty RBI READ MORE
  5. Prepare well for rupee internationalization READ MORE

ENVIRONMENT AND ECOLOGY

  1. Karnataka plans to de-notify large tracts of forest land even as it sets ambitious green targets READ MORE
  2. The Supreme Court verdict on mandatory eco-sensitive zones will help forest conservation in India READ MORE
  3. Why the Bedti-Varada river inter-linking project is not technically feasible READ MORE

TECHNOLOGY

  1. 5G auction: Who is the winner? READ MORE

DISASTER MANAGEMENT

  1. The great Indian paradox READ MORE

GS Paper- 4

ETHICS EXAMPLES AND CASE STUDY

  1. Are you putting your time to good use? READ MORE
  2. VIOLENT BELIEFS MUST BE REJECTED BY ALL READ MORE

Questions for the MAIN exam

  1. ‘India’s ‘wheat waiver’ stand in WTO will dilute its core agenda of pushing for a permanent solution to public stockholding for food security’. Critically examine.
  2. How far do you agree with this view that Indian policymakers in international affairs are facing moral indecisiveness, diplomatic reticence and ideological confusion and this is making a shift in foreign policy from non-alignment to multi-alignment? Analyse your view.
  3. ‘Monetary policy cannot bring food inflation under control thus, curbing inflation requires streamlining value chains’. Justify.

QUOTATIONS AND CAPTIONS

  • Study history, study history. In history lies all the secrets of statecraft.
  • PMLA verdict enables the reintroduction of an ‘unconstitutional’ law and also holds that the linked bail conditions are not arbitrary.
  • India’s criminal justice system is built on a set of received axioms that are inherent to the basic precepts of justice and fairness.
  • India’s ‘wheat waiver’ WTO a stand will dilute its core agenda of pushing for a permanent solution to public stockholding for food security.
  • Negotiations at the WTO require crystal clarity of the core objectives that should be relentlessly pursued.
  • Indian policymaking in international affairs has often been criticised for its moral indecisiveness, diplomatic reticence and ideological confusion.
  • India’s founding role in both the INSTC and the Quad exemplify its departure from non-alignment to multi-alignment. The INSTC offers a platform for India to closely collaborate with Russia, Iran and Central Asian republics.
  • Monetary policy cannot bring food inflation under control. Curbing inflation in tomatoes, onions and potatoes requires streamlining their value chains.
  • Address the gaps in the judicial and police system to ensure all undertrials can access legal rights.
  • The Supreme Court has upheld the amendments to PMLA with a caveat that it must be used judiciously.
  • New Education Policy 2020, if implemented in true spirit, could help transform education for skill-based society.

50 WORD TALK

  • Spurious liquor deaths in Gujarat are the result of the hypocritical moralism guiding India’s liquor policies. Prohibition, or high taxes on country liquor, only drive the poor to bootleggers. Three Indians, on average, die of toxic liquor every day. True, alcohol abuse kills—but prohibition is, perversely, adding to the death toll.

Things to Remember:

  • For prelims-related news try to understand the context of the news and relate with its concepts so that it will be easier for you to answer (or eliminate) from given options.
  • Whenever any international place will be in news, you should do map work (marking those areas in maps and exploring other geographical locations nearby including mountains, rivers, etc. same applies to the national places.)
  • For economy-related news (banking, agriculture, etc.) you should focus on terms and how these are related to various economic aspects, for example, if inflation has been mentioned, try to relate with prevailing price rises, shortage of essential supplies, banking rates, etc.
  • For main exam-related topics, you should focus on the various dimensions of the given topic, the most important topics which occur frequently and are important from the mains point of view will be covered in ED.
  • Try to use the given content in your answer. Regular use of this content will bring more enrichment to your writing.



Day-256 | Daily MCQs | UPSC Prelims | HISTORY OF ANCIENT INDIA

[WpProQuiz 300]




TOPIC : THE ISSUE OF RUPEE DEPRECIATION AND ITS IMPACT ON INDIAN ECONOMY

THE CONTEXT: The Indian Rupee has depreciated nearly 10% since the beginning of the year and is making headlines, especially after falling below the psychological mark of 78 against the dollar. In this article, we will analyse the causes and impacts of rupee depreciation.

UNDERSTANDING EXCHANGE RATE THROUGH

DEMAND AND SUPPLY THEORY

 “Demand-Supply Theory” theory asserts that the rate of exchange is the function of the supply of and demand for foreign money and not exclusively the function of prices obtained between two countries.

According to this theory, when the supply of the dollar is reduced, then the more Rupee present in the market chase this less dollar, then Rupee weakens and depreciates. The reasons for the present reduced supply of dollars are given below.

FIVE TIMES RUPEE DEPRECIATION SINCE 2010: INDICATES THE VULNERABILITY OF THE RUPEE

INSTANCES OF RUPEES DEPRECIATION

  • First Rupee depreciation occurred in 2011
  • The second Rupee depreciation occurred in 2012
  • Third Rupee Depreciation occurred in 2013
  • Rupee depreciation in 2018
  • Rupee depreciation in 2022

REASONS ASSOCIATED WITH THE DEPRECIATION

  • It was triggered by the Euro debt crisis
  • It was triggered by the likelihood of Greece’s exit from the Eurozone and global credit freeze.
  • It was triggered by the increased likelihood of the US federal’s Tapering off the quantitative easing programme.
  • Sudden spurt in crude oil prices, reversal of capital flow, Widening current account deficit.
  • Sudden spurt in crude oil prices, reversal of capital flow, Russia-Ukraine war

REASONS

Global Reason

  • Strengthening of US dollar: the US is keen to speed up its monetary policy ‘normalization’ by raising the interest rates by 75 basis points which encouraged American investors to pull out their money from emerging markets like India and invest in the domestic markets.
  • Higher commodity prices (Crude Oil and edible oil):  The hostilities and difficult geopolitical issue between nations like USA-Iran hostility is impacting the price of commodities. As India is one of the largest importers of these commodities, these are impacting India’s currency.
  • The war between Russia- and Ukraine is another major reason for Rupee Depreciation. Due to the war, the supply chain was interrupted. Hence, India, which is among the major importers affected by this development negatively.
  • Rise In Dollar Buying Due To Jump In Oil Prices: India is a net importer of crude oil. Since global oil prices have spiked more than 60% since the start of 2022, Indian companies have to shell out more dollars. It means increased demand for dollars and, consequently, a weaker rupee.
  • According to the remittance report provided by RBI, the rate of growth of remittance is less compared to the past year.
  • Trends in other markets: The Rupee is also following the trend seen in the currencies of other emerging economies such as Turkey, Indonesia, Russia and South Africa.

Domestic Reasons

  • Widening current account deficit: This is resulting in creating more actual as well as speculative demand for the dollar and other convertible currencies.
  • Growth slowdown: India’s gross domestic product (GDP) growth fell as a result of the lockdown.
  • Speculative trading: Speculative trading in the currency markets is putting further pressure on the Indian Rupee
  • The weak Investment environment in India due to High NPA. This has affected Indian Industry’s export potentials.
  • Supply of Rupee in the Indian market: During and After the pandemic, the government announced many initiatives and schemes like Atmanirbhar Bharat, which increased the money supply in market. Moreover, RBI reduced the repo rate to 4% to increase the money supply. Such steps weaken Indian Rupee against the dollar.

IMPACT OF RUPEE DEPRECIATION

On Export 

  • A common belief while the Rupee depreciates against the dollar is that it would help our exports. This argument is based on textbook economics. But in the present context, compared to India, this argument does not hold true.
  • As India is facing structural issues in the industry, Hence export is not being competitive to promote the export.
  • If export increases, This brings the foreign reserve into India. That provides required forex to manage the deepening Current Account Deficit(CAD)

On Import

  • Imports become expensive as the importer needs to pay more rupees for the dollars billed. Industries linked to imports (or having vital components of their product imported) have to bear higher input cost, which is ultimately passed on to the end-users. This impact leads to inflation.
  • Petroleum is India’s largest import item. Any price rise in petroleum has a trickle-down effect on the cost of goods where transportation is an important component of the cost. For example, food grains and vegetables. Similarly, for industries where petroleum products are the major input factors.

ON Investment

  • The fund rising through external commercial borrowing (ECB) becomes costly. As the Interest has to be paid higher under the depreciating Rupee.
  • Rating agencies may reduce the sovereign rating of the companies.
  • The rupee depreciation will directly affect the balance sheets and credit profiles of such corporates that have issued securities without proper hedging currency risks. These corporations may find it difficult to service their foreign-currency debt and may suffer huge losses due to an increase in repayment burden.
  • Foreign Portfolio Investors have pulled out nearly Rs 48,000 crore from Indian capital markets in the first six months of 2018, making it the steepest outflow in a decade.

 Impact on other sectors

  • Demands may further fall due to high prices leading to recession.
  • Abroad trips and Foreign studies become costly.
  • Domestic tourism could grow as more tourists visit India since their currency can now buy more with respect to the Rupee.
  • In the medium term, Export-oriented industries may create more jobs.

 STEPS TAKEN BY RBI IN SUCH A SITUATION

CHANGING MONEY SUPPLY

  • RBI does it by lowering or raising the mandatory Cash Reserve Ratio (CRR) for commercial banks.
  • When the CRR limit is reduced, banks have more money for lending. This increases spare money with the bank. When the CRR limit is raised, the effect is vice versa.
  • When banks have more money, more loans are issued. People/businesses, in turn, spend more (control overspending). When spending increases, GDP grows faster. Foreign investment flows in. Demand for INR increases, and it becomes stronger.
  • To maintain this situation, RBI is following a moderate monetary policy and the current repo rate is 4.90 percent.

CONTROLLED INFLATION

  • RBI does it by lowering or raising the mandatory Cash Reserve Ratio (CRR) for commercial banks.
  • When the CRR limit is reduced, banks have more money for lending. This increases spare money with the bank. When the CRR limit is raised, the effect is vice versa. When banks have more money, more loans are issued. People/businesses, in turn, spend more (control overspending). When spending increases, GDP grows faster.
  • Foreign investment flows in. Demand for INR increases, and it becomes stronger.
  • To maintain this situation, RBI is following a moderate monetary policy and the current repo rate is 4.90 percent.

INTEREST RATES

  • This is another tool (Repo Rate) that which government alters to control inflation and economic activity. When the repo rate is low, banks borrow more money from RBI.
  • When banks have more money, they lend more money to people/businesses. This way, spending increases in the country; hence government collect more taxes. More spending also leads to higher GDP growth (GDP & tax revenue).
  • A balance between GDP growth and low inflation will bring in more foreign investments to India. This leads to a stronger Indian currency.
  • In post-pandemic time, RBI is following a moderate monetary policy with a marginal interest rate to boost the economy.

OTHERS

  • The RBI announced a series of measures, including relaxation in foreign investment in debt, external commercial borrowings, and Non-Resident Indian deposits.
  • RBI has allowed banks temporarily to raise fresh Foreign Currency Non-Resident Bank and Non-Resident External deposits without reference to the current regulations on interest rates, from July 7, 2022, to October 31, 2022.
  • The RBI brought in the measures in all the said segments to alleviate dollar tightness with the objective of ensuring orderly market functioning. The new measures are expected to boost inflows as nearly a third of India’s external debt will be due for maturity in the coming months.

 THE WAY FORWARD

  • In order to keep its own economic stability in globalized world, India should actively engage and lead discussions on addressing the shortcoming of current international monetary and financial arrangements through international cooperation. For this, Global forums like G-20, World Economic Forum etc., would form a base.
  • India should develop a robust policy framework which provides for sufficient policy space when responding to external shocks like Rupee depreciation.
  • India needs to develop an appropriate monitoring system to detect where financial vulnerability is building up.
  • In the long term India should promote Make in India and address structural issues (like labor reforms, tax reforms etc.) to make India more competitive in the export sector. This helps in the long term as a cushion against future rupee depreciation.
  • Allowing External Commercial Borrowing (ECB) up to $50 million with minimum maturity from 3 years to 1 year.
  • Currency swap arrangement with major oil exporting countries. This helps both countries to stabilize the oil trade.

THE CONCLUSION: Financial market volatility is here to stay as advanced economies are unwinding years of monetary policies. The growing trade tensions between US and China could severely undermine the multilateral trading system. These global developments will continue to exert downward pressure on the Rupee in the coming months. It is therefore imperative for Indian policymakers to prepare for all eventualities.

Question:

  1. What are the reasons behind the recent depreciation of the Indian currency against the dollar? How will it impact the Indian economy?
  2. Discuss the impact of Rupee depreciation on India’s foreign trade.
  3. How the depreciation of any country’s currency affects its economy? In India’s case, what measures should be taken by RBI as well as government to improve the health of the Indian currency?