1. NEW COLLECTIVE QUANTIFIED GOAL ON CLIMATE FINANCE

TAG: GS 3: ENVIRONMENT

THE CONTEXT: The recently-concluded Bonn climate conference in Germany, expected to outline the political agenda for the crucial end-of-year Conference Of Parties-28 (COP28) in Dubai, was critical for reviewing and reforming the climate finance architecture.

EXPLANATION:

What is the NCQG?

• A commitment of ‘$100 billion per year till 2020’ to developing nations from developed countries was a target set at the Conference of Parties (COP) in 2009.
• But estimates since then show addressing climate change may cost billions, and even, trillions of dollars.
• Therefore, the 2015 Paris Climate Agreement agreed on setting a New Collective Quantified Goal (NCGQ) for climate financing prior to 2025 a reference point which accounts for the needs and priorities of developing nations.
• The NCGQ is thus, termed the “most important climate goal”. It pulls up the ceiling on commitment from developed countries, is supposed to anchor the evolving needs and priorities of developing countries based on scientific evidence and should respond “to the ever-increasing sums of funding necessary for Loss and Damage in response to failed and/or delayed financial support.
• It is stated under paragraph 53 of Decision 1/CP.21 that “developed countries intend to continue their existing collective mobilization goal through 2025 in the context of meaningful mitigation actions and transparency on implementation.” All actors, from Parties to non-state stakeholders, must work together to create a bolder commitment to climate finance with the necessary tools and capacities to reduce adaptation and mitigation gaps and avoid any further loss and damage (L&D), in aid of climate-resilient development.

Guiding principles

• The formulation and operationalization of the NCQG need to be bound within the UNFCCC and the Paris Agreement, anchored on climate justice.

• The new goal must be grounded on the long-established principles of the “polluter pays”, common but differentiated responsibilities and respective capacities, and intergenerational justice. It must be inclusive of the needs and priorities of developing countries and the most vulnerable sectors and communities (from both developed and developing nations), using the lens of gender, youth, indigenous peoples, and other highly-vulnerable sectors.
• It should also be primarily based on national climate policies and plans, such as the Nationally Determined Contributions (NDCs) and National Adaptation Plans (NAPs). All established financial glows must abide by Article 2.1c of the Paris Agreement, where Parties agreed to “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”

• The NCQG must be regularly updated to reflect the changing needs of developing countries and the most vulnerable sectors.

• Climate finance is never static, as risks, vulnerabilities, social, economic, and environmental conditions, development goals, and corresponding needs for adaptation and mitigation evolve as a response to GHG emissions, climate change impacts, and among themselves.
• The quantitative and qualitative characteristics of the new goal to be determined by 2025 must reflect the dynamic nature and interlinkages between and among impacts, solutions, and stakeholders relevant to developing countries, with subsequent finance goals being updated to cover changes to these factors and actors.

Structure and components

• The NCQG must be established as a matrix that categorizes targets according to the three pillars of climate action. These pillars are mitigation, adaptation, and L&D, with a specific list of quantitative and qualitative sub-goals listed under each of these components that differentiates needs for direct (i.e., project funding) and indirect (i.e., investments) modes of finance.
• Gaps, needs, and priorities must be based on what developing countries indicated in their policy documents under the UNFCCC, including NDCs, NAPs, and National Communications. With the understanding that current metrics for mitigation are mostly quantitative and those for adaptation are qualitative, the resulting formats for reporting data under the NCQG must reflect these characteristics.
• The funding allocated for adaptation and resilience must be at least half of the NCQG.
• Despite Article 9.4 of the Paris Agreement stating the need for a financing balance between mitigation and adaptation, the latter has been underfunded. The lack of adaptation finance places billions of people, especially those in Least Developed Countries and Small-Island Developing States, at even higher climate risk and worsens vulnerabilities that perpetuates climate injustices. Developed countries must commit to ensuring that at least 50% of the new goal will be dedicated to adaptation, with this percentage evolving in subsequent settings of the NCQG depending on global and national circumstances related to adaptation and mitigation.
• The NCQG must include allocated finance for averting or minimizing loss and damage. L&D must be officially recognized at COP27 as the third pillar of climate action and finance, separate from adaptation and mitigation, in words as much as in actions. Key to this call is the establishment of a L&D finance mechanism at COP27, which is vital to the survival of the victims of sudden onset disasters and slow onset events.
• Aligned with the justice and rights-based principles that are also reflected within the UNFCCC and the Paris Agreements, modalities under this finance facility must be grants-based, needs-based, gender-responsive, comprehensive in coverage of economic and non-economic L&D, and driven by inputs from those experiencing L&D themselves.
• The NCQG must allocate a portion of the finance in advancing climate change education. Education is the foundation on which to build the road to climate resilience and low- emissions sustainable development, a vital component of adaptation that strengthens multiple facets of climate action, especially long-term competencies, continuity within the climate sphere, and intergenerational justice.
• A fund under the NCQG must be allotted to support the implementation of the Glasgow Work Programme, which was adopted at COP26 to enhance the implementation of Action for Climate Empowerment (ACE), as defined under Article 6 of the UNFCCC. The decision-making process in determining this “ACE Fund” must include youth representation and be largely driven by the inputs of this sector.
• The NCQG must increase every five years and embedded with monitoring, review, transparency, and accountability mechanisms. Updating the NCQG post-2025 should be based on the findings of the latest Global Stocktake (GST) through an evidence-based, comprehensive, regular, and inclusive review process. This must result in higher ambition and corresponding pledges for the next collective goal to be set, aligned with the principle of increasing ambition as stipulated within the Paris Agreement. Spaces and mechanisms must be placed such that the inputs of non-state actors, especially civil society groups and the most vulnerable communities and sectors, are meaningfully integrated into the process.
• Standardized terminologies, methodologies, formats, and communications of NCQG-related pledges by developed countries and other funding stakeholders must also be established to obtain as accurate of an assessment of the progress being made as possible, and avoid double- counting that dilutes the intended impact of such financing and collective pursuit of addressing the climate crisis, especially for developing countries.

2. NATIONAL MEDICAL COMMISSION (NMC)

TAG: PRELIMS PERSPECTIVE

THE CONTEXT: While first year MBBS classes are likely to begin on August 1 of each year, the National Medical Commission (NMC) has also brought in changes in the undergraduate medical curriculum with the latest overhaul bringing in time limit on completing the MBBS course (by 9 years), fixed number of attempts to clear failed papers, compulsory attendance for both theory and practical papers and a family outreach programme.

EXPLANATION:

• Additionally, some subjects, including biochemistry and microbiology, have seen a reduction in the number of papers that need to be taken by the students.
• Reacting to the changes, senior doctors expressed fear that medical education is growing in its dependency on coaching institutes while medical students feel the changes are welcome.
• Meanwhile, as per the latest format, the four-and-half-year MBBS course will be divided into three phases with first and second phases of 12 months each, and phase three will be of 30 months — part I of 12 months and part II of 18 months.
• Each academic year will have at least 39 teaching weeks with a minimum of eight hours of study on each day and a total of 15 hours per week clinical posting is necessary from second year onwards. A minimum of 75% attendance in theory and 80% in practical or clinical is must for eligibility to appear for the examinations in that subject.
• Students failing in university examinations at the end of each professional year will appear in supplementary exams. As per the guidelines, supplementary exam results will be processed within three to six weeks from the date of declaration of the results of the main examination for every professional year, so that the candidates who pass can join the main batch for progression. The council has also specified the time that can be taken for clearing supplementary papers at various stages.
• Also, the National Exit Test (NExT), a comprehensive computer-based examination, that will replace the corresponding existing examinations for medical graduates in India, is to be conducted in December-January in the subjects of General Medicine, General Surgery, Ophthalmology, Obstetrics and Gynaecology, among others. NExT is also set to replace the NEET-PG entrance exams in India after 2023.

National Medical Commission (NMC)

• The National Medical Commission (NMC) has been constituted by an act of Parliament known as National Medical Commission Act, 2019.
• The Board of Governors in supersession of Medical Council of India constituted under section 3A of the Indian Medical Council Act, 1956 stands dissolved thereafter.
• While the MCI members were elected from within the medical community, the members of the NMCwere to be appointed by the government. NMC was thus prone to politicization of its very governing structure. It also summarily eroded the medical fraternity’s privilege of self-regulation.
• The Aim of the National Medical Commission are to (i) improve access to quality and affordable medical education, (ii) ensure availability of adequate and high quality medical professionals in all parts of the country; (iii) promote equitable and universal healthcare that encourages community health perspective and makes services of medical professionals accessible to all the citizens; (iv) encourages medical professionals to adopt latest medical research in their work and to contribute to research; (v) objectively assess medical institutions  periodically in a transparent manner; (vi) maintain a medical register for India; (vi) enforce high ethical standards in all aspects of medical services; (vii) have an effective grievance redressal mechanism.

3. INSOLVENCY RESOLUTION PROCESS

TAG: GS 3: ECONOMY

THE CONTEXT: The low-cost airline Go First (originally GoAir) filed for the initiation of insolvency proceedings recently. The company had been struggling with engine troubles for some time, which had led to the grounding of a large number of its aircraft. The percentage of grounded aircraft had risen from 7% of Go First’s fleet in December 2019 to 50% in December 2022. As a consequence, the market share of the airline crashed from 11% in November 2019 to 6.9% in March 2023. This significantly affected its cash flows, weakening its ability to meet its obligations.

EXPLANATION:

• A revival plan is reportedly in the works. But airfares are as of now through the roof, and the IBC process has been slower and less productive than expected. The longer this process is delayed, the more will be the value lost, and the more difficult it will be to restart operations.
• It is a struggling company’s financial creditors (banks) and operational creditors (who supply goods and services) who typically initiate proceedings under The Insolvency and Bankruptcy Code (IBC), 2016 for non-payment of their dues. In Go First’s case, however, it was the company that filed for the initiation of these proceedings. The airline had not defaulted on its loan repayments to banks, but had reportedly defaulted on obligations to its operational creditors.

 What is the Insolvency and Bankruptcy Code?

• In 2016, the government put in place a framework to deal with the problem of bad loans in the country’s banking system. The IBC provides a framework for a time-bound resolution process.
• Broadly, if a company is unable to service its obligations (payments that are due to its financial and operational creditors), one of two processes could follow: (i) the company’s liabilities are restructured, and it gets a chance to continue its operations, perhaps under new owners; (ii) its assets are liquidated, and the money is recovered.
• Before the IBC, there were other regulatory frameworks to deal with bad loans. But it usually took very long for the process to conclude. As per the World Bank’s Ease of Doing Business report, it would take 4.3 years on average to resolve insolvency cases before the IBC was enacted.
• The IBC put strict timelines in place. Initially, the process was to be completed within 270 days, failing which the company would be pushed into liquidation; the deadline was subsequently extended to 330 days. The time-bound nature of the process under IBC was appealing, because delays in resolution lead to further destruction in the value of the firm.

So did the introduction of the IBC help creditors?

• The IBC attempted to reshape the credit culture in the country by titling the balance in favour of creditors. The threat of losing their company under this framework, as soon the proceedings are initiated, the existing promoters/ management lose control over the firm works as a powerful deterrent for errant promoters and puts pressure on them to honour their obligations.
• This framework has also given a negotiating tool to operational creditors, who are typically small firms, to negotiate the payment of their dues by larger firms. Data from the Insolvency and Bankruptcy Board of India show that of all the cases admitted under IBC, proceedings in almost half have been initiated by operational creditors, signalling how widely this is being used by these firms.

4. SUMMER SOLSTICE

TAG: GS 1: GEOGRAPHY

THE CONTEXT: The longest day of the year, for anyone living north of the Equator, is June 21. The day is referred to as the summer solstice, and it occurs when the sun is directly over the Tropic of Cancer, or more specifically right over 23.5 degrees north latitude.

EXPLANATION:

Why do we have the summer solstice?

• Since Earth rotates on its axis, the Northern Hemisphere gets more direct sunlight between March and September over the course of a day, which also means people living in the Northern Hemisphere experience summer during this time. The rest of the year, the Southern Hemisphere gets more sunlight.
• During the solstice, the Earth’s axis around which the planet spins, completing one turn each day is tilted in a way that the North Pole is tipped towards the Sun and the South Pole is away from it.
• Typically, this imaginary axis passes right through the middle of the Earth from top to bottom and is always tilted at 23.5 degrees with respect to the Sun. Therefore, the solstice, as NASA puts it, is that instant in time when the North Pole points more directly toward the Sun than at any other time during the year. Solstice means “sun stands still” in Latin.
• While the solstice occurs at the same time across the world, different countries experience it at different times according to their time zones.

What happens during the solstice?

• This day sees the Earth receiving a greater amount of energy from the Sun.
• The maximum amount of sunlight received by the Northern Hemisphere during this time is usually on June 20, 21 or 22. In contrast, the Southern Hemisphere receives most sunlight on December 21, 22 or 23 when the northern hemisphere has its longest nights or the winter solstice.
• The amount of light received by a specific area in the Northern Hemisphere during the summer solstice depends on the latitudinal location of the place. The further north one moves from the equator, the more light one receives during the summer solstice. At the Arctic Circle, the sun does not set during the solstice.
• Summer solstice, however, does not necessarily mean the earliest sunrise or latest sunset. That depends on the latitudinal location of the country.

5. TITAN, THE MISSING TITANIC TOURIST SUBMERSIBLE

TAG: PRELIMS PERSPECTIVE

THE CONTEXT: On June 18, a submersible named Titan went missing. On board the missing vehicle were one pilot and four crew members travelling to see the wreckage of RMS Titanic, which is nearly four thousand metres under water in the frigid North Atlantic ocean. One hour and forty-five minutes into the journey, contact with Titan was lost.

EXPLANATION:

• United States and Canadian authorities have been using airplanes and boats, and are leveraging sonar technology to locate the sub.
• Titan has 96 hours of life support for a crew of five. Authorities are working round the clock to re-establish contact with the undersea vehicle. One of the crew members is Stockton Rush, CEO of OceanGate Inc., the company that runs these tours to the sunken ship.

What is the Titan submersible?

• Titan is a submersible, or an underwater vehicle. It is operated by the privately owned U.S. company OceanGate that organises underwater expeditions for both research and tourism.
• The company claims that Titan, which it said was built with “off-the-shelf” components, is lighter and more cost-efficient than other deep diving submersibles. The 6.7-metre-long manned submersible is intended for site survey and inspection, research and data collection, film and media production, and deep sea testing of hardware and software.
• The company said its expeditions were meant to document the Titanic and its rate of decay on the ocean floor, and that all expeditions were in line with National Oceanic and Atmospheric Administration (NOAA) Guidelines for Research Exploration and Salvage of RMS Titanic, as well as the UNESCO guidelines for the preservation of underwater world heritage sites.

What do these guidelines say?

• The UNESCO guidelines stress on the long-term preservation of “underwater cultural heritage” and the need to protect the surrounding waters as well by ensuring “responsible non-intrusive access.”
• The NOAA guidelines are similar and insist that recovered material and artefacts must be managed as per professional standards. In other words, taking souvenirs from the wreckage site is strongly discouraged.

What is the difference between a submarine and a submersible?

• While the two categories can overlap, a submarine refers to an underwater vehicle that is largely independent and has power reserves to help it depart from a port or come back to the port after an expedition.
• Meanwhile, a submersible is generally smaller in size and has less power, so it needs to work with a ship in order to be launched and recovered.

How was the submersible operated?

• Titan is made of carbon fibre and titanium, and weighs 10,432 kilograms, according to OceanGate’s website. It is capable of going 4,000 metres undersea, and moves as fast as three knots per hour (5.56 kph). Based on images from the company website, there is space for the five crew members to sit on the floor, though not stand.
• A small porthole window is at one end, but below 1,000 metres no sunlight reaches the ocean so the submersible would have to rely on its own lighting. The submersible is dependent on external crew members, as it is bolted from the outside. Titan also has an integrated launch and recovery platform
• The sub’s interior was filmed when it was on land. In a 2022 video interview with BBC, OceanGate CEO Stockton Rush said that Titan had only one button inside and that the submersible was run with a “Sony PlayStation-style controller” made by Logitech. The company has explained that “off-the-shelf” technology helped make it easier to replace parts.
• While it may sound strange that a submersible on such a high-risk expedition was operated with a gaming-style controller, the fact is that such devices are also used by some drone operators, navy personnel, and robot operators. Game controllers are cheap, easy to buy in bulk, designed to be intuitive, and respond quickly to the users’ hand movements.
• Before the expedition, OceanGate also said in a tweet that it was relying on satellite-based internet from the Elon Musk-founded company SpaceX’s Starlink for communication from the middle of the ocean, throughout the Titanic expedition.

1. Don’t blame yourself READ MORE

1. Cyclone Biparjoy Is ‘Stealing’ the Monsoon and Bringing Heat Waves READ MORE
2. Extreme weather events led to 12 million displacements of children in 2022, estimates UNICEF READ MORE

1. In Africa, climate change has exacerbated modern slavery & government response is poor READ MORE
2. Kuki-Meitei conflict is more than just an ethnic clash READ MORE

1. Unedifying row: On panchayat polls in West Bengal and security- Shadow of poll violence justifies court orders for using central forces in West Bengal READ MORE
2. Law Commission’s report on Uniform Civil Code — undesirable and unnecessary READ MORE
3. Why UCC is Indian Muslim women’s only shot at justice READ MORE
4. Social media needs stronger regulation READ MORE

(Newspapers, PIB and other important sources)

Prelim and Main

1. Rethinking importance of cord blood in regenerative medicine READ MORE  
2. MPC stresses need for inflation vigil READ MORE
3. Eviden bags $100 mn supercomputer order from NCMRWF READ MORE
4. Nasheed quits ruling MDP months ahead of election READ MORE
5. Medicines Patent Pool deal to make cancer drug cheaper READ MORE
6. PM gifts U.S. First Lady a lab-grown diamond READ MORE
7. Manipur invokes RBI’s riot provisions to aid borrowers READ MORE
8. What is summer solstice and what causes it? READ MORE
9. Why inflation and WPI is down, but not (all) prices READ MORE
10. Kamakhya Temple is one way Assam shaped Sanskritic mainstream in medieval India READ MORE

Main Exam

GS Paper- 1

1. Cyclone Biparjoy Is ‘Stealing’ the Monsoon and Bringing Heat Waves READ MORE
2. Extreme weather events led to 12 million displacements of children in 2022, estimates UNICEF READ MORE
3. In Africa, climate change has exacerbated modern slavery & government response is poor READ MORE
4. Kuki-Meitei conflict is more than just an ethnic clash READ MORE

GS Paper- 2

POLITY AND GOVERNANCE

1. Unedifying row: On panchayat polls in West Bengal and security- Shadow of poll violence justifies court orders for using central forces in West Bengal READ MORE
2. Law Commission’s report on Uniform Civil Code — undesirable and unnecessary READ MORE
3. Why UCC is Indian Muslim women’s only shot at justice READ MORE
4. Social media needs stronger regulation READ MORE

SOCIAL ISSUES AND SOCIAL JUSTICE

1. Opinion: Endemic Does Not Mean End of Disease READ MORE

INTERNATIONAL ISSUES

1. Spiralling violence: On the West Bank- Without a freeze on Israeli settlements, violence in West Bank will continue READ MORE
2. NATO’s growing shadow over the Asia-Pacific READ MORE
3. The role of technology in India-US alliance READ MORE
4. Better relations with neighbours READ MORE

GS Paper- 3

ECONOMIC DEVELOPMENT

1. Job creation: A big challenge for the government READ MORE
2. A time for options READ MORE

ENVIRONMENT AND ECOLOGY

1. The good and bad of Blue Flag certification READ MORE
2. Closing the Gap Between Rhetoric and Action at COP28 READ MORE

SCIENCE AND TECHNOLOGY

1. Jailbreaking generative AI READ MORE

SECURITY

1. Need to understand data both as a strength and vulnerability READ MORE

DISASTER MANAGEMENT

1. Social connectedness vital to survive climate disasters READ MORE

GS Paper- 4

ETHICS EXAMPLES AND CASE STUDY

1. Don’t blame yourself READ MORE

Questions for the MAIN exam

1. The technological aspects of India and the USA are a new era of the India-US relationship, but both countries will have to travel together given changing geopolitics surrounding China and Russia. Critically comment.
2. Sustainable tourism cannot be seen only through the prism of tourism-specific policies; it requires a holistic understanding of the ecology and the people who are dependent upon this ecosystem. In light of the statement, discuss the pros and cons of the Blue Flag certification.
3. A NATO overreach to the Asia-Pacific poses a major challenge to India’s much-touted “strategic autonomy”. Evaluate.
4. What do you understand by the concept “ethical legalism? In what situation an legal action can be considered an ethical action?

QUOTATIONS AND CAPTIONS

• I don’t make jokes. I just watch the government and report the facts.
• The efficiency with which a single set of commands can flummox these models is genuinely surprising and gives us an abject lesson in the vulnerability of these systems.
• When considering options, it is important to recognise that as the options market is not as liquid as spot USD-INR and option prices are not readily available to most corporates, banks often build in unconscionable charges onto the spreads they charge for options.
• Apart from keeping the promises it makes to its neighbours, India must realise that domestic peace and progress are essential to achieve the geopolitical aim of countering China in South Asia.
• Sustainable tourism cannot be seen only through the prism of tourism-specific policies; it requires a holistic understanding of the ecology and the people who are dependent upon this ecosystem.
• Personal laws are mixed up with religions and their varying practices and cover a range of issues like divorce, succession, inheritance, adoption and guardianship.
• Mere existence of difference does not imply discrimination, but is indicative of a robust democracy.
• A NATO overreach to the Asia-Pacific will pose a major challenge to New Delhi’s much-touted “strategic autonomy”. The push to transform Quad into a security alliance focusing on China will also have the same effect.
• Although an Asian NATO remains a pie in the sky for now, an extended war over Ukraine will force India and the Asia-Pacific nations to bear the brunt of increasing big-power rivalry in the region.

Essay topic

• Take the diplomacy out of war and the thing would fall flat in a week.

50-WORD TALK

• The MoU on jet engine manufacturing between GE and HAL ushers in a new era of India-US relationship. While the path ahead may have speed breakers, residues of history, it will be a road that both countries will have to travel together given changing geopolitics surrounding China and Russia.
• Our epidemiological history has taught us that respiratory viruses (the ones which spread through coughing, sneezing, and talking) emerging from reservoirs in the wild, jumping over the species barrier to infect humans, and then sweeping the globe before settling into an endemic behaviour can cause outbreaks that can result in significant mortality and morbidity. Examples include the 1957 flu pandemic caused by an A/H2N2 influenza virus, the 1968 flu pandemic from an A/H3N2 influenza virus, and the 2009 “swine flu” pandemic, from an A/H1N1 influenza virus.

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.

[WpProQuiz 493]

THE CONTEXT: The year 2022 marked the return of high inflation, especially in advanced economies, after nearly four decades. Inflation did not spare emerging economies either. These developments led to an unprecedented, synchronous, and sharp cycle of monetary tightening across countries. Major central banks have implemented sharp increases in policy rates, with the Federal Reserve’s rate hikes being the steepest since the 1970s. While the Federal Reserve has raised policy rates by 425 basis points (bps), the European Central Bank (ECB) and the Bank of England (BoE) have implemented 300 bps and 250 bps rate increases, respectively. The RBI initiated its monetary tightening cycle in April 2022 and has since implemented a policy repo rate hike of 225 bps. Consequently, domestic financial conditions began to tighten, which was reflected in the lower growth of monetary aggregates.

MONETARY DEVELOPMENTS

• The Monetary Policy Committee (MPC) maintained a status quo on the policy repo rate between May 2020 and February 2022 after implementing a 115 basis points (bps) reduction between March 2020 and May 2020.
• Retail inflation has crossed the upper limit of RBI’s tolerance band since January 2022. Sensing a serious risk to price stability, RBI initiated the monetary tightening cycle.
• In its April 2022 meeting, the committee introduced the Standing Deposit Facility (SDF), which allowed for the deposit of excess funds by banks with the RBI without the necessity of collateral in the form of government securities, thereby allowing effective liquidity management in a collateral-free manner.
• The MPC indicated a change in stance from ‘Accommodative’ to ‘Accommodative and focused on the withdrawal of accommodation, while supporting growth’ in this meeting, signaling the start of the monetary tightening cycle.

• Recognizing the sizeable upside risk imparted by adverse global developments, such as the generalized hardening of commodity prices and an increased likelihood of prolonged supply chain disruptions, the MPC convened an off-cycle meeting in May 2022. Members unanimously voted for an increase of 40 bps each in the policy repo rate, the SDF and the Marginal Standing Facility (MSF), and a 50 bps increase in the Cash Reserve Ratio (CRR).
• Reserve money (M0) increased by 10.3 per cent year-on-year (YoY) as on 30th December 2022 compared to 13 per cent last year.
• Growth in Currency in Circulation (CIC) broadly remained stable at levels seen after Covid-19, barring a marginal increase in the immediate aftermath of the outbreak of the Russia-Ukraine conflict, which can be attributed to a rise in precautionary holdings. So far, expansion in M0 during FY23 was mainly driven by bankers’ deposits with the RBI, with an increase in the CRR.

• The money multiplier – the ratio of M3 and M0 – has broadly remained stable at an average of 5.1 over April – December 2022 period compared to 5.2 in the corresponding period of the previous year.

LIQUIDITY CONDITIONS

• Surplus liquidity conditions that prevailed post-Covid-19 in response to the Reserve Bank’s conventional and unconventional monetary measures moderated during FY23 in consonance with the changed monetary policy stance that focused on the withdrawal of accommodation.
• With the MSF rate retained at 25 bps above the policy repo rate, the LAF corridor became symmetric around the policy repo rate – the corridor width was thus restored to 50 bps, the position that prevailed before the pandemic.
• The RBI’s move to hike the CRR by 50 bps resulted in a withdrawal of primary liquidity to the tune of ₹87,000 crore from the banking system.

MONETARY POLICY TRANSMISSION

• Lending and deposit rates of banks increased during FY23 in consonance with the policy repo rate changes.
• During FY23 (up to December 2022), external benchmark-based lending rate and 1-year median marginal cost of funds-based lending rate (MCLR) increased by 225 bps and 115 bps, respectively.
• Overall, the weighted average lending rate (WALR) on fresh and outstanding rupee loans rose by 135 bps and 71 bps, respectively, in FY23 (up to November 2022). On the deposit side, the weighted average domestic term deposit rate (WADTDR) on outstanding deposits increased by 59 bps in FY23 (up to November 2022).

DEVELOPMENTS IN THE G-SEC MARKET

• After remaining steady through 2020 and 2021, the yield on the 10-year government bond rose in 2022. The weighted average yield spike reflects the domestic bond market volatility stemming from uncertainty in crude prices, a hawkish stance of major central banks, a hardening of global bond yield and the pressure on the rupee.

BANKING SECTOR

Resilient and well-capitalized Banking System

• Since the middle of the previous decade, RBI and the government have made dedicated efforts in terms of calibrated policy measures like strengthening the regulatory and supervisory framework, implementation of 4R’s approach of Recognition, Resolution, Recapitalisation and Reforms to clean and strengthen the balance sheet of the banking system.
• These continuous efforts over the years have culminated in the enhancement of risk absorption capacity and a healthier banking system balance sheet both in terms of asset quantity and quality over the years.

• During the first half of FY23, the profitability of SCBs, measured in terms of Return on Equity (ROE) and Return on Assets (ROA), improved to levels last observed in FY15.

Credit Growth Aided by a Sound Banking System and Deleveraged Corporate Sector

• The recovery in economic activity in FY22, along with the enhanced financial soundness of banks and corporates, has bolstered the expansion of non-food bank credit since June 2021.
• The YoY growth in non-food bank credit accelerated to 15.3 per cent in December 2022. This not only shows an acceleration in the growth of current economic activities but also an anticipation of continued momentum in economic activity in future.

Non-Banking Financial Companies (NBFCs) Continue to Recover

• The growing importance of the NBFC sector in the Indian financial system is reflected in the consistent rise of NBFCs’ credit as a proportion to GDP as well as in relation to credit extended by SCBs.
• Supported by various policy initiatives, NBFCs could absorb the shocks of the pandemic. They built up financial soundness during FY22, marked by balance sheet consolidation, improvement in asset quality, augmented capital buffers and profitability.

PROGRESS MADE UNDER THE INSOLVENCY AND BANKRUPTCY CODE

Ease of doing business: Facilitating the process of ‘exit’

• The Insolvency and Bankruptcy Code (IBC) has facilitated the exit of distressed firms, thereby allocating scarce economic resources towards more productive use.
• Since the inception of the IBC in December 2016, 5,893 Corporate Insolvency Resolution Processes (CIRPs) had commenced by end-September 2022, of which 67 per cent have been closed.
• Of these, around 21 per cent were closed on appeal or review or settled, 19 per cent were withdrawn, 46 per cent ended in orders for liquidation, and 14 per cent culminated in the approval of resolution plans.

Behavioural change: Recoding Business Relationships

• One of the far-reaching spill-over effects of the Code has been the behavioural change effectuated by it among debtors. The fear of losing control over the CD upon initiation of CIRP has nudged thousands of debtors to settle their dues even before the initiation of insolvency proceedings.

69 per cent of the distressed assets rescued, realization value around 178 per cent of the liquidation value

• Until September 30, 2022, 553 CIRPs have ended in resolution. Despite the very low value of the distressed firms to begin with, 69 per cent of distressed assets were rescued by the Code.

92 per cent of the value realized under the liquidation Process

• 1807 CDs ended up with orders for liquidation as of September 2022. These CDs assets were valued at less than 8 per cent of the aggregate claim amount on the ground.

NPAs: IBC recovers highest amount for Scheduled Commercial Banks

• As per the RBI data, in FY 22, the total amount recovered by SCBs under IBC has been the highest compared to other channels such as Lok Adalat’s, SARFAESI Act and DRTs in this period.

DEVELOPMENT IN CAPITAL MARKETS

• Though global macroeconomic and financial market developments exercised some influence on Indian capital markets, India’s capital market had a good year, overall.

PRIMARY MARKET

• From April to November 2022, the buoyant performance of the primary market has been observed despite turmoil in global financial markets. Compared to FY22, the number of firms opting to list on the bourses increased by 37 per cent, though the amount raised declined to almost half of what was raised in the last year.

SECONDARY MARKET

• In April-December 2022, global stock markets declined because of geopolitical uncertainty. On the contrary, the Indian stock market saw a resilient performance, with the bluechip index Nifty 50 registering a return of 3.7 per cent during the same period.

FOREIGN PORTFOLIO INVESTMENTS

• The total assets under custody with FPIs increased by 3.4 per cent at the end of November 2022 compared to November 2021. The overall net investments by Foreign Portfolio Investors during FY23 registered an outflow of ₹16,153 crore at the end of December 2022 from an outflow of ₹5,578 crore during FY22 at the end of December 2021, with both the equity segment and the debt segment witnessing net FPI outflows.

OTHER DEVELOPMENTS

Necessity of a common approach to regulating the crypto ecosystem

• The recent collapse of the crypto exchange FTX and the ensuing sell-off in the crypto markets have placed a spotlight on the vulnerabilities in the crypto ecosystem.
• Crypto assets are self-referential instruments and do not strictly pass the test of being a financial asset because it has no intrinsic cashflows attached to them.
• The geographically pervasive nature of the crypto ecosystem necessitates a common approach to the regulation of these volatile instruments.

IFSC – GIFT CITY

• Over the last few years, various initiatives taken by the government have opened up new avenues and opportunities for capital market players. Setting up and operationalizing India’s maiden International Financial Services Centre (IFSC) in GIFT City is the most important one.
• The aim is to facilitate India to emerge as a significant economic power by accelerating the development of a strong base of International Financial Services in the country.
• IFSC can play a key role in facilitating India’s emergence as a preferred jurisdiction for international financial services and encouraging easier access and greater participation from foreign investors to bring in capital to further promote India’s growth.

DEVELOPMENTS IN THE INSURANCE MARKET

• In 2021, total global insurance premiums grew by 3.4 per cent in real terms, with the non-life insurance sector registering 2.6 per cent growth, driven by rate hardening in commercial lines in developed markets.
• However, in China, the largest emerging market, non-life premium volumes contracted by 0.7 per cent as the de-tariffication of motor insurance sparked fierce competition and rate reductions.
• India poised to emerge as one of the fastest-growing insurance markets in the coming decade.
• In keeping with this understanding, India’s largest life insurer, the Life Insurance Corporation of India, went public in May 2022, raising US$ 2.7 billion in the country’s largest IPO to date.
• Government schemes and financial inclusion initiatives have driven insurance adoption and penetration across all segments.

PENSION SECTOR

• The Government of India is implementing various pension schemes such as the Indira Gandhi National Old Age Pension Scheme (IGNOAPS), Indira Gandhi National Widow Pension Scheme (IGNWPS), Indira Gandhi National Disability Pension Scheme (IGNDPS) under the National Social Assistance Programme (NSAP) with a total beneficiary coverage of 4.7 crore.
• The National Pension System (NPS) was introduced in January 2004, the primary pension system for government employees with a pay-as-you-go defined benefit plan.
• NPS for government employees is a defined contribution plan with co-contribution from the government.
• The total number of subscribers under the NPS and APY registered a YoY growth of 25.1 per cent in November 2022, with AuM witnessing a growth of 22.7 per cent during the same period.

OUTLOOK

• Buoyant demand for bank credit and early signs of a revival in the investment cycle are benefiting from improving asset quality, a return to profitability and resilient capital and liquidity buffers.
• Further, IBC mechanism continues to support the ‘Ease of Doing Business’ in India by facilitating easy exit with time bound resolutions for firms.
• These strengths are helping the financial system absorb external spillovers, tightening global financial conditions and high volatility in financial markets.
• India is one of the fastest-growing insurance markets in the world and is expected to emerge as one of the top six insurance markets by 2032. Digitisation of India’s insurance market, accompanied by an increase in FDI limit for insurance companies, is likely to facilitate an increased flow of long-term capital, a global technology, processes, and international best practices, which will support the growth of India’s insurance sector.
• Government initiatives towards enhancing pension literacy of subscribers and intermediaries, and a nudge from the regulator and the government to encourage young adults to join the pension scheme would play a significant role in enhancing pension availability to a more extensive section of society.