Insights Daily Current Affairs, 25 November 2016
Paper 2 Topic: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Notes ban to significantly disrupt economic activity: Moody’s
In a report titled ‘Indian Credit — Demonetisation Is Beneficial for Indian Government and Banks; Implementation Challenges Will Disrupt Economic Activity’, Moody’s has said the move to ban old Rs 500/1000 notes is affecting all sectors of the economy to various extent, with banks being the key beneficiaries.
Important observations made by the report:
- Demonetisation will significantly disrupt economic activity and lead to weaker growth in near-term, though in the long run it can boost tax revenues and translate into faster fiscal consolidation.
- There will be a loss of wealth for individuals and corporates with unreported income, as some will choose not to deposit funds back into the formal financial system to avoid disclosing the sources of these funds.
- In the immediate period, demonetisation would significantly disrupt economic activity, resulting in temporarily weaker consumption and GDP growth.
- Households and businesses will experience liquidity shortages as cash is taken out of the system, with a daily limit on the amount in old notes that can be exchanged into new notes.
- Corporates will see economic activity decline, with lower sales volumes and cash flows, with those directly exposed to retail sales most affected.
- However, greater formalisation of economic and financial activity would ultimately help broaden the tax base and expand usage of the financial system, which would be credit positive.
Impact on banks:
- Banks would benefit significantly from a move towards digital payments, given their role as intermediaries for such transactions. Rising bank deposits could lower lending rates, a positive for the banks.
- In the nearer term, however, the asset quality will deteriorate for banks and non-bank finance companies, as the economic disruption will significantly impact the ability of borrowers to repay loans, in particular for the loans against property, commercial vehicles and micro finance sectors.
- A prolonged disruption could also have a more significant impact on asset quality, as both corporate and small-and medium-sized enterprise customers have a limited ability to withstand a sustained period of economic weakness.
Impetus to digital economy:
- In the medium term, the impact on businesses will depend on how quickly liquidity returns to the system and transaction flows are restored. The government could prevent the same amount of cash returning into the system, in an effort to increase the use of non-cash transactions and digital payments.
- This would improve the overall operating environment for doing business in India — by improving the ease and speed at which payments reach manufacturers and reducing corruption — but would prolong the economic disruption.
- However, consumption in India is still largely cash-driven, and a move towards digital payments would require a likely gradual change in consumer habits.
Background:
On November 8, Prime Minister Narendra Modi announced demonetisation of 500 and 1,000 rupee notes, thereby withdrawing 86% or Rs 14 lakh crore worth currency from circulation.
Sources: the hindu.
Paper 2 Topic: Statutory, regulatory and various quasi-judicial bodies.
Yudhvir Singh Malik new NHAI chairman
Yudhvir Singh Malik has been appointed as new Chairman of National Highways Authority of India (NHAI).
NHAI:
The National Highways Authority of India (NHAI) is an autonomous agency of the Government of India, responsible for management of a network of over 70,000 km of National Highways in India. It is a nodal agency of the Ministry of Road Transport and Highways.
- The NHAI was created through the promulgation of the National Highways Authority of India Act, 1988. In February 1995, the Authority was formally made an autonomous body.
- It is responsible for the development, maintenance, management and operation of National Highways.
Sources: the hindu.
Paper 3 Topic: Indigenization of technology and developing new technology.
Upgraded Jaguar DARIN III aircraft receives IOC
In a significant milestone for the country’s military aviation sector, the upgraded Jaguar DARIN III twin-seat aircraft has received Initial Operation Clearance (IOC).
Key facts:
- DARIN III aircraft is an upgraded DARIN I Standard Jaguar. It was done by HAL.
- The total design and development covering system requirement capture, specification preparation, software, hardware, electrical and mechanical design and development were carried out indigenously at HAL’s Mission and Combat System Research and Design Centre (MCSRDC).
- Besides HAL, certification agencies, trial team of ASTE and other agencies were involved in the upgrade programme.
- The upgrade incorporates new state-of-the-art avionics architecture including the Open System Architecture Mission Computer (OSAMC), Fire Control Radar, Solid State Digital Video Recording System (SSDVRS), Autopilot with Alt Select & HNAV and Identification of Friend or Foe (IFF) and more.
Sources: the hindu.
Paper 3 Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Govt asks NABARD to disburse Rs 21,000 crore to farmers
Government has allowed NABARD to disburse Rs 21,000 crore to cash-starved farmers, helping them sow winter crops like wheat ahead of the sowing season. The National Bank for Agriculture and Rural Development (NABARD) will disburse the money to farm cooperatives for onward payments to farmers.
Why this was necessary?
The move is aimed at easing liquidity crisis facing farmers who were left with very little cash to buy seeds and fertilizers for winter crops due to restrictions placed on bank withdrawals post demonetisation.
The government’s demonetisation move, which swept away 86% of currency in circulation, has badly hit farmers leaving them without cash just ahead of the sowing season. This has also threatened crop production in a year that came after two successive years of drought. More than 40% small and marginal farmers get crop loans from cooperative institutions.
Way ahead:
The sanction of Rs 21,000 crore to the district central cooperative banks (DCCBs) will enable them to pass on or grant funds to the primary agriculture cooperatives. This will then help in meeting crop loan requirements of farmers in Rabi season. This will help in smooth flow of credit for farmers to enable them to undertake rabi requirements.
Nabard:
It is an apex development and specialized bank established on 12 July 1982 by an act by the parliament of India. Its main focus is to uplift rural India by increasing the credit flow for elevation of agriculture & rural non farm sector.
- It was established based on the recommendations of the Committee set up by the Reserve Bank of India (RBI) under the chairmanship of Shri B. sivaraman.
- It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC).
- It has been accredited with “matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas in India”.
- NABARD is active in developing financial inclusion policy and is a member of the Alliance for Financial Inclusion.
The Bank has been given certain roles as follows:
- It Serves as an apex financing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas
- It takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.
- Co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation
- It Undertakes monitoring and evaluation of projects refinanced by it.
- NABARD refinances the financial institutions which finances the rural sector.
- It regulates the institution which provides financial help to the rural economy.
- It provides training facilities to the institutions working the field of rural upliftment.
- It regulates the cooperative banks and the RRB’s, and manages talent acquisition through IBPS CWE.
- NABARD is also known for its ‘SHG Bank Linkage Programme’ which encourages India’s banks to lend to SHGs.
Sources: the hindu.
Paper 3 Topic: Awareness in the fields of IT, Space, Computers, robotics, nano-technology, bio-technology and issues relating to intellectual property rights.
China successfully launches fourth data satellite
China has successfully launched its fourth data satellite to achieve global network operation that will provide data relay, measurement and control services for its manned spacecraft.
Key facts:
- The satellite, Tianlian I-04, was launched on a Long March-3C carrier rocket from the Xichang Satellite Launch Centre in southwest Sichuan province. The launch marked the 241st mission of China’s Long March series of rockets.
- Developed by the China Academy of Space Technology under the China Aerospace Science and Technology Corporation, the satellite will join its three predecessors to achieve global network operation.
- The network is expected to provide data relay, measurement and control services for China’s manned spacecraft, space labs and space stations, according to the centre.
- The network will also offer data relay services for the country’s medium- and low-Earth orbiting resources satellites, as well as measurement and control support for spacecraft launches.
- China launched its first data relay satellite, the Tianlian I-01, in April 2008. The second satellite was launched in July 2011, and the third was launched in July 2012.
Sources: toi.
Paper 3 Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Airtel launches India’s first payments bank
Airtel Payments Bank Ltd has become the first payments bank to start operations, offering services in Rajasthan in a limited scale.
Key facts:
- The pilot will run at 10,000 Airtel retail outlets where basic banking services will be provided. Customers will be offered an interest rate of 7.25% on deposits in savings account, higher than the 4-6% commercial banks are offering.
- Bank accounts can be opened by customers without documents using Aadhaar based e-KYC. The subscriber’s mobile number would function as a bank account number and transfer from Airtel to Airtel phone numbers would be free.
- The retail outlets, which will act as banking points, will offer account opening services, cash deposit and withdrawal facilities.
- As a payments bank it cannot perform lending activities, except while giving loans to its employees on approval of the board. The bank can, however, accept deposits of as much as Rs1 lakh.
- The bank was the first applicant to receive the final licence from the Reserve Bank of India (RBI) in April. Kotak Mahindra Bank holds 19.9% in the Airtel Payments Bank.
Background:
In August last year, the central bank had given in-principle approval to 11 applicants to set up payments bank by February 2017. Out of the 11 applicants, Cholamandalam Investment and Finance Co., Tech Mahindra Ltd and billionaire Dilip Shanghvi have already given up their approvals.
According to RBI guidelines issued in November 2014, a payments bank will maintain cash reserve ratio with the central bank. Apart from it, they will be required to invest minimum 75% of their deposits in statutory liquidity ratio eligible government securities with maturity up to one year and hold maximum 25% in current and time deposits with other scheduled commercial banks for operational purposes and liquidity management.
Sources: the hindu.
Facts for Prelims
International Press Freedom Award:
- Indian journalist Malini Subramaniam has been conferred with the International Press Freedom Award for her reporting from the Naxal-infested Bastar area. She is one of the four journalists felicitated by the annual award for their commitment to a free press.
- International Press Freedom Awards honor journalists or their publications around the world who show courage in defending press freedom despite facing attacks, threats, or imprisonment.
- Established in 1991, the awards are administered by the Committee to Protect Journalists (CPJ), an independent, non-governmental organization based in New York City. In addition to recognizing individuals, the organization seeks to focus local and international media coverage on countries where violations of press freedom are particularly serious.
