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DAILY NEWS ANALYSIS

Monthly DNA

02 Jan, 2020

28 Min Read

Free trade agreement with Mauritius near finalization

GS-II : International Relations Others

The free trade agreement with Mauritius near finalization

Syllabus subtopic: Bilateral, regional and global groupings and agreements involving India and/or affecting India's interests

Prelims and Mains focus: on the proposed India-Mauritius FTA and its significance; India-Mauritius economic relations

News: India is close to finalising a proposed free trade agreement (FTA) with Mauritius, with several rounds of negotiations to improve market access between the two countries having been completed, the Ministry of Commerce and Industry said on Wednesday.

Background

Seven rounds of India-Mauritius CECPA negotiations have been held till now. During these rounds, negotiations focussed on various aspects including trade in goods, trade in services, rules of origin, technical barriers to trade and sanitary and phytosanitary (SPS) measures, trade remedies and dispute settlement.

About the proposed FTA

  • The proposed India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA) seeks to mutually benefit both countries in the areas of trade in goods and services.

Why do countries opt for FTA?

Countries enter into FTAs to make it easier to exchange goods and services between them. This is usually done by reducing or eliminating trade barriers like tariffs and quotas that these countries would have imposed on these goods and services.

India-Mauritius economic relations

  • India had a trade surplus of around $1.09 billion with Mauritius in 2018-19, which means that it had exported more goods to the island nation than it imported from it.

  • Mauritius was the second top source of foreign direct investment (FDI) into India in 2018-19. India received $8 billion (about Rs 56,000 crore) foreign inflows from the country.

  • India exports petroleum products, pharmaceuticals, cereals, cotton and electrical machinery, apparel and clothing accessories to Mauritius.

  • The island nation’s exports to New Delhi include iron and steel, pearls, precious/semi-precious stones and optical, photographic and precision instruments.

Way ahead

  • The government plans to promote India-Africa trade and economic relations through regular reviews of trade ties through institutional mechanisms like Joint Commission Meetings, Joint Trade Committees and Joint Working Groups, the Ministry’s release added.
  • Union Minister of Commerce and Industry Piyush Goyal in May 2019 had held digital video conferences with Indian business communities in African regions like Madagascar, Tanzania, Mauritius, Kenya, Uganda, South Africa, Zambia, Mozambique, Ghana, Botswana, Nigeria, Morocco, Senegal, Zimbabwe, Cote d’Ivoire, Ethiopia and Egypt in order to promote India’s exports to the region.

Source: Indian Express

RBI’s Operation Twist may boost lending, growth

GS-III : Economic Issues Banking

RBI’s Operation Twist may boost lending, growth

Syllabus subtopic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Prelims and Mains focus: About the RBI’s Operation Twist; its need and impact

News: Recently, the Reserve Bank of India (RBI) decided to undertake its own version of Operation Twist to bring down 10-year yields of government securities (G-Secs) and drive monetary transmission.

Why is Operation Twist so important?

Operation Twist is a move in which a central bank decides to simultaneously buy long-dated securities while selling short-term securities. The objective behind such an operation is management of the yield curve. Other central banks, including the US Federal Reserve, have used similar measures. This is the first time RBI has undertaken such an unconventional policy measure with the aim of flattening the yield curve by lowering longer rates to boost lending and growth. On Monday, RBI undertook its second round of open market operations (OMOs), the first round of which was undertaken on 23 October.

Did RBI buy, sell bonds of the same amounts?

A conventional Operation Twist involves a central bank buying and selling securities of the same amounts. The purchase of securities pushes down the yields of long-dated securities, while the sale of short-term bonds drives up their yield. This transaction is undertaken as it effectively reduces the term premia. But in the case of RBI’s recent move, on 23 October, the central bank bought a net of Rs.10,000 crore of 10-year bonds and sold one-year bonds of Rs.6,825 crore. On 30 December, RBI again bought 10-year bonds worth Rs.10,000 crore while selling one-year bonds worth Rs.8,501 crore.

So did the move have an impact on bond yields?

The recent Operation Twist impacted bond yields that had shot up to 6.705% on 18 December. The move was announced on 19 December 2019 and yields moderated to 6.501% on 1 January 2020. Ending uncertainty on fiscal deficit numbers for 2019-20 and 2020-21 and a credible long-term fiscal consolidation path will help moderate bond yields.

Why did 10-year yields rise after 30 Dec?

In the past, RBI had ruled out its desire to get into yield curve management. But by undertaking Operation Twist, it has provided strong signals to markets that could be well on the cards. Despite this, the second Operation Twist on 30 December didn’t pare yields as investors are jittery due to concerns regarding the FY20 fiscal deficit. RBI also released the calendar for state borrowings of Rs.2 trillion for the Q4 FY20. Operation Twist is likely to have subdued the impact of these developments on the yield curve.

Can we expect more such operations?

Over the last few months there has been a call for OMOs to drive monetary transmission. More such operations are possible as RBI tries to improve transmission and the monetary policy panel continues with an accommodative stand. A countercyclical fiscal policy is warranted due to the growth slowdown and is factored in by investors. Thus, by revising deficit targets and creating a credible medium-term consolidation path, the Centre can send bond markets a positive signal, which would supplement RBI’s Operation Twist.

Source: mint

Relief for govt as GST collections remain above Rs.1 trillion mark

GS-III : Economic Issues Terminology

Relief for govt as GST collections remain above Rs.1 trillion mark

Syllabus subtopic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Prelims and Mains focus: About GST; reasons for delays in compensation to states

News: Goods and services tax (GST) collections exceeded the Rs.1 trillion mark for the second straight month in December, bringing some relief to policymakers fighting to boost consumption and liquidity in a slowing economy.

  • Central and state governments together collected Rs.1.03 trillion in December, 9% more than what was collected in the year earlier. With an improvement in the performance of a number of leading indicators, including core sector industries, auto sales and non-oil merchandise exports, experts expect factory output to report modest growth in November after having contracted since September.

Background

  • India’s GDP growth decelerated to a six-and-a-half-year low of 4.5% in the September quarter amid slowing domestic and external demand.
  • Declining GST receipts in the past few months had led to tension in Centre-state relations as some states complained about a delay in payment of GST compensation from the central government.
  • Tax cuts and exemptions granted in several rounds since the rollout of GST have made it revenue-deficient rather than revenue-neutral, as was originally planned. Tax cuts on consumer goods have also led to a situation where businesses are paying more taxes on raw materials than on finished products and subsequently claiming the excess paid as refunds.

GST collections across states and UTs

Among major states and Union territories (UTs) that recorded a substantial jump in gross domestic GST collections are Assam (33%), Maharashtra (22%), Tamil Nadu (19%), Gujarat (18%), Delhi (18%), Kerala (17%), West Bengal (16%) and Madhya Pradesh (16%). The under-performers include Jharkhand (-3%), Odisha (2%), Goa (6%) and Rajasthan (10%).

Way ahead

  • GST collections crossed1 trillion for the second month in a row and a 16% growth in domestic transactions vis-à-vis December 2018 is a positive development. It seems that efforts of the government, like restriction on availment of unmatched credits, to plug GST evasion is bearing results.
  • Finance ministers of central and state governments are likely to discuss restructuring GST slabs and rates as well as ways to handle a revenue shortfall and the GST compensation to states in the year starting 1 April after the Union budget is presented on 1 February.

Source: mint

RBI extends relaxation in NBFC norms till June

GS-III : Economic Issues Banking

RBI extends relaxation in NBFC norms till June

Syllabus subtopic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Prelims and Mains focus: About the liquidity crisis in the NBFC sectors and efforts of RBI to improve the liquidity situation

News: The Reserve Bank of India (RBI) has extended by six months existing relaxations for the securitization of assets by non-banking financial companies (NBFCs).

Aim of the move

The move is aimed at providing NBFCs with some more breathing space to repair their balance sheets by selling assets and improving liquidity.

Background

  • In November 2018, the RBI had first eased the minimum holding period (MHP) requirement for originating NBFCs, for loans of maturity above five years to six months from 12.
  • The relaxation was originally given for six months till May 2019. RBI then extended it to 31 December 2019.
  • These relaxations were allowed after the liquidity crisis in the non-bank space following defaults by Infrastructure Leasing and Financial Services (IL&FS) in 2018. So much so that NBFCs and their mortgage lending peers relied largely on securitization deals to raise funds.
  • A report by rating agency ICRA in October 2019 found that these two classes of non-bank lenders raised Rs. 2.36 trillion through the securitization route between October 2018 and September 2019.

What is MHP?

The minimum holding period is the duration for which an NBFC is required to hold the loans on its book before selling them.

Efforts made by the RBI to improve liquidity in NBFCs

  • The RBI has maintained that it is regularly monitoring the top 50 NBFCs which roughly represent about 75% of the sector.
  • NBFCs are also being monitored by the RBI to see whether they have adequate coverage for their liquidity requirements for at least three months.
  • Credit flow is slowly reviving to the NBFC sector and the better-performing ones are able to access funds from the market at pre-IL&FS rates.

About NBFCs

Non-Banking Financial Companies (NBFCs) are the financial institutions that offer banking services but do not comply with the legal definition of a bank, i.e. it does not hold a bank license.

Both banks and NBFCs are financial intermediaries. NBFCs can lend and make investments. Hence, their activities are akin to that of banks.

However, there are a few differences between NBFCs and banks:

  1. NBFC cannot accept demand deposits;
  2. Banks can maintain demand deposits (savings/current accounts) but NBFCs accept only term deposits;
  3. Banks form a part of the Payment and Settlement Mechanism but NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on themselves;
  4. The deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in the case of banks.

Significance of NBFCs

Non-banking finance companies (NBFCs) are a fundamental part of the Indian financial system playing a significant role in nation-building and financial inclusion. It plays a complementary role to the banking system in promoting financial inclusion. There are multiple varieties of NBFCs and so the sector demands a well-coordinated response from all stakeholders keeping in mind the differential contextual requirements of different categories of NBFCs.

Source: mint

Gaganyaan, Chandrayaan­3 in mission mode, says ISRO

GS-III :

Syllabus subtopic: Science and Technology- developments and their applications and effects in everyday life Achievements of Indians in science & technology; indigenization of technology and developing new technology.

Prelims and Mains focus: about Gaganyaan; Chandrayaan-3: their significance

Context: Four pilots from the Indian Air Force (IAF) will leave for Russia this month to receive training as astronauts of Gaganyaan, the first Indian crewed flight to space.

  • The four will leave in the third week of January to be trained at the Yuri Gagarin Cosmonaut Centre in Moscow, as per an agreement signed between the space agencies of the two countries last year.

About Gaganyaan

  • Set for 2022 Gaganyaan, announced by the PM Modi in August 2018, is the Rs. 10,000 ­crore Indian human space flight scheduled for 2022. It is designed to have 3­7 crew members spend 3­7 days in space in a 400­km orbit.

  • The first of the two pre-Gaganyaan flights with a humanoid will be launched this year­end along with some of the six shortlisted micro-gravity experiments, Dr. Sivan said.

Chandrayaan-3 on the anvil

  • ISRO has also quietly begun work on another soft landing mission to the moon with most of the same features of Chandrayaan­2 and almost on the back of the failure of the latter’s lander on the lunar surface on September 7.
  • The launch of the nearly Rs. 600­crore Chandrayaan­3 is targeted for the end of this year or early 2021.
  • It will be almost a repetition of the July 2019 Chandrayaan­2 mission in the configuration of spacecraft, the landing spot on the moon and the experiments to be conducted on the lunar surface.
  • The third mission, was ISRO’s bid to realise for itself the difficult technology of soft­landing on another planetary body. The agency is undertaking it as the landing module of the second mission crashed barely five minutes before it was to have landed on the lunar surface.
  • The lander and rover are estimated to cost Rs.250 crore and will go to the moon on a propulsion model. The GSLV Mark III vehicle costs around Rs.350 crore.
  • Although scores of landers sent by Russia, the U.S. and the Chinese have explored the moon’s surface, so far, no other agency has landed in the southern hemisphere. ISRO hopes to be still the first to do so.

A new launch port for ISRO

The Tamil Nadu government has started acquiring 2,300 acres of land in Thoothukudi district for ISRO’s second launch port. Thoothukudi offers a locational advantage to launch towards India’s South.

  • Currently satellites are launched from the Sriharikota launch centre in Andhra Pradesh.
  • When ready, the new port will handle mainly the small satellite launch vehicle (SSLV) that is under development. SSLVs are meant to put a payload of up to 500 kg in space.

Lunar mission with Japan

Another lunar mission is being discussed with Japanese space agency JAXA ( Japan Aeronautics Exploration Agency) but its elements have not been finalised.

Source: The Hindu

Kerala for steps to curb alien plants’ growth in NBR

GS-III :

Syllabus subtopic: Conservation, environmental pollution and degradation, environmental impact assessment

Prelims and Mains focus: about Senna Spectabilis: threat posed by it and measures taken to check its spread

News: The Kerala Forest and Wildlife department is gearing up to adopt comprehensive steps to arrest the rampant growth of invasive alien plants, especially tree species like ‘Senna Spectabilis’, in the forest areas of the Nilgiri Biosphere Reserve (NBR), including the Wayanad wildlife sanctuary.

Threats by invasive species (Senna Spectabilis)

  • The spread of invasive plants, especially Senna Spectabilis, is posing a major threat to the forest areas of the reserve, owing to its quick growth and coppicing character.

  • The tree species had been found in nearly 10 km sq area of 344.44 sq km of the sanctuary around five years ago. But now it has invaded more than 50 sq km of the sanctuary in a short span of time. This showed its high invasive nature.

  • A recent study of the Ferns Nature Conservation Society with the support of the Forest department recorded the presence of the plant on 78.91 sq km area of the sanctuary.

  • The plant started to invade in adjacent tiger reserves, including Bandipur and Nagarhole in Karnataka and the Mudumalai tiger reserve in Tamil Nadu.

  • Earlier, it was planted as avenue trees along roadsides in Wayanad. Due to massive flowering and drying of bamboo species in the Wayanad, lots of open spaces were created which were occupied by Senna Spectabilis.

  • An adult tree grows up to 15 to 20 metres in a short period of time and every year distributes thousands of seeds after the gregarious flowering. The thick foliage arrests the growth of other indigenous species of trees and grass, and causes food shortage for the wildlife population, especially herbivores, during summer. Moreover wildlife would not feed on the leaves of the tree as it was not palatable for them.

How does it hampers the growth of other plant species?

  • The ‘vayal’ ecosystem (marshy land) of the forest area now houses this plant in large numbers. The allele-chemicals produced by this plant adversely affect the germination and growth of the native species.

Measures taken up to prevent it from spreading

  • The KFRI has developed some physical and chemical measures to tackle the threat of the plant.
  • Though physical method was being followed to tackle the issue for the past five years, it was yet to make any desired effect. Hence it is being planned to adopt an integrated method by combining the physical as well as chemical measures to address the issue.
  • As the same threat is being faced by the adjacent tiger reserves, managers of the reserves agreed to follow the similar steps to tackle the threat.

Source: The Hindu

RBI launches app to help visually impaired identify notes

GS-III :

Syllabus subtopic: Science and Technology- developments and their applications and effects in everyday life Achievements of Indians in science & technology; indigenization of technology and developing new technology.

Prelims and Mains focus: About the MANI app and its significance

News: The Reserve Bank of India (RBI) on Wednesday launched the Mobile Aided Note Identifier (MANI), a mobile application for aiding visually impaired persons to identify the denomination of Indian banknotes.

Features of MANI app

  • It has features like capability of identifying the denominations of Mahatma Gandhi series and Mahatma Gandhi (new) series banknote by checking front or reverse side/part of the note including half-folded notes at various holding angles and broad range of light conditions.

  • As per the RBI, Indian banknotes contain several features which enable the visually impaired (colour blind, partially sighted and blind people) to identify them, including intaglio printing and tactile mark, variable banknote size, large numerals, variable colour, monochromatic hues and patterns.

Significance

Technological progress has opened up new opportunities for making Indian banknotes more accessible for the visually impaired, thereby facilitating their day to day transactions.

Source: Indian Express

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