DAILY NEWS ANALYSIS

Drop in Foreign Exchange Reserves

• The Reserve Bank of India (RBI) estimates that during the past 13 months, India's foreign exchange reserves have decreased by USD 110 billion.

Forex Reserves: What Are They?

• Foreign currency holdings, such as bonds, treasury bills, and other government securities, are known as forex reserves and are assets held in reserve by central banks.
• The majority of the world's reserves are held in US dollars.

Components:

• Foreign Currency Assets
• Gold reserves
• Special Drawing Rights
• Reserve position with the International Monetary Fund (IMF).

Significance of Forex Reserves:

• Supporting and preserving confidence in the monetary and exchange rate management strategies is the significance of forex reserves.
• Gives the ability to act to defend the nation or union currency.
• Maintains foreign currency liquidity to absorb shocks at times of crisis or when access to borrowing is restricted, hence reducing external vulnerability.

What are Special Drawings Rights?

• The SDR is a type of international reserve asset that was developed by the IMF in 1969 to supplement the official reserves of its member nations.
• The SDR is not a form of payment nor is it an IMF claim. Instead, it might be a claim against IMF members' freely useable currencies. These currencies are exchangeable for SDRs.
• A weighted basket of important currencies, including the US dollar, the euro, the Japanese yen, the Chinese yuan, and the British pound, is used to determine the SDR's value.
• The interest given to members on their SDR holdings is known as the SDR interest rate, or (SDRi).

What causes the decline in India's foreign exchange reserves?

Present Situation:

• Since September 2021, when they reached a record high of USD 642.45 billion, India's foreign exchange reserves have decreased by USD 110 billion.
• It should be remembered that the Indian rupee is a freely floatable currency, and that the market determines its exchange rate. There is no set exchange rate set by the RBI.
• India has performed significantly better than several reserve currencies, EMEs (emerging market economies), and its Asian competitors despite this sharp decrease.

Causes of Falling Foreign Exchange Reserves

Defense of Rupee:

• The central bank has been selling dollars from its foreign exchange reserves to defend the rupee against pressures mostly brought on by international events.
• The intervention is required to stop the rupee's wild decline and lessen market volatility.

US Fed's Aggressive Policy & Capital Outflows:

• Foreign portfolio investors (FPIs) saw capital outflows as a result of the US Federal Reserve's monetary policy tightening and interest rate increases.

• FPIs have started to leave the Indian markets. These FPIs bought capital goods and telecom services and sold financial and IT services.

Valuation Loss:

• The decline in foreign exchange reserves was also influenced by the valuation loss, which reflected the strengthening of the US dollar against other major currencies and the drop in gold prices.

• Reserves decreased by almost 67% during the current fiscal year as a result of value adjustments brought on by the strengthening US dollar and rising US bond yields.

What are the variables that influence exchange rates?

Rates of Inflation:

• Variations in market inflation result in variations in currency exchange rates. For instance, a nation with a lower rate of inflation than another will experience an increase in the value of its currency.

• Exports, imports, debt, and other activities are all included in the balance of payments.
• A country's currency depreciates and has greater fluctuations in the exchange rate of its local currency when it has a current account deficit because it spends more foreign currency on buying goods than it is making from the sale of exports.

Government Debt:

• Central government is the owner of all forms of government debt. Large government debt makes a nation less likely to attract foreign investment, which might cause inflation.
• If the market foresees government debt in a specific nation, foreign investors will in this case sell their bonds on the open market. The value of its exchange rate will consequently decline.

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Second World Geospatial Information Congress, Hyderabad

• The Prime Minister recently spoke at Hyderabad's second United Nations World Geospatial Information Congress.

The Geospatial Sector in India

• According to data, India's geospatial economy is projected to reach Rs63,100 crore by 2025, growing at a 12.8% annual rate.
• By increasing productivity, assuring sustainable infrastructure design, and efficient administration, and supporting the agricultural sector, geospatial technology has emerged as one of the main accelerators in socio-economic development.

What is Geospatial Technology?

• Innovations in geospatial technology enable us to pinpoint a person or an object's precise location on our planet.
• We use them in a variety of fields, from GPS navigators for cars to broad-field remote sensing by Earth-orbiting satellites.

Geospatial Technology Types

• Remote Sensing
• Electromagnetic impulses
• Filmed or digital aerial imagery
• Radars and lidars
• Global Positioning Systems (GPS)
• Geographic Information Systems (GIS)

Uses for geospatial technology

• Logistics: Monitoring and ensuring the quality of products.
• Transportation skills include planning a route and an arrival time as well as navigating.
• Meteorology: Referring to weather predictions for certain regions.
• Forestry: Monitoring for forest fires, stopping deforestation, and avoiding major wildfires.
• Agriculture: Evaluating the state of the plants on a certain terrain.
• Healthcare: Keep an eye on locations where epidemics are spreading.
• Ecology: Locating species populations in specific regions, averting disasters, etc.
• Advertising and marketing: directing adverts to the appropriate areas.
• Real Estate: Remotely visualising and examining objects related to real estate
• Insurance: Using historical georeferenced data analysis to manage risks in contested locations.

India's new geospatial policy guidelines:

Free geospatial data access

• The Department of Science and Technology will release the geospatial data into the general public domain.

Individual Certification

• For conformity to rules, startups do not require pre- and post-approval certificates. A self-declaration is effective.

Promotion of cutting-edge technology

• The government will advocate for the most recent mapping innovations.

Applicability

• The Guidelines apply to geographic information, such as maps, products, solutions, and services provided by autonomous entities, government agencies, private businesses, non-governmental organisations, and individuals.

Negative List of sensitive attributes

• The Guidelines stipulate that before any person can obtain and/or use such sensitive data, the DST must notify the public of a list of sensitive qualities that require control.

Importance of the Geospatial industry:

Strong ecosystem

• Geospatial technology is used by the Survey of India (SoI), the Indian Space Research Organization (ISRO), remote sensing application centres (RSAC), the National Informatics Centre (NIC), and all ministries and departments overall.

Getting Data

• With the aid of geospatial technology, we may collect data that is georeferenced and use it for analysis, modelling, simulations, and visualisation.

Making wise judgments

• Because most resources are restricted in nature, geospatial technology enables us to make well-informed decisions based on the significance and priority of those resources.

Models and maps with intelligence

• In a STEM application, geospatial technology can be utilised to build intelligent maps and models that can be interactively queried to produce the required outcomes. It can also be used to support social research and policy-based research.

Problems/Difficulties in This Sector

• Negligible involvement
• Both the full advantages and significant GDP contributions have not yet reached the general population.
• Lack of a market
• One of the biggest obstacles is India's lack of a substantial geospatial market.
• There is no market for geospatial goods and services.
• It is as a result of potential consumers in the public and private sectors not being aware of it.
• Another significant problem is the overall pyramid's shortage of skilled labour.
• There are still no ready-to-use solutions Specifically created to address India's concerns.

Related Projects

• Drones are used by the SWAMITVA scheme to survey properties in villages. SWAMITVA stands for Survey of Villages and Mapping using Improvised Technology in Village Areas.
• Rural residents now have undeniable proof of ownership.

The satellite for South Asia

• It promotes neighbourhood interaction and communication for India.
• India's drone industry received a significant boost, and the country also allowed private companies and 5G technologies access to its space industry.

Instantaneous digital payments

• When it comes to real-time digital payments, India leads the world. Digital payments are accepted and preferred by even the tiniest suppliers.

PM Master Plan for Gati Shakti

• Infrastructure for many modes is being built. Geospatial technology is driving it.

Way Forward

• Open to all: India's geospatial industry has been made available to its young, talented individuals. Data gathered over a 200-year period had been made public and free to anyone.
• In a mission mode, this entails enabling the final individual during the final mile. This idea has helped us empower people in the last mile on an enormous scale.
• No one is being left behind, thanks to India: Insuring 135 million uninsured people, roughly twice as many as there are in France, banking 450 million unbanked people, a population larger than that of the USA, providing access to sanitation facilities for 110 million families, and providing tap water connections for more than 60 million families.

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Nobel Prize in Economic Science 2022

• Ben S. Bernanke, Douglas W. Diamond, and Philip H. Dybvig will receive the 2022 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel "for research on banks and financial crises," according to the Royal Swedish Academy of Sciences.
• David Card, a Canadian-American, received half of the 2021 Nobel Prize in Economic Sciences (labour economics), and Joshua D. Angrist and Guido W. Imbens, Israeli-Americans, shared the other half (analysis of causal relationships).
• Other 2022 Nobel Prizes have already been announced in literature, chemistry, physics, medicine, and peace.

Note

• The Economics Prize was established by the Swedish Central Bank in Alfred Nobel's honour, not by his will, which established the other prizes, in 1895. In 1969, the first winner was chosen.

What impact have these Nobel Prize winners had on the banking industry?

Bernanke, Ben S.

• The worst economic catastrophe in recent history—the Great Depression of the 1930s—was examined by Ben Bernanke.
• Bernanke showed through statistical analysis how the global downturn of the 1930s was mostly caused by failing banks.
• He demonstrated how bank runs were a crucial contributor to the crisis growing so severe and protracted.
• It also made it easier to comprehend how crucial effective bank regulation is.
• When the 2008 financial crisis broke out, Bernanke was in charge of the Federal Reserve, the US central bank, and he was able to "translate information from research into policy."

Philip H. Dybvig and Douglas W. Diamond:

• In order to explain why banks exist, how their place in society makes them susceptible to rumours of their impending collapse, and how society might minimise this vulnerability, Diamond and Dybvig collaborated to build theoretical models. These realisations serve as the cornerstone of contemporary bank regulation.
• They offered deposit protection from the government as a remedy for banks' vulnerability. Depositors won't need to hurry to the bank as soon as reports of a bank run first surface if they are aware that the state has guaranteed their money.

Read Also: Green Nobel Prize