07 July 2022

DAILY CURRENT AFFAIRS ANALYSIS

07 JULY 2022

1 – Forex Reserves in India:

GS III 

Topic à Indian Economy

Context:

• The Reserve Bank of India (RBI) on Wednesday announced a number of steps, including a relaxation in foreign investment in debt, external commercial borrowings, and Non-Resident Indian (NRI) deposits, to stop the rupee’s decline and strengthen foreign exchange reserves.

About Reserves of Foreign Exchange:

• Bonds, treasury bills, and other government securities are examples of the assets kept in reserve by a central bank in foreign currencies.
• It should be emphasized that US dollars make up the majority of foreign exchange reserves.

The following are included in India’s foreign exchange reserves:

• Gold Stocks
• Reserve Special Drawing Rights at the International Monetary Fund (IMF).

Goals of Keeping Foreign Exchange Reserves:

• Promoting and preserving trust in the monetary and exchange rate management policies.
• Gives the ability to act to defend the national 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.

Importance of Increasing Foreign Reserves:

Government in a comfortable position: The government and the RBI are more at ease managing India’s domestic and external financial difficulties because of the growing foreign exchange reserves.

• Crisis management: It acts as a safety net in the case of an economic Balance of Payments (BoP) crisis.
• Rising reserves have also contributed to the rupee’s appreciation against the dollar.
• Market Confidence: Reserves will give markets and investors some assurance that a government can fulfill its international obligations.

Assets in foreign currencies:

• Assets that are valued using a different currency than the nation’s native currency are known as FCAs.
• The FCA makes up the majority of the FX reserve. It is stated in terms of dollars.
• The FCAs take into account the impact of appreciation or depreciation of non-US currencies held in foreign exchange reserves, such as the euro, pound, and yen.

About the Special Drawing 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).
• The IMF recently gave India an allocation of SDR 12.57 billion, or roughly USD 17.86 billion. The current value of India’s SDR holdings is 13.66 billion SDR.

International Monetary Fund holds the reserves in following manner:

• A reserve tranche position refers to the amount of currency that each member state must provide to the IMF but may keep for its own use.
• The reserve tranche can essentially be thought of as an emergency account that IMF members can access whenever they want, free of restrictions or service charges.

Source à The Hindu

 2 – Sub Categorization of OBCs:

 GS II

Topic à Government Policies and Interventions

Context:

• The Justice Rohini Commission will have until January 31, 2023 to present its report after receiving the 13th extension from the Union Cabinet on Wednesday.

About:

• The Other Backward Classes (OBCs) Sub-categorization in the Central List was the subject of the Commission’s investigation.
• The extension lasts an additional six months, from July 31, 2021, to January 31, 2022.

The advantage of this extension is:

• After consulting with many stakeholders, the “Commission” will be able to give a thorough report on the subject of sub-categorizing OBCs thanks to the planned extension of tenure and addition to its terms of reference.

Background:

• The Rohini Commission was established in October 2017.

Objective:

• to investigate the division of Other Backward Classes (OBCs) and the fair allocation of the OBCs’ advantages among them
• Extension justification: The Supreme Court denied the federal government’s request for a review of its ruling from May 5th, which said that the 102nd Amendment to the Constitution removes the states’ authority to define the Socially and Economically Backward Classes (SEBC) in the area.

About the 102^ndConstitutional Amendment:

• It grants the National Commission for Backward Classes constitutional standing.
• Additionally, it added Article 342A, which gives the President the authority to designate a class as SEBC and gives Parliament the authority to change the central SEBC list, as well as Article 338B, which deals with the composition, responsibilities, and powers of the commission.

About OBC sub-categorization:

• OBCs are given a 27% reservation in both employment and education by the federal government.
• The Supreme Court’s involvement: The Supreme Court’s Constitution Bench renewed the legal discussion on the sub-categorization of Scheduled Castes and Scheduled Tribes for reservations in September of last year.
• Reservations are only granted to wealthy communities: The controversy stems from the idea that just a small number of wealthy communities—out of the more than 2,600 OBCs listed on the Central List—have obtained a significant portion of the 27 percent quota.

Why the Rohini Commission was established:

• The Rohini Commission was established on October 2, 2017, to investigate the issue of sub-categorization of OBCs.
• It was given 12 weeks to complete its report at the time, but many extensions have since been granted, the most recent being until November 11.
• Jitendra Bajaj, the director of the Centre for Policy Studies, is the other member of the Commission.
• The National Commission for Backward Classes was given constitutional standing by the Center before the Rohini Commission was established (NCBC).

Guidelines for the Rohini Commission:

• to assess the degree of unequal distribution of reservation benefits among the castes or groups that make up the wide category of OBCs in relation to those classes that are on the Central List;
• to develop the mechanism, standards, norms, and parameters for sub-categorisation within such OBCs using a scientific approach;
• must undertake the task of locating the appropriate castes, communities, sub-castes, or synonyms in the Central List of OBCs and placing them in the appropriate sub-categories.
• should review each entry in the Central List of OBCs and suggest any repetitions, ambiguities, contradictions, or transcriptional or spelling mistakes be removed.

Results thus far:

• In 2018, the Commission examined information on 1.3 lakh government positions filled under the OBC quota over the previous five years as well as OBC admissions to central higher education institutions over the previous three years, including universities, IITs, NITs, IIMs, and AIIMS.

The conclusions were:

• Only 25 percent of all subcastes that are considered OBCs have received 97 percent of all jobs and educational seats; 10 OBC communities have received 24.95 percent of these jobs and seats; 983 OBC communities, or 37 percent of the total, have no representation in jobs and educational institutions; and 994 OBC subcastes have a combined representation of just 2.68 percent in recruitment and admissions.
• Only 42 central government ministries and departments were included in this report.
• The reason for the low number of applicants is because OBC candidates were flagged as “NFS” for a number of positions that were designated for OBCs (None Found Suitable).

Source à The Hindu

3 – Minimum Support Prices:

GS III

Topic à Indian Agriculture related issues

Context:

• Ramesh Chand, a member of the NITI Aayog, emphasised the necessity of continuing the minimum support price (MSP) programme for crops, saying that if procurement cannot be the solution, it is necessary to debate and discuss what should be the “means” to provide the promised returns to farmers.

About:

• The MSP, which is based on a computation of at least 1.5 times the farmers’ production costs, is the rate at which the government purchases crops from farmers.
• A “minimum price” (MSP) is set for any crop the government deems to be profitable for farmers and so deserving of “support.”

Crops covered by MSP:

• The fair and remunerative price (FRP) for sugarcane is also recommended by the Commission for Agricultural Costs & Prices (CACP), along with MSPs for 22 mandatory crops.
• A department within the Ministry of Agriculture and Farmers Welfare is known as CACP.
• 14 kharif season crops, 6 rabi season crops, and 2 more commercial crops make up the list of required crops.
• Additionally, toria and de-husked coconut MSPs are set based on the MSPs of rapeseed/mustard and copra, respectively.

How the MSP is decided:

• When recommending the MSP for a product, the CACP takes into account a number of criteria, including the cost of cultivation.
• It considers the commodity’s supply and demand dynamics, domestic and international market price trends, parity with respect to other crops, repercussions for consumers (inflation), the environment (soil and water consumption), and trade agreements between the agricultural and non-agricultural sectors.
• The Union government’s Cabinet Committee on Economic Affairs (CCEA) makes a final determination regarding the MSP level and other suggestions given by CACP.

Why is MSP Required?

• Since 2014, farmers have been forced to endure falling commodity prices due to the twin droughts of 2014 and 2015.
• Demonetization and the introduction of the GST, two simultaneous shocks, damaged the rural economy, particularly the non-farm sector but also agriculture.
• The majority of farmers continue to be in a precarious condition as a result of the epidemic, the slowdown in the economy following 2016–17, and other factors.
• Increased costs for diesel, energy, and fertilisers have only made the situation worse.

What Problems Are Related to India’s MSP Regime?

• Despite the official announcement of MSP for 23 crops, only two—rice and wheat—are actually purchased because they are distributed through NFSA (National Food Security Act). The remainder is mainly incidental and irrelevant.
• Ineffectively Implemented: Only 6% of the MSP could be obtained by farmers, according to the Shanta Kumar Committee’s assessment from 2015. This immediately translates to 94 percent of farmers in the nation not receiving the benefit of the MSP.
• More of an Acquisition Price Prices in the domestic market have no relationship to the existing MSP regime. Its main purpose is to satisfy NFSA criteria, therefore rather than being an MSP, it functions as a procurement price.
• Resulting in Wheat and Paddy Dominance in Agriculture The overproduction of rice and wheat caused by the skewed MSP system inhibits farmers from growing other crops and horticultural products, which have higher demand and may, therefore, boost farmers’ income.
• The MSP-based procurement system is dependent on intermediaries, commission agents, and APMC officials, all of whom are difficult for smaller farmers to contact.

Steps to Take:

• True MSPs call for government intervention anytime market prices drop below a certain threshold, primarily in situations of excess production and oversupply or a price collapse brought on by external sources.
• For many of the crops that are desirable for nutritional security, such as coarse cereals, as well as for pulses and edible oils for which India is reliant on imports, MSP can also be a motivating price.
• The path to wisdom is to spend more money on more nutrient-dense produce like fruits and vegetables as well as fisheries and animal husbandry.
• The ideal method to invest is to provide financial incentives for businesses to create effective value chains based on a cluster strategy.
• Government must develop a transitional plan for agricultural pricing, whereby some agricultural pricing should be supported by the government and some should be determined by the market.
• A shortfall payment plan modelled after Madhya Pradesh’s Bhavantar Bhugtan Yojana (BBY) could be one approach to do this.

Source à The Hindu 

4 – Donbas region of Ukraine:

Prelims Specific Topic

• Eastern Ukrainian states Donetsk and Luhansk have a common border with Russia.
• The Donetsk People’s Republic (DPR) and the Luhansk People’s Republic (LPR), two separatist regions governed by Russians and separatists with Russian support, are located within these two states.
• The term “Donbas” commonly refers to the entire region, which encompasses Donetsk, Luhansk, and each of their own rebel territories.
• The majority of people in Donbas, which is next to Russia and is located on the Russian border, speak Russian.
• The region is industrial and well-known for its coal reserves.
• Donetsk and Luhansk have received recognition from Russia as separate states.

Source à The Hindu