20 April 2023

DAILY CURRENT AFFAIRS ANALYSIS

1 – IMF: GS II – International Organizations:

About:

• With 190 member countries, the International Monetary Fund (IMF) is a membership-based organisation. On the IMF’s executive board, the most important countries in terms of their economic weight are represented.

What are the IMF’s objectives?

• Encourage financial cooperation between nations
• International trade is facilitated by stable financial conditions.
• Encourage sustained economic growth and strong employment.
• includes a decrease in global poverty, macroeconomic development guidance on public policy and funding for developing countries, encouraging the creation of an international payment system, and stability in exchange rates

What Are the IMF’s Procedures?

• The promotion of trade and economic growth, the advancement of international monetary cooperation, and the prevention of measures that might be harmful to prosperity are its three main goals.
• To complete these missions, member countries of the IMF work together as well as with other international organisations.
• What is the history of the IMF?
• At a UN conference held in Bretton Woods, New Hampshire, in July 1944, the concept for the IMF, sometimes known as the Fund, first surfaced.
• The 44 nations present at the meeting aspired to create a framework for economic cooperation in order to avoid a repeat of the competitive devaluations that had contributed to the Great Depression of the 1930s.
• To be eligible for membership in the International Bank for Reconstruction and Development, countries had to be IMF members (IBRD).
• The IMF introduced a system of convertible currencies with fixed exchange rates and replaced the U.S. dollar as the official reserve with gold (gold at $35 per ounce) in order to encourage international financial cooperation.
• Since the Bretton Woods system (a system of fixed exchange rates) failed in 1971, the IMF has supported the floating exchange rate system. Because governments are free to select their preferred exchange system, market forces determine the value of currencies relative to one another. This system is still in operation today.
• According to IMF estimates, 100 developing countries who imported oil during the 1973 oil crisis faced a 150% increase in their foreign debt between 1973 and 1977, which was further exacerbated by a global switch to floating exchange rates. The Oil Facility was a brand-new credit programme that the IMF administered between 1974 and 1976. It was funded by oil-exporting nations and other lenders and made accessible to countries that were having serious issues with their trade balance as a result of the rise in oil prices.
• The IMF, one of the most significant organisations in the world economy, ensured a balance between the promotion of national economic sovereignty and human welfare, or embedded liberalism, and the revival of international capitalism.
• The IMF played a significant role in helping the former Soviet Union’s countries transition from centrally planned to market-based economies.
• 1997 saw a wave of financial crises sweep over East Asia, hurting nations like Korea, Thailand, and Indonesia.
• The International Monetary Fund created a series of bailouts (rescue packages) that were dependent on financial, banking, and currency reforms in order to assist the most severely affected economies escape default.
• (2008) Global Economic Crisis: In response to a world that is becoming more interconnected and globalised, the IMF took considerable actions to improve surveillance.
• These initiatives included modernising the legal framework for surveillance to take into account spillovers (when economic policies in one country may have an impact on those in another), in-depth research into risks and financial systems, accelerated evaluations of members’ external positions, and quicker responses to member concerns.

What functions does the IMF perform?

• Financial Assistance: In order to replenish foreign reserves, stabilise currencies, and enhance the conditions for economic growth, the IMF lends money to member countries who are having balance of payments problems. Governments are required to carry out IMF-supervised structural adjustment plans.
• IMF It monitors the monetary system around the world as well as the economic and financial policies of the 190 countries that make up its membership.
• In this process, which takes place both internationally and in particular countries, the IMF emphasises potential stability threats and provides advice on necessary policy adjustments.
• Capacity Building It provides technical assistance and training to central banks, finance departments, tax authorities, and other financial entities.
• This supports the improvement of governance, modernization of banking systems, growth of public income, and better reporting of macroeconomic and financial data. Furthermore, it helps countries move closer to achieving the Sustainable Development Goals (SDGs).

Source The Hindu

2 – Domestic Systemically Important Banks: GS III – Indian Economy

Background:

• After the financial crisis of 2008, which was exacerbated by the failure of multiple strategically important banks across numerous areas, the D-SIB system was put into place.
• The economy of the nation depends on D-SIBs. In times of need, the government assists these banks, and if one of them failed, it would have an impact on the country’s whole economy.
• The scale, complexity, lack of substitutability, and bank interconnection are among the factors that the RBI considers when choosing such organisations, according to official media.

D-SIBs: How are they determined?

• Every year since 2015, the RBI has made the list of all D-SIBs available to the public. Depending on how important they are to the entire economy, they are categorised into five classes.
• For a bank to be listed on the D-SIB list, its assets must be more than 2% of the GDP of the nation. The significance of the banks is then further divided into each of the five buckets.

What rules are these banks required to follow?

• Due to the importance of the banks to the economy and society, they are required to hold a higher percentage of risk-weighted assets as tier-I equity. Due to its placement in D-SIB bucket three, SBI is required to maintain Additional Common Equity Tier 1 (CET1) at 0.60 percent of its risk-weighted assets (RWAs).

Need for:

• If such a bank failed, the essential services they provide to the banking system and the entire economy would be severely affected.
• The expression “too big to fail” also refers to the expectation that the government will support important institutions in difficult times.
• This viewpoint benefits these institutions in several respects in terms of funding. It also suggests that these institutions have a special set of guidelines for handling systemic risk and moral hazard.

Source The Hindu

3 – Forest Rights Act: GS II – Government Policies and Interventions

About:

• The FRA, passed in 2006, recognises the rights of indigenous people who rely on the forest for a variety of needs, including housing, a way of sustaining themselves, and other sociocultural necessities.
• It recognises and grants other traditional forest dwellers (OTFD) and scheduled tribes of forest dwellers (FDST) who have lived there for many generations the right to occupy forest land.
• It strengthens the forest conservation regime while safeguarding the FDST and OTFD’s way of life and food security.
• The Gram Sabha must initiate the process for determining the type and extent of Individual Forest Rights (IFR), Community Forest Rights (CFR), or both, that may be awarded to FDST and OTFD.
• It allows FDST and OTFD the right to ownership of land farmed by tribal people or forest residents, subject to a maximum of 4 hectares.
• Ownership only extends to land that the concerned family is actively cultivating; no new lands will be provided.
• Residents have the right to use grazing areas, small amounts of wood, and other areas.
• Rights to development and assistance:
• Depending on restrictions for forest protection, access to necessities, and recovery in the event of an unauthorised eviction or forcible relocation.
• Any community forest resource that has historically been protected and kept for use in the future is protected under rights linked to forest management.

Significance:

A constitutional provision was expanded:

• It increases the reach of the Constitution’s Fifth and Sixth Schedules, which protect the rights of indigenous groups to the lands and forests they call home.
• Security Concerns: The alienation of tribes was a contributing factor in the Naxal Movement, which had an influence on regions such as Chhattisgarh, Odisha, and Jharkhand.
• It has the ability to democratise forest governance by recognising community rights to forest resources.
• As a result, government exploitation of forest resources will be constrained, forest governance will be improved, and tribal rights will be better managed. This will ensure that people have the chance to manage their forests autonomously.

Challenges:

Government Ignorance:

• Because tribals do not make up a sizable vote bank in the majority of states, governments find it more convenient to undermine FRA or abandon it entirely in favour of financial rewards.
• Although the FRA was meant to be a welfare programme for tribe members, the forest bureaucracy mistook it for a means of legalising expansion.
• Business organisations fear losing their easy access to irreplaceable natural resources.
• Some ecological organisations are concerned that the FRA favours individual rights over community rights, which will leave less room for them.
• Institutional Barrier: Gram Sabha creates rough maps of collective and individual claims, but it occasionally lacks technical expertise and is educationally incompetent.
• Misuse of FRA: When the FRA was applied improperly, communities hastily filed lawsuits. All political parties have used the FRA as a tool to distribute land and define district goals.

How to Proceed:

• It is imperative that the governments at the Central and State levels be strengthened with human and financial resources to support the mission-mode execution of FRA.
• In order to provide services to gramme sabhas, the forest bureaucracy needs to be reorganised in addition to using technology to map and track the implementation of FRA.

 Source The Hindu

4 – Financial Inclusion: GS III – Indian Economy

About:

• Financial inclusion is the process of ensuring that vulnerable groups, such as weaker individuals and low-income groups, have affordable access to financial services and prompt and sufficient financing when needed.
• In a multiethnic country like India, financial inclusion is essential to the development process. Since the nation’s independence, successive governments, regulatory agencies, and civil society have worked together to spread the country’s financial inclusion net.
• Compared to before, financial inclusion is currently in considerably better form. Financial inclusion hasn’t yet helped the lowest of the poor, and there are many issues that need quick solutions.
• Reaching out to the unbanked and bringing them into the financial system is therefore extremely important and presents a great opportunity.

Financial Inclusion Initiatives:

The Jan Dhan-Aadhar-Mobile Trinity (JAM):

• The deployment of Aadhaar, PMJDY, and increased mobile connection have altered how citizens access government services.
• According to estimates from March 2020, the Jan Dhan scheme has generally helped over 380 million people.
• To support the progress of financial inclusion, Aadhaar has fundamentally changed the concept of personal identity and developed a system that is secure, easy to verify, and quick to obtain.
• The government has also created a number of flagship programmes to promote financial inclusion and provide financial stability in order to empower the nation’s impoverished and unbanked citizens.
• These include the Pradhan Mantri Suraksha Bima Yojana, Stand-Up India Scheme, Pradhan Mantri Jeevan Jyoti Bima Yojana, and Pradhan Mantri Mudra Yojana.

Growth of financial services in semi-urban and rural areas:

• The Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD) have taken actions to promote financial inclusion in rural areas.
• The opening of bank branches in remote areas is one of them.
• Issuing Kisan credit cards (KCC).
• Self-help groups’ (SHGs) ties to financial institutions.
• Increasing the number of automated teller machines (ATMs).
• Business correspondents in banking, etc.

Encouragement of digital payments:

• By strengthening the Unified Payment Interface (UPI), NPCI has improved the security of digital payments.
• Thanks to the Aadhar-enabled payment system, an Aadhar enabled bank account (AEBA) may be used anywhere and at any time by using micro ATMs (AEPS).
• The payment system has grown more accessible as a result of offline transaction-enabling technologies like Unstructured Supplementary Service Data (USSD), which enable the usage of mobile banking services even on the most basic mobile devices without internet.

Enhancing Financial Literacy:

• The Reserve Bank of India launched a project called Project Financial Literacy.
• The project’s objective is to educate various target populations about the central bank and general banking concepts, including school- and college-age children, women, rural and urban poor, members of the military, and older residents.
• The flagship project of the National Institute of Securities Markets (NISM) and Securities and Exchange Board of India (SEBI), Pocket Money, aims to raise the financial literacy of schoolchildren.
• The objective is to help pupils comprehend the value of money and the relevance of saving, investing, and budgeting.

Source The Hindu