Daily Current Affairs : 1st January 2022

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Daily Current Affairs for UPSC CSE

Topics Covered

  1. GST Council
  2. Special Drawing Rights
  3. Fiscal Deficit
  4. Core sector
  5. Solid State Battery
  6. Facts for Prelims

1 . GST Council

Context : Hours before the new GST rate was to take effect, the GST Council decided to temporarily roll back the increase in tax rate for the textiles sector at an emergency meeting on Friday. The move follows demands from several States, including Gujarat, West Bengal and Tamil Nadu.

About GST Council

  • Goods & Services Tax Council is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax.
  • As per Article 279A (4), the Council will make recommendations to the Union and the States on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws, principles that govern Place of Supply, threshold limits, GST rates including the floor rates with bands, special rates for raising additional resources during natural calamities/disasters, special provisions for certain States, etc.
  • As per Article 279A of the amended Constitution, the GST Council will be a joint forum of the Centre and the States. This Council shall consist of the following members namely: –
    • Union Finance Minister – Chairperson
    • The Union Minister of State, in-charge of Revenue of finance – Member
    • The Minister In-charge of finance or taxation or any other Minister nominated by each State Government

Mandate of GST Council

The Goods and Services Tax Council shall make recommendations to the Union and the States on—

  • Taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax;
  • Goods and services that may be subjected to, or exempted from the goods and services tax;
  • Model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply;
  • Threshold limit of turnover below which goods and services may be exempted from goods and services tax;
  • Rates including floor rates with bands of goods and services tax;
  • Special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;
  • Special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
  • Any other matter relating to the goods and services tax, as the Council may decide.

Exceptions 

  • The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.

Other relevant points

  • Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely: —
  1. the vote of the Central Government shall have a weightage of one third of the total votes cast, and
  2. the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.

2 . Special Drawing Rights

Context : Foreign-owned assets in India increased by $37.3 billion during the July-September quarter (Q2), according to RBI data.

Background

  • IMF released data relating to India’s International Investment Position (IIP) at end-September 2021.
  • The International Monetary Fund describes a nation’s IIP as showing the value of financial assets of residents of an economy that are claims on non-residents, or are gold bullion held as reserve assets; and of the liabilities of residents to non-residents.

About the News

  • Indian residents’ overseas financial assets rose $31.9 billion, almost three-fourths of which came from build-up in reserve assets.
  • Reserve assets accounted for 68.5% of India’s international financial assets in September 2021.
  • The share of debt liabilities in total liabilities increased marginally to 47.8%.
  • The ratio of international assets to international liabilities improved to 73.6% from 70.4% a year earlier.
  • Net claims of non-residents on India increased by $5.4 billion during July-September 2021.

Impact on increase in Foreign owned assets

  • This partly reflects the allocation of special drawing rights (SDRs) by the International Monetary Fund (IMF) in August 2021, the Reserve Bank of India (RBI) said.

About SDR

  •  This is a kind of reserve of foreign exchange assets comprising leading currencies globally and created by the International Monetary Fund in the year 1969.
  • Before its creation, the international community had to face several restrictions in increasing world trade and the level of financial development as gold and US dollars, which were the only means of trade, were in limited quantities. In order to address the issue, SDR was created by the IMF.
  • SDR is often regarded as a ‘basket of national currencies’ comprising four major currencies of the world – US dollar, Euro, British Pound and Yen (Japan). The composition of this basket of currencies is reviewed every five years wherein the weightage of currencies sometimes get altered.
  • The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.

Basket of Currencies

  • Currencies included in the SDR basket have to meet two criteria: the export criterion and the freely usable criterion. 
    • A currency meets the export criterion if its issuer is an IMF member or a monetary union that includes IMF members, and is also one of the top five world exporters.
    • For a currency to be determined “freely usable” by the IMF, it has to be widely used to make payments for international transactions and widely traded in the principal exchange markets. Freely usable currencies can be used in Fund financial transactions.
  • The SDR basket is reviewed every five years, or earlier if warranted, to ensure that the basket reflects the relative importance of currencies in the world’s trading and financial systems.

SDR Allocation

  • An SDR allocation is a way of supplementing Fund member countries’ foreign exchange reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves.
  • The IMF has the authority under its Articles of Agreement to create unconditional liquidity through “general allocations” of SDRs to participants in its SDR Department (currently, all members of the IMF) in proportion to their quotas in the IMF.
  • A special one-time allocation of SDR 21.5 billion was proposed in 1997 under what is known as the Fourth Amendment of the IMF’s Articles of Agreement, to allow members to participate equitably in the SDR system, even if they joined after previous SDR allocations.
  • The Fourth Amendment provided for a special allocation of SDRs to raise the ratios of members’ cumulative SDR allocations relative to quota to a common benchmark ratio as described in the amendment.

Benefits & Uses

  • A direct benefit of a general SDR allocation, and indeed the purpose of such an allocation under the Fund’s Articles of Agreement, is to supplement existing reserve assets to help meet a long-term global need. This boosts buffers and bolsters international economic resilience. By helping stabilize vulnerable countries, an SDR allocation can help mitigate risks of economic and social fragility, minimize spillovers, and enhance the stability of the international monetary system.
  • Once allocated, members can hold their SDRs as part of their foreign exchange reserves or sell or use part or all of their SDR allocations. Members can exchange SDRs for freely usable currencies among themselves and with prescribed holders; such exchange can take place under a voluntary arrangement or under a mandatory designation plan on members with sufficiently strong external positions, which serves as the ultimate backstop for the SDR market. Since 1987, the SDR market has functioned through voluntary arrangements, without the need to activate the designation plan.
  • IMF members can also use SDRs in a range of other authorized operations among themselves (e.g. loans, payment of obligations, pledges) and in operations and transactions involving the IMF, such as the payment of interest on and repayment of loans, or payment for quota increases.

3 . Core Industry

Context : Output of eight core sectors rose by 3.1% in November as against a contraction of 1.1% in the same month last year, according to government data released on Friday.

What is a core industry?

  • Core sectors or industry can be defined as the main industry of the economy. In most countries, these industries are backbone to other industries

Eight Core Industries (Mnemonic – EF, NRS, C3)

  1. Electricity
  2. Steel
  3. Refinery products
  4. Crude oil
  5. Coal
  6. Cement
  7. Natural gas
  8. Fertilizers

Index of Eight Core Industries

  • It is an index of the eight most fundamental industrial sectors of the Indian economy and it maps the volume of production in these industries.
  • The Index of Eight Core Industries is a monthly production index, which is also considered as a lead indicator of the monthly industrial performance. The index gives different weights to each of these sectors to arrive at a final figure.
  • Since these eight industries are the essential “basic” and/or “intermediate” ingredient in the functioning of the broader economy, mapping their health provides a fundamental understanding of the state of the economy. In other words, if these eight industries are not growing fast enough, the rest of the economy is unlikely to either.
  • Office of Economic Adviser within the Department for Promotion of Industry and Internal Trade releases the Index of Eight Core Industries (ICI) 

4 . Fiscal Deficit

Context : India’s federal fiscal deficit in April-November, the first eight months of current fiscal year, narrowed to 46.2% of the full-year budgeted target, helped by a rise in tax collections, government data showed

Fiscal Deficit – Definition

  • Fiscal Deficit is the difference between the total income of the government (total taxes and non-debt capital receipts) and its total expenditure.
  • A fiscal deficit situation occurs when the government’s expenditure exceeds its income.
  • This difference is calculated both in absolute terms and also as a percentage of the Gross Domestic Product (GDP) of the country.
  • A recurring high fiscal deficit means that the government has been spending beyond its means.

Fiscal deficit in the Indian Context

  • The government describes fiscal deficit of India as “the excess of total disbursements from the Consolidated Fund of India, excluding repayment of the debt, over total receipts into the Fund (excluding the debt receipts) during a financial year”.

What constitutes the government’s total income or receipts?

  • It has two components revenue receipts and non-tax revenues.
  • Revenue receipts of the government
    • Corporation Tax
    • Income Tax
    • Custom Duties
    • Union Excise Duties
    • GST and taxes of Union territories. (GST or Goods and Services Tax which is collected by the Centre includes CGST (Central Goods and Services Tax), IGST (Integrated Goods and Services Tax) & GST Compensation Cess)
  • Non-tax revenues
    • Interest Receipts
    • Dividends and Profits
    • External Grants
    • Other non-tax revenues
    • Receipts of union territories

Expenditures of the government:

  • It can be classified into:
    • Revenue Expenditure
    • Capital Expenditure
    • Interest Payments
    • Grants-in-aid for creation of capital assets

Fiscal Deficit formula: How is Fiscal Deficit calculated?

  • Fiscal Deficit = Total expenditure of the government (capital and revenue expenditure) – Total income of the government (Revenue receipts + recovery of loans + other receipts)
  • If the total expenditure of the government exceeds its total revenue and non-revenue receipts in a financial year, then that gap is the fiscal deficit for the financial year.
  • The fiscal deficit is usually mentioned as a percentage of GDP. For example, if the gap between the Centre’s expenditure and total income is Rs 5 lakh crore and the country’s GDP is Rs 200 lakh crore, the fiscal deficit is 2.5% of the GDP.

What causes Fiscal Deficit?

  • Generally fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development.
  • Sometimes, the governments spend on handouts and other assistance to the weak and vulnerable sections of the society such as the farmers and the poor. This can also lead to fiscal deficit
  • A high fiscal deficit can also be good for the economy if the money spent goes into the creation of productive assets like highways, roads, ports and airports that boost economic growth and result in job creation.

How is Fiscal Deficit met?

  • A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds.

5 . Solid State Battery

Context : QuantumScape’s solid-state battery — lithium metal with a solid electrolyte separating the two electrodes — is seen as an exceptionally bright prospect in an increasingly crowded space. The company, which was co-founded by Singh a decade ago and received financial backing from Volkswagen and Bill Gates’s venture fund, listed late last year and was valued at almost $50 billion within a few months on the promise that its novel battery technology could offer a safer, cheaper alternative to lithium-ion batteries.

About Solid State Battery

  • A lithium-ion battery is composed of cathode, anode, separator and electrolyte. A lithium-ion battery applied at smartphones, power tools and EVs uses liquid electrolyte solution. On the other hand, a solid-state battery uses solid electrolyte, not liquid.  
  • Earlier efforts to build a solid-state separator (electrolyte) capable of working with lithium metal had to compromise on aspects such as the cycle life and operating temperature of the battery, and the issue of excess lithium deposits on the anode.

Issues with Lithium ion cells

  • The energy density of lithium-ion cells used in today’s mobile phones and electric vehicles is nearly four times higher than that of older-generation nickel-cadmium batteries.
  • Lithium-ion batteries use aqueous electrolyte solutions, where ions transfer to and fro between the anode (negative electrode generally made of graphite) and cathode (positive electrode made of lithium), triggering the recharge and discharge of electrons.
  • Despite improvements in technology over the last decade, issues such as long charging times and weak energy density persist. While lithium-ion batteries are seen as sufficiently efficient for phones and laptops, they still lack the range that would make EVs a viable alternative to internal combustion engines.
  • One major problem is that lithium metal is extremely reactive. The main form of lithium corrosion are dendrites, which are branched lithium structures that grow out from the electrode and can potentially pierce through the separator and on to the other end, short-circuiting the cell. In current lithium-ion batteries, in which the electrolyte is a flammable liquid, dendrite formation can trigger a fire.

Quantum Scape Solid State Batteries

  • Quantum Scape says its solid-state lithium-metal battery replaces the polymer separator used in conventional lithium-ion batteries with a solid-state separator. The replacement of the separator enables the use of a lithium-metal anode in place of the traditional carbon/graphite anode.
  • The lithium metal anode is more energy-dense than conventional anodes, which allows the battery to store more energy in the same volume, according to the company. The Quantum Scape design is supposed to be ‘anode-free’ in that the battery is manufactured in a discharged state, and the negative electrode forms in situ on the first charge.

Key advantages

  • The advantages of the solid-state battery technology include higher cell energy density (by eliminating the carbon anode), lower charge time (by eliminating the need to have lithium diffuse into the carbon particles in conventional lithium-ion cells), ability to undertake more charging cycles and thereby a longer life, and improved safety.
  • Lower cost could be a game-changer, given that at 30 per cent of the total cost, battery expenses are a key driver of the vehicle costs.

6 . Facts for Prelims

Controlled Filght into Terrain (CFIT)

  • CFIT means that the pilot is in full control of the aircraft but due to faulty situational awareness, the aircraft strikes the terrain,
  • An example could be of an aircraft doing low flying over a large expanse of water and striking it due to lack of depth perception. A similar strike could happen over snow
  • The U.S. Federal Aviation Administration (FAA) defines CFIT as an unintentional collision with terrain (the ground, a mountain, a body of water, or an obstacle) while an aircraft is under positive control. “Most often, the pilot or crew is unaware of the looming disaster until it is too late. CFIT most commonly occurs in the approach or landing phase of flight

Sikh for Justice

  • Sikhs for Justice (SFJ), formed in 2007, is a US-based group seeking a separate homeland for Sikhs — a “Khalistan” in Punjab. Founded and primarily headed by lawyer Gurpatwant Singh Pannun.
  • It was banned in India in 2019 as an unlawful association.

Road connecting Chisumle and Demchok.

  • The road is in south Ladakh, connecting Chisumle and Demchok. It passes through a pass known as Umling La, which is at a height of over 19,000 feet.
  • The height of the pass makes it the highest motorable road in the world, and was recently recognised as such by Guinness World Records.
  • It betters the previous record of a road in Bolivia, which connects the volcano Uturuncu at 18,953 feet.

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