Daily Current Affairs: 15th December 2021

Topics covered

  1. Wholesale price inflation
  2. Prompt Corrective Action (PCA) Framework for Non-Banking Financial Companies (NBFCs)
  3. Draft Resolution on Climate Change
  4. Zero Budget Natural Farming
  5. Climate Smart Cities Assessment Framework
  6. Facts for Prelims
  7. Places in News

1. Wholesale price inflation

Context: India’s wholesale inflation accelerated to a new high of 14.2% in November from 12.5% in October, led by a surge in primary food inflation that hit a 13-month high and a continued uptick in mineral, fuel and power, as well as oil and gas prices. Fuel and power inflation, in fact, surged to a record level of almost 40% in November, rising sharply over two months from the revised level of 29.5% recorded in September. A marked uptick was also visible across most categories beyond fuel. Manufactured products recorded a marginal reduction month-on-month, with inflation dipping to 11.92% from 12.04% in October.

What Is a Wholesale Price Index (WPI)?

  • A wholesale price index (WPI) is an index that measures and tracks the changes in the price of goods in the stages before the retail level. This refers to goods that are sold in bulk and traded between entities or businesses (instead of between consumers).
  • Usually expressed as a ratio or percentage, the WPI shows the included goods’ average price change; it is often seen as one indicator of a country’s level of inflation.
  • In India WPI is also known as the headline inflation rate .

Who publishes WPI in India and what does it show?

  • The WPI is published by the Economic Adviser in the Ministry of Commerce and Industry.
  • Analysts use the numbers to track the supply and demand dynamics in industry, manufacturing and construction.
  • In India, Office of Economic Advisor (OEA), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry calculates the WPI.
  • An upward surge in the WPI indicates inflationary pressure in the economy and vice versa.
  • The quantum of rise in the WPI month after-month is used to measure the level of wholesale inflation in the economy.

What is the difference between WPI and CPI inflation?

  • While WPI keeps track of the wholesale price of goods, the CPI measures the average price that households pay for a basket of different goods and services.
  • Even as the WPI is used as a key measure of inflation in some economies, the RBI no longer uses it for policy purposes, including setting repo rates.
  • The central bank currently uses CPI or retail inflation as a key measure of inflation to set the monetary and credit policy.

Base year of calculation

  • With an aim to align the index with the base year of other important economic indicators
  • such as GDP and IIP, the base year was updated to 2011-12 from 2004-05 for the new series of Wholesale Price Index (WPI), effective from April 2017.

Calculation of Wholesale Price Index?

  • The monthly WPI number shows the average price changes of goods usually expressed in ratios or percentages.
  • The index is based on the wholesale prices of a few relevant commodities available.
  • The commodities are chosen based on their significance in the region. These represent different strata of the economy and are expected to provide a comprehensive WPI value.
  • The advanced base year 2011-12 adopted recently uses 697 items.

Major components of WPI

  • The index basket of the WPI covers commodities falling under the three major groups namely Primary Articles, Fuel and Power and Manufactured products
  • The prices tracked are ex- factory price for manufactured products, mandi price for agricultural commodities and ex-mines prices for minerals.
  • Weights given to each commodity covered in the WPI basket is based on the value of production adjusted for net imports.
    • Primary articles is a major component of WPI, further subdivided into Food Articles and Non-Food Articles.
    • Food Articles include items such as Cereals, Paddy, Wheat, Pulses, Vegetables, Fruits, Milk, Eggs, Meat & Fish, etc.
    • Non-Food Articles include Oil Seeds, Minerals and Crude Petroleum
    • The next major basket in WPI is Fuel & Power, which tracks price movements in Petrol, Diesel and LPG
    • The biggest basket is Manufactured Goods. It spans across a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, and more.
    • Manufactured Goods basket also includes manufactured food products such as Sugar, Tobacco Products, Vegetable and Animal Oils, and Fats.
  • WPI has a sub-index called WPI Food Index, which is a combination of the Food Articles from the Primary Articles basket, and the food products from the Manufactured Products basket.
  • WPI basket does not cover services

Main uses of WPI

  • To provide estimates of inflation at the wholesale transaction level for the economy as a whole. This helps in timely intervention by the Government to check inflation in particular, in essential commodities, before the price increase spill over to retail prices.
  • WPI is used as deflator for many sectors of the economy including for estimating GDP by Central Statistical Organisation (CSO).
  • WPI is also used for indexation by users in business contracts.
  • Global investors also track WPI as one of the key macro indicators for their investment decisions

WPI Based Inflation

  • Inflation is the rate of increase in prices over a given period of time.
  • Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.
  • There are certain limitations in using WPI as a measure for inflation, as WPI does not consider the price of services, and it does not reflect the consumer price situation in the country.
  • WPI provides estimates of inflation at the wholesale transaction level for the economy overall.
  • It also helps in timely intervention by the government to monitor inflation before the price hike spills over to retail prices. 
  • The WPI-based inflation is used by the government in preparation of fiscal, trade, and other economic policies.
  • Business organisations, policymakers, accountants, and statisticians use WPI as an indexing tool to formulate price adjustment clauses.
  • Rise in WPI indicates inflationary pressure in the economy, and vice versa.
  • The extent of rise in WPI is used to measure the level of wholesale inflation in the economy.

2. Prompt Corrective Action (PCA) Framework for Non-Banking Financial Companies (NBFCs)

Context: The Reserve Bank of India (RBI) has decided to bring non-banking finance companies (NBFCs) under the ambit of the prompt corrective action (PCA) framework.

About Prompt Corrective Action (PCA) Framework

  • The Prompt Corrective Action (PCA) framework is aimed at nursing a lender facing issues on the asset quality, profitability and capital fronts back to health.
  • Since lenders are interconnected (for example, Banks have exposure to other banks through the inter-bank call money market and lend to non-banking finance companies/NBFCs and housing finance companies/HFCs), there can be spillovers and spillbacks, leading to contagion.
  • So, to prevent shocks from spreading in the financial system and preserve financial stability, the Reserve Bank of India (RBI) intervenes when a lender shows signs of distress by invoking PCA.

About PCA framework for NBFCs

  • Under the framework, NBFCs will face restrictions when certain parameters like non-performing assets, capital adequacy ratio and Tier 1 capital fall below the stipulated levels.
  • Banks are already under the framework.
  • The PCA framework for NBFCs will come into effect from October 1, 2022, based on the financial position of NBFCs on or after March 31, 2022.
  • It will be applicable for all deposit-taking NBFCs — excluding government NBFCs, primary dealers and housing finance companies — and other non-deposit taking NBFCs in the middle, upper and top layers.
  • The RBI decision has come after four big finance firms — IL&FS, DHFL, SREI and Reliance Capital — which collected public funds through fixed deposits and non-convertible debentures collapsed in the last three years despite the tight monitoring in the financial sector. They collectively owe over Rs 1 lakh crore to investors.

Risk Thresholds

  • There are three risk thresholds in the PCA framework for NBFCs.
  • Threshold 1:
    • An NBFC under PCA framework, caused by triggering the first threshold, will be restricted on dividend distribution, promoters will be asked to infuse capital and reduce leverage.
    • The RBI will also restrict issuance of guarantees or taking other contingent liabilities on behalf of group companies, in case of core investment companies.
  • Threshold 2:
    • After hitting risk threshold 2, the NBFC will be prohibited from opening branches
  • Threshold 3:
    • Capital expenditure will be stopped, other than for technological upgradation.
  • PCA will be imposed if the net non-performing assets is between
    • 6-9 per cent (risk threshold 1)
    • 9-12 per cent (risk threshold 2)
    • greater than 12 per cent (risk threshold 3).
  • PCA will be imposed if the capital adequacy ratio falls:
    • 300 basis points from the current level of 15-12 per cent (risk threshold 1),
    • 300-600 bps from 12-9 per cent (risk threshold 2)
    • 600 bps from 9 per cent (risk threshold 3)
  • There will be other issues such as heightened regulatory supervision and inspections.
  • The RBI will also actively engage with the board of the NBFCs on various aspects as deemed appropriate by the central bank.

Objective of PCA for NBFCs

  • According to the RBI, NBFCs have been growing in size and have substantial inter-connectedness with other segments of the financial system.
  • Accordingly, a PCA framework for NBFCs has also been put in place to further strengthen the supervisory tools applicable to NBFCs.
  • The RBI said the objective of the framework is to enable supervisory intervention at appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.
  • The PCA framework is also intended to act as a tool for effective market discipline.
  • The PCA framework does not preclude the Reserve Bank from taking any other action as it deems fit at any time in addition to the corrective actions prescribed in the framework.

PCA for Banks

  • Prompt Corrective Action or PCA is a framework under which banks with weak financial metrics are put under watch by the RBI.
  • The PCA framework deems banks as risky if they slip below certain norms on three parameters — capital ratios, asset quality and profitability.
  • It has three risk threshold levels (1 being the lowest and 3 the highest) based on where a bank stands on these ratios.
    • Banks with a capital to risk-weighted assets ratio (CRAR) of less than 10.25 per cent but more than 7.75 per cent fall under threshold 1.
    • Those with CRAR of more than 6.25 per cent but less than 7.75 per cent fall in the second threshold.
    • In case a bank’s common equity Tier 1 (the bare minimum capital under CRAR) falls below 3.625 per cent, it gets categorised under the third threshold level.
  • Banks that have a net NPA of 6 per cent or more but less than 9 per cent fall under threshold 1, and those with 12 per cent or more fall under the third threshold level.
  • On profitability, banks with negative return on assets for two, three and four consecutive years fall under threshold 1, threshold 2 and threshold 3, respectively.

3 . Draft resolution on Climate Change

Context : India on Monday voted against a draft resolution at the United Nations Security Council (UNSC) linking climate to security, saying it was an attempt to shift climate talks from the United Nations Framework Convention on Climate Change (UNFCCC) to the Security Council and a “step backward” for collective action on the issue.


  • The UN already has a specialised agency, the UN Framework Convention on Climate Change or UNFCCC, for discussing all matters related to climate change.
  • The parties to the UNFCCC — over 190 countries — meet several times every year, including at a two-week year-ending conference like the one at Glasgow, to work on a global approach to combat climate change. It is this process that has given rise to the Paris Agreement, and its predecessor the Kyoto Protocol, the international instrument that is designed to respond to the climate change crisis.
  • The Security Council, on the other hand, exists primarily to prevent conflicts and maintain global peace.
  • For the last few years, however, a few European countries, led by Germany, have been pushing for a role for Security Council in climate change discussions as well, arguing that climate change had an international security dimension. Climate change-induced food or water shortage, loss of habitat or livelihood, or migration can exacerbate existing conflicts or even create new ones. This can have implications for the UN field missions that are deployed across the world in peacekeeping efforts.

About the Resolution

  • The draft resolution, piloted by Ireland and Niger sought to create a formal space in the Security Council for discussions on climate change and its implications on international security.
  • It called for UN Secretary General Antonio Guterres to submit a report on security aspects of climate change in the next two years. It also asked the Secretary General to appoint a special envoy for climate security.
  • Further, it asked UN field missions to regularly report on climate change assessments in their areas of operation and take the help of climate experts in carrying out their routine functions.
  • The resolution did not pass, with 12 UNSC members voting for it, India and Russia voting against it and China abstaining.


  • Russia and China, two permanent members with veto powers, have always been opposed to the move to bring climate change on the Security Council agenda. While the US switched sides this year, India, which started a two-year term in January, joined ranks with Russia and China. Brazil, which will join the Security Council next year, is also known to be against this move.
  • The opposing countries have been arguing that the UNFCCC must remain the appropriate forum for addressing all climate change-related issues, and claim the Security Council does not have the expertise to do so. They have also been pointing out that unlike UNFCCC, where decisions are taken by consensus of all the 190-plus countries, the UNSC would enable climate change decision-making by a handful of developed countries.

4 . Zero Budget Natural Farming

Context: Prime Minister Narendra Modi is bringing back Zero Budget Natural Farming (ZBNF) as a top Government agenda as he prepares to highlight it at a national conclave in Gujarat later this week.


  • Zero Budget Natural Farming (ZBNF) was popularised by Subhash Palekar.
  • Mr. Palekar’s premise is that soil has all the nutrients plants require, one just needs to have intermediation of microorganisms.
  • For this, he recommends the “four wheels of ZBNF”: Bijamrit, Jivamrit, Mulching and Waaphasa.
  • He also includes three methods of insect and pest management: Agniastra, Brahmastra and Neemastra.

Alternatives to chemical oriented farming

  • Claims were made that alternative, non-chemical agricultures were possible.
  • Organic farming became an umbrella term that represented a variety of non-chemical and less-chemical oriented methods of farming.
  • Rudolf Steiner’s biodynamics, Masanobu Fukuoka’s one-straw revolution and Madagascar’s System of Rice Intensification (SRI) were examples of specific alternatives proposed.
  • In India, such alternatives and their variants included, among others, homoeo-farming, Vedic farming, Natu-eco farming, Agnihotra farming and Amrutpani farming. Zero Budget Natural Farming (ZBNF), popularised by Subhash Palekar, is the most recent entry into this group.

Zero Budget Natural Farming

  • Mr. Palekar’s premise is that soil has all the nutrients plants need.
  • To make these nutrients available to plants, we need the intermediation of microorganisms.
  • For this, he recommends the “four wheels of ZBNF”: Bijamrit, Jivamrit, Mulching and Waaphasa. Bijamrit is the microbial coating of seeds with formulations of cow urine and cow dung.
  • Jivamrit is the enhancement of soil microbes using an inoculum of cow dung, cow urine, and jaggery.
  • Mulching is the covering of soil with crops or crop residues.
  • Waaphasa is the building up of soil humus to increase soil aeration.
  • In addition, ZBNF includes three methods of insect and pest management: Agniastra, Brahmastra and Neemastra (all different preparations using cow urine, cow dung, tobacco, fruits, green chilli, garlic and neem).

Arguments against ZBNF

  • ZBNF is hardly zero budget.
    • Many ingredients of Mr. Palekar’s formulations have to be purchased.
    • These apart, wages of hired labour, imputed value of family labour, imputed rent over owned land, costs of maintaining cows and paid-out costs on electricity and pump sets are all costs that ZBNF proponents conveniently ignore.
  • No independent studies to validate the claims that ZBNF plots have a higher yield than non-ZBNF plots.
    • The Government of Andhra Pradesh has a report, but it appears to be a self-appraisal by the implementing agency; independent studies based on field trials are not available.
    • There is a report from the La Via Campesina for Karnataka, but it is based on accounts of practitioners and not field trials.
    • One field trial is ongoing at the G.B. Pant University of Agriculture and Technology, but its full results will be available only after five years.
    • According to reliable sources, preliminary observations of these field trials have recorded a yield shortfall of about 30% in ZBNF plots when compared with non-ZBNF plots.
  • Indian soils are poor in organic matter content.
    • About 59% of soils are low in available nitrogen; about 49% are low in available phosphorus; and about 48% are low or medium in available potassium. Indian soils are also varyingly deficient in micronutrients, such as zinc, iron, manganese, copper, molybdenum and boron.
    • Micronutrient deficiencies are not just yield-limiting in themselves; they also disallow the full expression of other nutrients in the soil leading to an overall decline in fertility.
    • In some regions, soils are saline.
    • In other regions, soils are acidic due to nutrient deficiencies or aluminium, manganese and iron toxicities.
    • In certain other regions, soils are toxic due to heavy metal pollution from industrial and municipal wastes or excessive application of fertilizers and pesticides.
    • On their part, agricultural scientists do identify the improper/imbalanced application of fertilizers, that too with no focus on micronutrients, as a matter of concern. Hence, they recommend location-specific solutions to nurture soil health and sustain increases in soil fertility.
    • They suggest soil test-based balanced fertilisation and integrated nutrient management methods combining organic manures (i.e., farm yard manure, compost, crop residues, biofertilizers, green manure) with chemical fertilizers.
    • But ZBNF practitioners appear to insist on one blanket solution for all the problems of Indian soils.
  • Irrational position on the nutrient requirements of plants.
    • According to him, 98.5% of the nutrients that plants need is obtained from air, water and sunlight; only 1.5% is from the soil.
    • All nutrients are present in adequate quantities in all types of soils. However, they are not in a usable form.
    • Jivamrit, makes these nutrients available to the plants by increasing the population of soil microorganisms.
    • All these are baseless claims.
    • The Jivamrit prescription is essentially the application of 10 kg of cow dung and 10 litres of cow urine per acre per month.
    • For a five-month season, this means 50 kg of cow dung and 50 litres of cow urine.
    • Given nitrogen content of 0.5% in cow dung and 1% in cow urine, this translates to just about 750 g of nitrogen per acre per season.
    • This is totally inadequate considering the nitrogen requirements of Indian soils.
  • Finally, the spiritual nature of agriculture that ZBNF posits is troublesome.
    • It is claimed that because of ZBNF’s spiritual closeness to nature, its practitioners will stop drinking, gambling, lying, eating non-vegetarian food and wasting resources.

Scientific approach needed

  • Improvement of soil health should be a priority agenda in India’s agricultural policy. We need steps to check wind and water erosion of soils.
  • We need innovative technologies to minimise physical degradation of soils due to waterlogging, flooding and crusting.
  • We need to improve the fertility of saline, acidic, alkaline and toxic soils by reclaiming them.
  • We need location-specific interventions towards balanced fertilisation and integrated nutrient management.
  • While we try to reduce the use of chemical fertilizers in some locations, we should be open to increasing their use in other locations. But such a comprehensive approach requires a strong embrace of scientific temper and a firm rejection of anti-science postures.
  • In this sense, the inclusion of ZBNF into our agricultural policy by the government appears unwise and imprudent.

5 . Climate Smart Cities Assessment Framework


  •  The Centre used a competitive process to select 100 cities for upgradation with significant investments through the Smart Cities Mission (SCM) launched on June 25, 2015.
  • These cities were identified through a “challenge” to which State governments and local bodies responded with plans that covered showpiece projects for a specific area, as well citywide plans.
  • These included integrated data, use of technology platforms for service delivery to citizens, and mainstreaming of urban development concepts to encourage other cities to adopt best practice.
  • In September 2020, the Ministry of Housing and Urban Affairs (MoHUA) expanded the emphasis on climate-friendly infrastructure in smart cities through the Climate Smart Cities Assessment Framework 2.0 and a “Streets for People” plan that would put pedestrians and non-motorised road users at the centre of urban planning.
  • Yet, many plans under the SCM, which is funded partly by the Centre, remain incomplete due to the COVID-19 pandemic that stalled activities for most of 2020.
  • In response, the Smart Cities Mission has extended the implementation date and given cities until June 2023 to complete the work.

How far have smart cities progressed?

  • The Urban Affairs Ministry says that as of November 12, 2021, a total of 6,452 projects at a cost of ₹1,84,998 crore had been tendered.
  • In terms of work progress, 5,809 projects worth ₹1,56,571 crore were under implementation or had been completed, it says, although it is not clear how many were completed.
  • Under the Ministry’s original framework for the 100 cities, 5,151 projects were proposed involving an estimated outlay of ₹2,05,018 crore, as per MoHUA.
  • Although the Mission goal encompasses 100 cities, 66 cities were chosen in different rounds of the “challenge” method only between 2016 and 2018.
  • India’s most urbanised State, Tamil Nadu proposed 11 Smart Cities with 618 projects worth ₹15,307 crore. Its experience showed the difficulties in achieving the Mission objectives.
  • The SCM project to upgrade the Chennai Pondy Bazaar shopping area and build an elevated skywalk to the local bus stand came in for criticism during November 2021, as flooding in several adjacent localities was attributed to poor drainage planning in the project.
  • In terms of execution, the Centre has said that Smart City Special Purpose Vehicles (SPVs), which were constituted to implement, operate and monitor the projects, are empowered to take decisions on Mission projects under the overall guidance of the State High Powered Steering Committees, and are not required to submit projects for approval to the Ministry.
  • This effectively puts the onus on these entities to complete the work according to the deadlines, and the Centre does not bear responsibility for delays.

What challenges are faced by smart city plans?

  • The key features of smart cities, according to the Ministry, are liveability, economic ability and sustainability.
  • These broad ideas have a universal character and incorporate access to clean water, safe streets and public spaces, good public transport, facilities for health and education and places for recreation.
  • They also seek to expand economic opportunity for all and address environmental stresses – rising temperatures, extreme weather events, bad air quality, flood and drought, and lost urban biodiversity.
  • In practice, smart city plans have been critiqued as being distanced from elected democratic institutions and wide public discussion, reflected in project finalisation that involves mainly State governments, the bureaucracy and independent experts.
  • This is in spite of processes that have been incorporated to tap public sentiment using online tools and platforms.
  • A core factor of liveability and inclusivity, such as affordable rental housing, determines the usability of other features of a smart city.
  • Some centres, such as Ahmedabad, Bhopal, Bhubaneshwar, Indore, and Thane have pencilled in housing developments of various models, ranging from slum improvement to free sale of houses, into their smart city projects, a few involving over ₹1,000 crore; others have smaller levels of outlays for housing.
  • Ongoing smart city plans also face the pressure of designing for climate change.
  • The Climate Smart Assessment Framework would need to put in compulsory features to align all investments with national commitments towards obligations under the Paris Agreement of the UN Framework Convention on Climate Change (UNFCCC) and UN Sustainable Development Goals (SDG).

6 . Facts for Prelims

Asian Development Outlook Supplement 2021

  • Asian Development Outlook is the main economic forecasting product from Asian Development Bank.
  • It is published each April with an Update published in September and brief Supplements published in July and December.
  • The projection for 2022 is upgraded from 5.3% to 5.4%.
  • East Asia’s 2021 growth forecast is raised from 7.4% to 7.5%, reflecting a strong first quarter.
  • Expansion in the People’s Republic of China is still projected at 8.1% in 2021 and 5.5% in 2022 as favorable domestic and external trends align with April forecasts.
  • The Asian Development Bank for the second time in three months has scaled down India’s growth estimate for the fiscal year ending March 2022 due to supply chain issue of industries.
  • The Manila-based multilateral development bank pegged India’s growth estimate at 9.7% for the current fiscal year in its latest supplement.
  • The ADB had projected a growth rate of 10% for FY22 in its September supplement.

7 . Places in News

Char Dham road project

  • Char Dham National Highway (NH) connectivity programme comprises projects of improvement/development of 889 km length of NHs leading to Yamunotri Dham, Gangotri Dham, Kedarnath Dham, Badrinath Dham and part of route leading to Kailash Mansarovar yatra at total project cost for Rs. 11,700 crore. 
  • Projects under Char Dham lie within the State of Uttarakhand only.
  • The projects under Char Dham Programme include widening of existing roads along with adequate/sufficient slope protection by way of erection of retaining walls and breast walls and by deploying drapery system, netting, anchoring, reinforced wall etc. as per Detailed Project Reports.
  • The projects also include mitigation measures/ stabilisation of chronic landslide & sinking spots/zones as standalone project or part of road widening projects to avoid land slide and safety of road users.
  • Bio engineering methods like hydro seeding are being used for vegetative growth on fragile slopes for their stability. All these measures shall safeguard the highway and habitation against natural calamity.
  • The works under Char Dham Pariyojna are being implemented on Engineering Procurement and Construction (EPC) mode of contract.
  • These projects are being implemented by 3 executing agencies of Ministry of Road Transport and Highways, viz, Uttarakhand State PWD, Border Road Organization (BRO) and National Highway & Infrastructure Development Corporation Limited (NHIDCL). 

Border disputes between states

  • 11 States and one Union Territory have boundary disputes between them in India.
  • Occasional protests and incidents of violence are reported from some of the disputed border areas.
  • There are boundary disputes arising out of demarcation of boundaries and claims and counter-claims over territories between Andhra Pradesh-Odisha, Haryana-Himachal Pradesh, Union Territories of Ladakh-Himachal Pradesh, Maharashtra-Karnataka, Assam-Arunachal Pradesh, Assam-Nagaland, Assam-Meghalaya, Assam-Mizoram.
  • Some matters related to division of assets are pending between Andhra Pradesh-Telangana and Bihar-Jharkhand.

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