Daily Current Affairs : 1st October 2022

Daily Current Affairs for UPSC CSE

Topics Covered

1. Monetary Policy
2. Inflation Targeting
3. Report on Hospital mortality among covid patients
4. AFSPA
5. Facts for Prelims

1 . Monetary Policy of RBI and Inflation Targeting

Context: The Reserve Bank of India’s Monetary Policy Committee (MPC) raised the policy repo rate by 50 basis points (bps) to 5.9%, with RBI Governor citing the ‘persistence of high inflation that necessitated the withdrawal of monetary accommodation to restrain broadening of price pressures and contain second round effects.

 Key highlights

• This action will support medium-term growth prospects.
• The Monetary Policy Committee also voted by a 5:1 majority to “remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward”.
• Despite the unsettling global environment, the Indian economy continues to be resilient; there is macroeconomic stability.
• However, given headwinds from extended geopolitical tensions, tightening global financial conditions and a possible decline in external demand, RBI projected economic growth in FY23 at 7% (down from the 7.2% it had forecast earlier).
• The MPC, however, retained the retail inflation projection for the current fiscal year at 6.7%.
• Having weathered two major shocks — the COVID-19 pandemic and the conflict in Ukraine — over the last two-and-a-half years, the RBI was confident that it could effectively deal with new challenges which may emerge on the horizon.
• Accorfing to RBI, Indian buffers are very strong, and its focus is always on maintaining financial stability and macroeconomic stability.
• The RBI as a central bank maintains price and financial stability.
• RBI Governor said liquidity in the system continued to be in surplus and henceforth only 14 days VRRR auctions would be adopted, and the RBI will continue with our two-way fine-tuning operations of injection or absorption of liquidity.

About Repo rate and its hike

• Repo rate refers to the rate at which commercial banks borrow money from the Reserve Bank of India.  
• The hike in Repo rate – the key policy rate of RBI or the rate at which it lends to banks – means the cost of funds for banks will go up.
• When interest rates are raised, it makes money more expensive, thereby resulting in reduction of demand in the economy and bringing down inflation.

Impact of the rising rates 

• Loans : Equated monthly instalments (EMIs) on home, vehicle and other personal and corporate loans are likely to go up.
• Inflation : By hiking the Repo rate, the RBI is aiming to keep inflation – which is already close to 7 per cent — at its desired level, and control and monitor money flow into the banking system at a time when the global economy is facing turbulent times.
• Real state sector: The Reserve Bank of India’s decision to raise interest rates will impact housing sales.  There are already inflationary trends of primary raw materials, including cement, steel, labor that have recently led to a rise in property prices.   Together, these factors will impact residential sales. 
• Bank Deposits : Bank depositors will get higher returns on their deposits depending on how banks pass on the new interest rate hike.  These deposits include fixed deposits. 

Policy Stances of RBI 

• Accommodative Stance 
  • Accommodative stance means the central bank is telling the market to expect a rate cut anytime 
  • Usually, this policy is adopted when there is slowdown in the economy. 
• Neutral stance
  • Neutral stance doesn’t have any particular meaning. This means anything can happen anytime means the RBI would have the flexibility to either increase or decrease the policy rates 
• Tight and Calibrated Tightening stance 
  • Tight – It indicates an impending rate hike 
  • Calibrated Tightening – RBI would either keep the rates constant or increase the rates. 

Monetary Policy Committee 

• RBI Act, 1934 provides for an empowered six-member monetary policy committee (MPC) to be constituted by the Central Government. 
• The first such MPC was constituted in 2016.  
• Memebers: 
  • Governor of the RBI; 
  • Deputy Governor of the RBI in charge of Monetary Policy; 
  • one officer of the RBI to be nominated by the Central Board;  
  • Three people to be appointed by the Central Government 
• Governor of the Reserve Bank of India is the ex-officio Chairperson of the committee 
• Members hold office for a period of four years or until further orders, whichever is earlier) 
• It determines the policy repo rate required to achieve the inflation target. 
• The MPC is required to meet at least four times in a year.  
  • The quorum for the meeting of the MPC: four members. 
• Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote. 

Direct and Indirect instruments used for implementing monetary Policy 

• Repo Rate: The (fixed) interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities under the Liquidity Adjustment Facility (LAF). 
• Reverse Repo Rate: The (fixed) interest rate at which the Reserve Bank absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF 
• Liquidity Adjustment Facility (LAF): The LAF consists of overnight as well as term repo auctions. Progressively, the Reserve Bank has increased the proportion of liquidity injected under variable rate repo auctions across the range of tenors. The aim of term-repo is to help develop the inter-bank term-money market, which in turn can set market-based benchmarks for pricing of loans and deposits, and hence improve transmission of monetary policy. The RBI also conducts variable interest-rate reverse-repo auctions, as necessitated under market conditions. 
• Marginal Standing Facility (MSF): A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system 
• Corridor: The MSF rate and reverse repo rate determine the corridor for the daily movement in the weighted average call money rate.  
• Bank Rate: It is the rate at which the Reserve Bank is ready to buy or re discount bills of exchange or other commercial papers. The Bank Rate is published under Section 49 of the Reserve Bank of India Act, 1934. This rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate changes. 
• Cash Reserve Ratio (CRR): The average daily balance that a bank is required to maintain with the Reserve Bank as a share of such per cent of its Net demand and time liabilities (NDTL) that the Reserve Bank may notify from time to time in the Gazette of India. 
• Statutory Liquidity Ratio (SLR): The share of NDTL that a bank is required to maintain in safe and liquid assets, such as unencumbered government securities, cash and gold. Changes in SLR often influence the availability of resources in the banking system for lending to the private sector. 
• Open Market Operations (OMOs): These include both outright purchase and sale of government securities, for injection and absorption of durable liquidity, respectively. 
• Market Stabilization Scheme (MSS): This instrument for monetary management was introduced in 2004. Surplus liquidity of a more enduring nature arising from large capital inflows is absorbed through sale of short-dated government securities and treasury bills. The cash so mobilized is held in a separate government account with the Reserve Bank.

2 . Inflation Targeting

Context : RBI Governor Shaktikanta Das on Friday said the central bank considers the communication to the government for missing the inflation targets as privileged communication and will not be making it public. As per the medium-term inflation targeting framework, the RBI has to write a letter explaining the reasons for missing the target and charting out details on when it is likely to achieve the target of 4%.

What is Inflation Targeting ? 

• Inflation targeting is a central banking policy that revolves around adjusting monetary policy to achieve a specified annual rate of inflation.  
• The inflation target is defined as a medium-term average rather than as a rate (or band of rates) that must be held at all times.  
• The principle of inflation targeting is based on the belief that long-term economic growth is best achieved by maintaining price stability, and price stability is achieved by controlling inflation. 
• Inflation targeting primarily focuses on maintaining price stability, but is also believed by its proponents to support economic growth and stability.  
• Inflation targeting can be contrasted to other possible policy goals of central banking, including the targeting of exchange rates, unemployment, or national income. 

India’s Inflation Targeting

• In 2016, the Reserve Bank of India Act, 1934, was amended to provide a statutory basis for the implementation of a flexible inflation-targeting framework, where the Centre and the RBI would review and agree upon a specific inflation target every five years.
• Under this, 4% was set as the Consumer Price Index (CPI) inflation target for the period from August 5, 2016, to March 31, 2021, with the upper tolerance limit of 6% and the lower tolerance limit of 2%.
• MPC being accountable for failure to establish and achieve the nominal anchor. The failure defined as the inability to achieve the target of 4 percent (+/- 2 per cent) for 3 successive quarters. Such failure requires MPC to issue a public statement
• To the extent that ensuring price stability is its primary goal, the RBI through its MPC must constantly assess not just current levels of inflation and prices of various goods and services in the economy, but also take into consideration inflation expectations both of consumers and financial markets so as to use an array of monetary tools, including interest rates, to contain inflation within its target range.

How does inflation targeting work? 

• The central bank forecasts the future path of inflation and compares it with the target inflation rate (the rate the government believes is appropriate for the economy).  
• The difference between the forecast and the target determines how much monetary policy has to be adjusted.  
• Some countries have chosen inflation targets with symmetrical ranges around a midpoint, while others have identified only a target rate or an upper limit to inflation. Most countries have set their inflation targets in the low single digits.  

Cons of Inflation Targeting 

• A major advantage of inflation targeting is that it combines elements of both “rules” and “discretion” in monetary policy. This “constrained discretion” framework combines two distinct elements: a precise numerical target for inflation in the medium term and a response to economic shocks in the short term. 
• Some analysts believe that a focus on inflation targeting for price stability creates an atmosphere in which unsustainable speculative bubbles and other distortions in the economy, such as that which produced the 2008 financial crisis, can thrive unchecked (at least until the inflation trickles down from asset prices into retail consumer prices). 
• Some believe that it encourages inadequate responses to terms-of-trade shocks or supply shocks.  
• Critics argue that exchange rate targeting or nominal GDP targeting would create more economic stability. 

3 . Report on Hospital mortality among covid patients

Context: The result of the first large-scale study of the Central Government’s National Clinical Registry for COVID-19 (NCRC) data was released recently by the Indian Council of Medical Research (ICMR).

About the study

• Aim of the study: to describe the demographic and clinical profile and ascertain the determinants of outcome among hospitalized COVID-19 adult patients in India.
• Sample size: It used a sample size of 29,509 hospitalized adult COVID-19 patients — between September 1, 2020, to October 26, 2021 — from 42 hospitals across the country.
• Previous studies have already indicated that diabetes mellitus and advanced age contribute to a higher percentage of mortality among COVID patients.
• Supported by the Indian Council of Medical Research (ICMR), the study has been accepted by the Quarterly Journal of Medicine, an international journal of medicine.

Key Findings

• Of the patients enrolled for the study, 3,794 (12.9%) were asymptomatic at the time of admission and were admitted due to conditions other than COVID-19 and later diagnosed with COVID-19 or developed COVID-19 during hospitalization.
• More than half (54%) of the admitted patients required oxygen support during their hospital course and 7.8% required mechanical ventilation.
• The median duration of hospital stay among the patients was 7 days and of the patients who expired, 86.4% died within the first 14 days of hospital stay.
• The study also highlighted the importance of anti-SARS-CoV-2 vaccination in protecting people against mortality.
• The current study gives us an insight into the trends in COVID treatment etc and clearly underlines the protection provided by COVID-19 vaccination against in-hospital mortality. COVID-19 vaccine, irrespective of its type, reduced the odds of death by 50% with one dose and by 60% with two doses.

4 . Armed Forces ( Special Powers ) Act (AFSPA)

Context: The Ministry of Home Affairs (MHA) has extended the Armed Forces (Special Powers) Act (AFSPA) in parts of Arunachal Pradesh and Nagaland for another six months.

Key Highlights

• According to the ministry Tirap, Changlang and Longding districts in Arunachal Pradesh and the areas falling within the jurisdiction of Namsai and Mahadevpur police stations in Namsai district along the Assam border, are declared as ‘disturbed area’ under Section 3 of the AFSPA 1958 for a period of six months from October 1.
• It said nine districts and 16 police stations in four districts of Nagaland were being declared as “disturbed areas” after a review of the law-and-order situation in the State.

About Armed Forces (Special Powers) Act (AFSPA)

• In simple terms, AFSPA gives armed forces the power to maintain public order in “disturbed areas”.
• They have the authority to prohibit a gathering of five or more people in an area, can use force or even open fire after giving due warning if they feel a person is in contravention of the law.
• If reasonable suspicion exists, the army can also arrest a person without a warrant; enter or search a premises without a warrant; and ban the possession of firearms.
• Any person arrested or taken into custody may be handed over to the officer in charge of the nearest police station along with a report detailing the circumstances that led to the arrest.

What’s the origin of AFSPA?

• The Act in its original form was promulgated by the British in response to the Quit India movement in 1942.
• After Independence, Prime Minister Jawaharlal Nehru decided to retain the Act, which was first brought in as an ordnance and then notified as an Act in 1958.
• The Act came into force in the context of increasing violence in the Northeastern States decades ago, which the State governments found difficult to control.
• The Armed Forces (Special Powers) Bill was passed by both the Houses of Parliament, and it was approved by the President on September 11, 1958. It became known as the Armed Forces Special Powers Act, 1958.

What is a “disturbed area” and who has the power to declare it?

• A disturbed area is one which is declared by notification under Section 3 of the AFSPA. An area can be disturbed due to differences or disputes between members of different religious, racial, language or regional groups or castes or communities.
• The Central Government, or the Governor of the State or administrator of the Union Territory can declare the whole or part of the State or Union Territory as a disturbed area.
• A suitable notification would have to be made in the Official Gazette. As per Section 3, it can be invoked in places where “the use of armed forces in aid of the civil power is necessary”.
• The Ministry of Home Affairs would usually enforce this Act where necessary, but there have been exceptions where the Centre decided to forego its power and leave the decision to the State governments.

Are there safety nets?

• While the Act gives powers to security forces to open fire, this cannot be done without warning given to the suspect.
• The Act further says that after any suspects apprehended by security forces should be handed over to the local police station within 24 hours.
• It says armed forces must act in cooperation with the district administration and not as an independent body.

5 . Facts for Prelims

Core Sector

• The main or the key industries constitute the core sectors of an economy.
• In India, there are eight sectors that are considered the core sectors. The eight-core sectors of the Indian economy are electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilizers.
• These sectors have a major impact on the Indian economy and significantly affect most other industries as well.
• The eight industries have a combined share of 40.27 per cent in the Index of Industrial Production (IIP), which gives the growth rates of different industry groups in a specified period.
• Before the IIP is released, the Index of Eight Core Industries (ICI) is prepared every month and released by the Office of the Economic Adviser (OEA), Department for Promotion of Industry and Internal Trade (DPIIT), and Ministry of Commerce & Industry

Vandebharat express 2.0

• Indian Prime Minister flagged off Gandhinagar- Mumbai Vande Bharat Express at Gujarat’s Gandhinagar station and took a ride on the train to Kalupur railway station in Ahmedabad.
• Modi also inspected the train coaches and the locomotive engine’s control centre of the Vande Bharat Express 2.0 and took stock of the onboard facilities.
• This new Vande Bharat Express, which connects the capital cities of Maharashtra and Gujarat, is the third Vande Bharat Express in India.
• It was first introduced on the New Delhi-Varanasi route, while the second one was on New Delhi-Shri Mata Vaishno Devi Katra route.
• Vande Bharat 2.0 is also equipped with several advancements and improved features over its previous iterations as it can sprint from the speed of 0 to 100 kilometres per hour in just 52 seconds and has a maximum speed of up to 180 kilometres per hour.
• One-way travel time of Vande Bharat Express 2.0 from Gandhinagar to Mumbai is estimated at around five and a half hours.

Joint Comprehensive Plan of Action (JCPOA)

• The Joint Comprehensive Plan of Action (JCPOA) is a detailed, 159-page agreement with five annexes reached by Iran and China, France, Germany, Russia, the United Kingdom, and the United States (a group known as the the P5+1) on July 14, 2015.
• This nuclear deal was endorsed by UN Security Council Resolution 2231, adopted on July 20, 2015.
• It placed significant restrictions on Iran’s nuclear program in exchange for sanctions relief.
• Under its terms, Iran agreed to dismantle much of its nuclear program and open its facilities to more extensive international inspections in exchange for billions of dollars’ worth of sanctions relief.
• Iran’s compliance with the nuclear-related provisions of the JCPOA is verified by the International Atomic Energy Agency (IAEA) according to certain requirements set forth in the agreement.