Daily Current Affairs : 6th & 7th March 2022

Daily Current Affairs for UPSC CSE

Topics Covered

1. FATF
2. GIFT City
3. NATO
4. Facts for Prelims

1 . Financial Action Task Force (FATF)

Context : The global money laundering and terrorist financing watchdog FATF has retained Pakistan on its terrorism financing “grey list” and asked Islamabad to address at the earliest the remaining deficiencies in its financial system, according to a media report on Saturday.

About the News

• Pakistan has been on the grey list of the Paris-based Financial Action Task Force (FATF) since June 2018 for failing to check money laundering, leading to terror financing, and was given a plan of action to complete it by October 2019.
• Since then, the country continues to be on that list due to its failure to comply with the FATF mandates.
• The plenary on Friday decided against exiting Pakistan from the category despite the country meeting 32 out of 34 action points, the Dawn newspaper reported.
• However, Pakistan’s robust progress on its global commitments to fight financial crimes was appreciated at the concluding session of its hybrid plenary meeting, which noted that Pakistan had completed 26 of the 27 action items in its 2018 action plan of the FATF and of the seven action items of the 2021 action plan of the watchdog’s Asia Pacific Group on Money Laundering.

About Financial Action Task Force

• The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions.
• The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. 
• The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
• The FATF has developed a series of Recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction.
• They form the basis for a co-ordinated response to these threats to the integrity of the financial system and help ensure a level playing field. 
• The FATF’s decision making body, the FATF Plenary, meets three times per year.  
• The FATF currently comprises 36 member jurisdictions and 2 regional organisations ( GCC, European Commission) representing most major financial centres in all parts of the globe.
• India is a member of FATF while Pakistan is not a member
• India is a voting member of the FATF and APG, and co-chair of the Joint Group where it is represented by the Director General of India’s Financial Intelligence Unit (FIU)

What is the FATF black list?

• The FATF black list is shorthand for “Non-Cooperative Countries or Territories” (NCCTs).
• It has been issued since 2000 and lists countries that have been openly hostile and non-cooperative in the fight against money laundering and terror funding.
• Although the list did initially include offshore financial centres, the set of recommendations were soon amended to make tax havens compliant with all of the FATF’s criteria.
• As of now, the FATF black list comprises Iran and North Korea.

How is the FATF grey list different from the black list?

• The grey list includes countries that are deemed to be lax in combating terror financing and money laundering. Pakistan was on this list previously between 2012 and 2015.
• But inaction over terror attacks on Indian targets by Lashkar-e-Taiba (LeT) and  Jaish-e-Mohammed has prompted Pakistan’s return to the grey list.
• India was not part of the group that moved the resolution to greylist Pakistan last year in Paris. The movers were the US, UK, France, and Germany; China did not oppose.
• While the black list represents countries which are hostile to external regulation of its economy, the grey list includes countries which continue to shield certain banned groups from greater institutional scrutiny and regulation.
• Currently there are 23 Countries in the list including UAE and Pakistan.

What are the restrictions placed on listed nations?

• In addition to the negative picture painted of a country’s national institutions, laxity in dealing with groups banned by multilateral organisations reflects the government’s covert engagement with such entities.
• The most adverse impact will be on the economy, especially for countries reliant on foreign aid and development loans.
• Apart from loans solicited from international lenders like the International Monetary Fund (IMF) or the Asian Development Bank (ADB), figuring on the FATF’s “Non-Cooperative Countries or Territories” list could see the migration of foreign capital and privately-owned foreign companies from those countries.
• Loans for infrastructure development could also be jeopardized if lenders are not confident of the security of their investments, and also a potential misappropriation of sanctioned funds for terrorism-related activities. Foreign banks with footprints spanning the globe, such as Citibank or Standard Chartered, could pull out, affecting the financial services sector in the country.

2 . GIFT City

Context : A subsidiary of the National Stock Exchange on Thursday introduced a facility by which Indian retail investors can directly trade in stocks that are listed on the U.S. stock exchanges. The NSE arm would invest the funds in those specific stocks against which investors would receive depository receipts in lieu of actual shares.

About GIFT City

• The Gujarat International Finance Tec-City (GIFT) is a financial district located between Ahmedabad and Gandhinagar
• Though the idea was mooted in 2007, work on the physical infrastructure started in 2012. It was in 2015 that business regulations were introduced; 2017 saw the international exchange being set up
• The City was conceptualised as an alternative to global financial hubs such as Hong Kong, Singapore or London. Though the idea was mooted in 2007, work on the physical infrastructure started in 2012. It was only in 2015 that business regulations were introduced; 2017 saw the setting up of an international exchange.
• The subsidiary – NSE IFSC – is registered at the International Financial Services Centre (IFSC) at the Gujarat International Finance Tec-City (GIFT), a financial district located between Ahmedabad and Gandhinagar in Gujarat.
• The GIFT City SEZ — with demarcations for domestic & export units — is the only place in India to be designated as an IFSC

International Financial Services Centre (IFSC)

• “A jurisdiction that provides financial services to non-residents and residents, to the extent permissible under the current regulations, in any currency except Indian Rupee,” is how GIFT City defines the IFSC.
• Doing business inside the IFSC comes with the benefit of a relaxed tax regime — a 10-year tax holiday with no securities transaction tax, commodities transaction tax, or tax on long-term capital gains.
• The Global Financial Centers Index report, London, had in March 2021 placed the IFSC in GIFT City at the top among 15 centres globally, which are likely to become more significant over the subsequent two to three years.

Recent initiatives

• In recent years, the IFSC has seen a trickle of regulations or developments. For instance, February 2021 saw regulations for registration of aircraft leasing firms inside the IFSC in place; in a year from then, 13 companies had registered under this umbrella
• In May 2021, a gazette notification clarified that foreign investors in a certain category of alternative investment funds would not need a PAN number to bring their funds into the financial jurisdiction.
• The announcement of the IFSC Authority (IFSCA) in late 2020 under the chairmanship of former Insolvency Law Committee chair Injeti Srinivas infused welcome energy to the project. The IFSCA assumes responsibility as a unified regulator — across realms overseen by the RBI, SEBI, IRDAI and the PFRDA. The nature of business in IFSCs requires a high degree of inter-regulatory coordination within the financial sector. Businesses had likely found it slow-going when it came to approvals from each of these regulators.
• The IFSCA recently urged the RBI to include aircraft leasing as a financial service, so that banks can become eligible to fund such leasing.
• Currently, more than 200 entities have taken up office space in the City, where 12,000 people work. Both the BSE and the NSE have set up their international stock exchanges inside the IFSC; 17 banks, of which five are international banks, have been issued licences to operate, more than 100 units offer broking services, depository, and clearing operations, and 19 companies have begun operations for non-life reinsurance.

Challenges

• Despite these incremental steps, investors have been slow to take up offers. Most new trading jurisdictions tend to allow benefits to financial trading firms for early participation or to encourage liquidity of stock, but the aim is to eventually spur genuine participation from retail investors.
• Media reports have indicated that even as late as in February 2021 much of the trade on stock exchanges inside the IFSC were proprietary — that is, trading done by companies for their own profit, rather than using funds of investors to generate profit for participants.
• Predominant among concerns for institutional investors have been that the Indian currency has not become fully convertible, that the country has not been visibly consistent in its tax laws and their interpretation, and that the speed of dispute resolution has been less than satisfactory.
• India’s rupee is currently partially convertible, meaning that there is freedom to exchange currencies at market rates but when larger amounts are involved, approvals are necessary. A fully convertible currency would also not have authorities intervening in markets to stem volatility or bring the rate to a certain level. A case in point is the RBI which enters the market to prop up the currency should global events or oil prices drive extreme weakness in the rupee, as was the case on Friday, when the rupee dropped below the 76-to-a-dollar level.

3 . NATO

Context : When Russian President Vladimir Putin launched a military invasion of Ukraine on February 24, the purported reason behind this act of extraordinary territorial aggression was that the eastward expansion of the North Atlantic Treaty Organization (NATO) threatened at some undefined point in the future to allow Ukraine to join the grouping as a treaty ally and thus bring a formidable transatlantic security coalition within striking distance of Russia’s western borders — yet again

What are the origins of NATO and why does it matter to Russia?

• The self-declared mission of NATO when it emerged on April 4, 1949, had three prongs: “deterring Soviet expansionism, forbidding the revival of nationalist militarism in Europe through a strong North American presence on the continent, and encouraging European political integration.” Clearly the legacy of the Nazi scourge and World War II weighed heavily on the minds of the founding members of NATO.
• Although NATO claims that it is only “partially true” that its very creation was to counter the threat from the erstwhile Soviet Union, there was a strong emphasis on military cooperation and collective defence in its clauses. For example, Article 5 of the Treaty proclaims that “an armed attack against one or more of them… shall be considered an attack against them all” and that following such an attack, each ally would take “such action as it deems necessary, including the use of armed force” in response.
• The broader context at the time was that in 1955, a time when the Cold War was gaining momentum, the Soviet Union signed up socialist republics of Central and Eastern Europe to the Warsaw Pact, including Albania (which withdrew in 1968), Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, and Romania.
• The Pact, essentially a political-military alliance, was viewed as a direct strategic counterweight to NATO, and its focus at the time was the fact that while East Germany was still part of the Soviet occupied-territory of Germany, the Federal Republic of Germany had joined NATO by May 1955, and Moscow began to worry about the consequences of a strengthened and rearmed West Germany at its border.
• As a unified, multilateral, political and military alliance, the Warsaw Pact was aimed at tying Eastern European capitals more closely to Moscow, which it effectively did for several decades through the worst hostilities of the Cold War. Indeed, the Pact even gave the Soviet Union the option to contain civil uprisings and dissent across the European satellite states, including in Hungary in 1956, Czechoslovakia in 1968, and Poland in 1980-1981.
• All that began to unravel by the late 1980s, when the sheer downward pressure of inevitable economic slowdown in most Eastern European Pact allies reduced the potential for military cooperation to make any real difference strategically across the region. Thus, it hardly came as a surprise in September 1990 that East Germany quit the Pact to be reunified with West Germany, and soon Czechoslovakia, Hungary, and Poland withdrew from all Warsaw Pact military exercises. The Pact was officially disbanded in early 1991 after the dissolution of the Soviet Union itself.

What were the rounds of expansions carried out by NATO?

• Even as the Soviet Union was dissolved into Russia and former Soviet republics, NATO, emboldened by circumstances and optimism that the global balance of power was tipping in its favour, embarked on a path of expansion.
• During the term in office of U.S. President Bill Clinton, NATO began, in successive rounds of negotiation and expansion, to pull former Warsaw Pact states into its membership.
• After reunification, while Germany retained membership of NATO, the Czech Republic, Hungary, and Poland joined the alliance in 1999. But it did not end there — in 2004, Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, Slovenia joined the treaty organisation. In 2009 Albania and Croatia signed on, in 2017 Montenegro entered the bloc and in 2020 it was North Macedonia’s turn.

Why is Russia sensitive to NATO expansion?

• In 2008, in the week leading up to NATO’s Bucharest Conference, “NATO Allies welcomed Ukraine’s and Georgia’s Euro-Atlantic aspirations for membership and agreed that these countries will become members of NATO.” They went on to announce a period of intensive engagement with both countries at a high political level to address the questions still outstanding regarding their Membership Action Plan applications.
• This set off alarm bells in the Kremlin, because even the very concept of Ukraine, a nation considered to hold strong historic ties first to the Soviet Union and then Russia, was anathema. This development prompted Mr. Putin to warn erstwhile U.S. Undersecretary for Political Affairs William Burns that “no Russian leader could stand idly by in the face of steps toward NATO membership for Ukraine. That would be a hostile act toward Russia.” This was only among the more recent of a long list of actions by NATO leaders that Russia considers a political betrayal.
• However, it is not necessarily the case that Russia is right to believe that — and to understand this, it is important to grapple with the history of NATO expansion and its consequences.

Did NATO violate a promise to avoid expansion?

• An oft-quoted line in this line of enquiry is the comment by U.S. Secretary of State James A. Baker to Soviet leader Mikhail Gorbachev in February 1990, that “there would be no extension of NATO’s jurisdiction for forces of NATO one inch to the east.” While Moscow seized upon this comment to fuel its ostensible outrage at NATO expansion into the Baltic states region, it is a fact that in early 1990, the locus of the diplomacy for the Two Plus Four – including East and West Germany plus the United States, France, the Soviet Union, and the United Kingdom – agreement was whether a unified Germany would be part of NATO. Indeed, Mr. Baker’s aim in making that comment was to reassure Moscow that NATO command structures and troops would not be transferred to the territory of the former German Democratic Republic.
• Yet it was a difficult time in Russian politics, domestically, because in the aftermath of the Soviet Union’s dissolution, there was a failure to institutionalise democratic practices, a stable market economy, and a robust law and order system. Facing all manner of chaos at home, erstwhile Russian President Boris Yeltsin began to interpret – many argue deliberately falsely – the Two Plus Four Treaty as a ban on NATO expansion east of Germany. He wrote to Mr. Clinton in September 1993, that Russia ruled out “the option of expanding NATO territory eastward.”
• Through the 2000s, Mr. Putin carried on in this vein, speaking with increasing alarm and anger at NATO’s steady expansion into Eastern Europe, and saying in Munich in 2007 that “it is obvious that NATO expansion does not have any relation with the modernisation of the alliance itself or with ensuring security in Europe. On the contrary, it represents a serious provocation that reduces the level of mutual trust.”
• In 2008, following NATO announcement of its intent to admit Georgia and Ukraine into its alliance, Russia invaded Georgia and took control of several of its territorial regions; and in 2014, with Ukraine drifting closer towards an economic alliance with the European Union, Russia marched into Ukraine and seized Crimea.

4 . Facts for Prelims

Reconnaissance satellite 

• A reconnaissance satellite or intelligence satellite commonly, although unofficially, referred to as a spy satellite is an Earth observation satellite or communications satellite deployed for military or intelligence applications.
• There are several major types of reconnaissance satellite. They are
  • Missile early warning
  • Nuclear explosion detection
  • Electronic reconnaissance Signals intelligence, intercepts stray radio waves. SOLRAD is the earliest known.
  • Optical imaging surveillance Earth imaging satellites. 
  • Radar imaging surveillance

Food Price index

• The FAO Food Price Index (FFPI) is a measure of the monthly change in international prices of a basket of food commodities. It consists of the average of five commodity group price indices weighted by the average export shares of each of the groups 

Batagur Baska (River terrapin)

• The northern river terrapin (Batagur baska) is a species of riverine turtle native to Southeast Asia.
• It is classified Critically Endangered by the IUCN and considered extinct in much of its former range.

Boltzman medal

• Deepak Dhar, physicist, from the Indian Institute of Science Education and Research, Pune, has been selected for the Boltzmann medal, awarded by the Commission on Statistical Physics (C3) of the International Union of Pure and Applied Physics.
• He becomes the first Indian to win this award, which was initiated in 1975, with Nobel laureate (1982) K.G. Wilson being the first recipient.
• He shares the platform with American scientist John J. Hopfield who is known for his invention of an associative neural network, now named after him.
• The award consists of the gilded Boltzmann medal with the inscription of Ludwig Boltzmann, and the chosen two scientists will be presented the medals at the StatPhys28 conference to be held in Tokyo, 7-11 August, 2023.

Hansa – NG

• Hansa NG is first of its kind indigenous aircraft trainer

Roopar and Nangal Wetlands

• Nangal and Roopar are located in the state of Punjab