05 December, 2020 - Daily Current Affairs Analysis & MCQs - The Daily News Simplified from The Hindu

  • Monetary Policy Decisions (Indian Economy)
  • China turns on Artificial Sun (Science & Technology)
  • RBI tightens oversight of NBFCs and UCBs (Indian Economy)
  • Ministry seeks Approval for Technical Textiles Body (Indian Economy)
  • Accommodative stance to help revive durable growth (Indian Economy)
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Prelims Quiz

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    UPSC Current Affairs:  Monetary Policy Decisions | Page 01/14

    UPSC Syllabus: Mains – GS Paper III – Indian Economy

    Sub Theme: TLTRO | Efficient Liquidity Management for Regional Rural Banks | Credit Default Swap | UPSC

    Context:

    On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today (December 4, 2020) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent.

    Consequently, the reverse repo rate under the LAF remains unchanged at 3.35 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.

    The MPC also decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

    1. On Tap TLTRO – Extension of Sectors

    On-tap Targeted long-Term Repo Operations (TLTROs)

    The RBI has decided to conduct on tap TLTRO with tenors of up to three years for a total amount of up to Rs 1 lakh crore. The scheme will be available up to March 31, 2021

    Understanding Repo rate

    • Rate at which the banks borrow mainly short term loans from the RBI. Under Repo mechanism, the banks sell their G-Secs to the RBI with an agreement to repurchase the G-Sec at a future date and at fixed price. The rate at which the banks repurchase the G-Secs from the RBI is known as the Repo rate.
    • Depending upon the maturity period of the loans, there are different types of Repos in India. These are:
      • Overnight Repos: (Maturity period of 1 day)
      • Term Repos: There are different types of term repos depending upon the maturity period. Some of the term repos include 7-day, 14-day, 21 day, 28-day, 56-day.
    • The overnight repos are available to the Banks from the RBI from Monday to Friday. However, the term repos are available to the Banks only when the RBI notifies about the Term Repos (Usually 2-3
    • days in a week). Further, the interest rate on the term repos is not same as the Repo rate. The Interest rate on the Term repos is determined through auction and hence is usually higher than the Repo rate.

    What is Targeted Long Term Repo Operations (TLTRO)?

    It is considered to be similar to the term repos, but with a longer maturity period of 1 year and 3 years. Through the LTRO, the RBI injects long term liquidity into the economy at a lower interest rate. This is so because the interest rate on the LTRO is fixed at the Repo rate (which is considered to be much lower than the rate of interest on the 1 year or 3 year loans).

    Some of the basic features of the TLTRO include:

    Total Funds to be injected: Up to Rs 1 Lakh crores.

    Interest Rate: Repo Rate.

    Why is it called On-Tap?: This facility can be availed by any bank as and when the need for liquidity arises.

    Duration: Applicable up to March 31, 2021

    Conditions: Liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial papers, and non-convertible debentures issued by entities in specific sectors. Liquidity availed under the scheme can also be used to extend bank loans to these sectors. ( hence, the name "Targeted").

    Rationale:

    • Reduce rate of Interest on the long-term loans.
    • The reduction in the long-term rate of interest would force the banks to reduce the rate of interest on short term loans. (The rate of interest on long term loans is usually higher than
    • that on short term loans)
    • Incentivize the Banks to reduce their overall lending rates and improve the monetary policy transmission.
    1. Facilitating More Efficient Liquidity Management for Regional Rural Banks (RRBs)

    The Regional Rural Banks (RRBs) are currently not permitted to access the liquidity windows of the Reserve Bank as well as the call/notice money market. Two new measures are now proposed to address these issues. (i) In order to facilitate more efficient liquidity management by the RRBs at competitive rates, it has been decided to extend the Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) to RRBs.

    1. Review of Credit Default Swaps (CDS) Guidelines

    The RBI is set to release the new guidelines for the issuance of the Credit Default Swap (CDS) so as to strengthen the corporate bond market in India.

    About Credit Default Swap (CDS)

    Usually, when a company issues Corporate Bonds to borrow money, the Investors (such as banks, Mutual Funds etc.) may be reluctant to buy these corporate Bonds due to the risk of default on the repayment by the company. In this regard, the CDS reduces the risk of investment in a corporate bonds by providing a kind of insurance on the default.

    Normally, in case of Health Insurance, you pay certain annual premium to an insurance company. In return, in case of hospitalization, the Insurance company would be required to pay your bills upon hospitalization/ major surgeries.

    Similarly, in case of CDS, we have two entities- Protection buyer ( Investor) and Protection Seller ( Entity issuing CDS). The protection buyer (Investors) pay premium to the sellers of the Protection Seller (Entity issuing CDS). In case of default on the Corporate Bonds, the sellers of the CDS would be required to compensate the Investors for their loss.

    Benefits of Credit Default Swap (CDS)

    • Reduces the risk of investment in corporate Bonds and hence beneficial to the development of the corporate bond market in a country like India
    • Help market participants a tool to transfer and manage credit risk in an effective manner through redistribution of risk.
    • Enable the small-sized companies such as MSMEs to raise money through the issuance of Corporate Bonds

    Present Scenario in India and RBI guidelines

    In the year 2011, the RBI has come out with detailed guidelines related to the issuance of the CDS.  Now, the RBI has sought to come out with further guidelines to streamline and strengthen the issuance of the CDS in India.

    1. Comprehensive Review of Money Market Directions

    Three sets of draft directions on call, notice and term money markets; certificate of deposit (CDs); and commercial papers (CPs) and non-convertible debentures (NCDs) with original maturity of less than one year are being released today for public feedback.

     

    UPSC Current Affairs:China turns on "Artificial Sun" | Page 06

    UPSC Syllabus: Mains – GS Paper III – Science & Technology

    Sub Theme: Artificial Sun | Nuclear Fusion | UPSC

    China successfully powered up its “artificial sun” nuclear fusion reactor for the first time.

    The HL-2M Tokamak reactor is China’s largest and most advanced nuclear fusion experimental research device, and scientists hope that the device can potentially unlock a powerful clean energy source.

    It uses a powerful magnetic field to fuse hot plasma and can reach temperatures of over 150 million degrees Celsius, - approximately ten times hotter than the core of the sun. The reactor is often called an “artificial sun” on account of the enormous heat and power it produces and its mimic of the nuclear fusion process that the real sun uses to generate energy.

    • A ‘Tokamak’ is a reactor design that resembles a donut — a donut that generates powerful magnetic forces to contain unimaginably hot plasma inside the reactor during nuclear fusion. The walls of a tokamak are built to absorb the massive amounts of heat from the continuous splitting of atoms in the reactor’s core.

    Significance of Experiment

    • Very large-scale continuous energy production, with zero greenhouse gas emissions and no long-life radioactive waste.
    • The project has been endorsement by International Thermonuclear Experimental Reactor (ITER), the massive multinational initiative that aims to produce the world’s largest magnetic nuclear fusion device. This shoes that global energy aims will be a collaborative and cooperative process.
    • EAST will be one of only a few international devices that can serve as an important experimental test bench for conducting ITER-related steady-state advanced plasma science and technology research,

    Nuclear Fusion

    • It is combining of two lighter nuclei into a heavier one.
    • Such nuclear fusion reactions are the source of energy in the Sun and other stars.
    • It takes considerable energy to force the nuclei to fuse. The conditions needed for this process are extreme – millions of degrees of temperature and millions of pascals of pressure.

    Advantages of nuclear fusion

    • Nuclear fusion is arguably the best way for humans to generate energy
    • The required raw materials — deuterium and tritium — are easily available in the oceans.
    • It creates huge amounts of energy—several times greater than fission.
    • Nuclear fusion also doesn’t produce any harmful radioactive waste and hence, is extremely environment-friendly.

     

    UPSC Current Affairs: RBI tightens oversight of NBFCs and UCBs | Page - 07

    UPSC Syllabus: Prelims: Economy | Mains – GS Paper III – Economy

    Sub Theme: NBFC | Categories of NBFCs | Difference between Banks and NBFC | UPSC

    The contribution of NBFCs as a supplemental channel of credit intermediation alongside banks is well recognised. There are rapid developments in the last few years, which have led to significant increase in size and interconnectedness of the NBFC sector.

    There is, therefore, a need to review the regulatory framework in line with the changing risk profile of NBFCs. Hence, RBI has decided to carry out consultation with stakeholders before finalising the revised regulatory framework.

    Characteristics

    Banks

    NBFCs

    Deposits

    Accept all types of Deposits

    Accept only the Fixed Deposits.

    Cannot Accept Demand Deposits.

    Deposit Insurance of DICGC

    Applicable up to Rs 5 lakhs.

    Not Applicable

    Part of Payment and Settlement System

    Yes. Can Issue their own Cheques

    No. Cannot Issue their own Cheques.

    Applicability of CRR

    Applicable

    Not Applicable

    Capital Adequacy Norms

    Applicable

    Applicable only to Deposit Taking NBFCs and Systematically Important NBFCs ( Assets > 500 Crores)

    Applicability of SLR

    Applicable

    Applicable only to Deposit Taking NBFCs

    Incorporated under

    Banking Regulation Act, 1949

    Companies Act

     

    Regulator

    Categories of NBFCs

    RBI

    Micro-Finance Institutions (MFIs) + Core Investment Companies + Investment and Credit Companies + Infrastructure Debt Company + Gold Loan Companies

    RBI

    Housing Finance Companies ( Earlier regulated by NHB)

    SEBI

    Mutual Fund Companies + Stock Broking Companies + Venture Capital Funds

    Ministry of Corporate Affairs

    Nidhi Companies

    State Government

    Chit Fund Companies

     

    UPSC Current Affairs: Ministry seeks Approval for Technical Textiles Body | Page - 06

    UPSC Syllabus: Prelims: Science & Technology | Mains – GS Paper III – Indian Economy

    Sub Theme: Technical Textiles | UPSC

    What are Technical Textiles?

    Technical textiles are textiles materials and products manufactured primarily for technical performance and functional properties rather than aesthetic characteristics. The scope of use of technical textiles encompasses a wide range of applications such as agro-textiles, medical textiles, geo-textiles, protection-textiles, industrial-textiles, sports-textiles and many other usages. Some of the examples of technical textiles include Fishing nets, mosquito nets, Floor and wall coverings, Mattress and pillow, diapers, sanitary napkins, Airbags, helmets, seat belts, Industrial gloves, Bullet proof jackets etc.

    Hence, use of technical textiles have benefits of increased productivity in agriculture, better protection of military, paramilitary, police and security forces, stronger transportation infrastructure for highways, railways, ports and airports and in improving hygiene and healthcare of general public.

    Status of Technical Textile Production in India

    The Textile Industry in India can be categorised into- Conventional and Technical Textiles. India has emerged as the one of the largest manufacturer and exporter of Conventional textiles. However, it has failed to replicate this success story in case of Technical Textiles. India has emerged as the net importer of Technical textiles with  annual imports worth $ 16bn.

    Further, Indian Technical Textiles segment is estimated at  $ 16 Billion which is only around  6% of the $ 250 Billion global technical textiles market. The penetration level of technical textiles is low in India at 5-10%, against 30-70% in advanced countries.

    Hence, in order to boost production of Technical Textiles and position India as a global leader, the Finance Minister had announced the launch of National Technical Textiles Mission in the Union Budget 2020-21.

    Details about the National Technical Textiles Mission

    The Mission has been launched with total outlay of Rs 1480 crores and would be implemented for period of 4 years from 2020-21 to 2023-24.

    Components:

    • Component - l (Research, Innovation and Development): Promote both Fundamental and applied research for the development of new technical textiles.
    • Component - II (Promotion and Market Development): Aims at average growth rate of 15-20% per annum taking the level of domestic market size to 40-50 Billion USD by the year 2024 ( from the Current $ 16 bn)
    • Component - III (Export Promotion): Export promotion of technical textiles enhancing from the current annual value of approximately Rs.14000 Crore to Rs.20000 Crore by 2021-22 and ensuring 10% average growth in exports per year upto 2023-24
    • Component - IV (Education, Training, Skill Development): Promote technical education at higher engineering and technology levels related to technical textiles.

     

    UPSC Current Affairs: Accommodative stance to help revive durable growth | Page - 13

    UPSC Syllabus: Prelims: Indian Economy | Mains – GS Paper III – Indian Economy

    Sub Theme: Accommodative Stance | Neutral Stance | Calibrated Tightening | UPSC

    Accommodative Stance

    Neutral Stance

    Calibrated Tightening

    RBI may either keep the Policy rates constant or Decrease the Rates

    RBI may either increase or decrease the Policy Rates

    RBI may either keep the Policy rates constant or Increase the Rates

    Increase in Policy rates ruled out.

    Policy rates may move in either direction

    Decrease in Policy rates ruled out

    Used to Inject Money in the Economy

    Used either to Inject or Suck out Liquidity

    Used to suck out excess liquidity from Economy

    Adopted during Economic Slowdown

    Adopted when rate of Inflation is Stable

    Adopted during High Rate of Inflation

    Comments

    Aparna singh 1 month ago

    YOU HAVE GIVEN SAME OPTIONS IN b and d