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DAILY CURRENT AFFAIRS, 29 JUNE 2024

HOOCH

 
 
1. Context
 
The Crime Branch-Criminal Investigation Department (CB-CID) filed a petition before a local court in Kallakurichi on Friday, seeking custody of 11 of the 21 accused who have been arrested so far in connection with the hooch tragedy in the district. 
 
2. What is a Hooch?
 
"Hooch" is a slang term for illicitly produced or illegally distributed alcoholic beverages. The term is often used to describe homemade or bootleg alcohol, which is typically made without government regulation or quality control, and can sometimes be unsafe to drink due to the unregulated production process. The word "hooch" is believed to have originated from "hoochinoo," a term used by indigenous people in Alaska to describe a type of homemade liquor. Over time, the term evolved and became widely used to refer to any illegal or homemade alcoholic drink
 
3. How is Hooch produced?
  • Preparation:

    • Mixing: Sugar is dissolved in water to create a sugary solution. If fruits or grains are used, they are often mashed or cooked to release their sugars.
    • Sterilization: The mixture is sometimes boiled to kill any unwanted bacteria or wild yeast.
  • Fermentation:

    • Adding Yeast: Once the mixture is at an appropriate temperature, yeast is added.
    • Fermenting: The mixture is left in a sealed container with an airlock to ferment for several days to weeks. During this time, the yeast converts the sugar into alcohol and carbon dioxide.
  • Distillation:

    • Initial Product: The fermented liquid, called "wash" or "mash," contains a relatively low concentration of alcohol.
    • Heating: The wash is heated in a still. Alcohol has a lower boiling point than water, so it evaporates first.
    • Condensation: The alcohol vapour is collected and condensed back into liquid form, which is then collected as "hooch."
 
4. What are the effects of spurious liquor?
 
Spurious liquor, often referred to as fake or adulterated alcohol, can have severe and sometimes fatal effects on health.
 
Here are some of the key effects:
  • Methanol Poisoning: Spurious liquor often contains methanol, a toxic substance that can cause:
    • Nausea and vomiting
    • Headaches
    • Abdominal pain
    • Blurred vision or blindness
    • Seizures
    • Coma or death in severe cases
  • Organ Damage: Chronic consumption of spurious liquor can lead to long-term damage to vital organs such as the liver, kidneys, and heart.
  • Neurological Effects: Adulterated alcohol can cause neurological damage, leading to confusion, poor coordination, and cognitive impairment.
  • Respiratory Issues: Acute poisoning can result in respiratory distress or failure.
  • Cardiovascular Problems: Can cause irregular heartbeats, high blood pressure, and other cardiovascular issues.
Constitution about Spurious Liquor
 
Intoxicating liquors are listed under List II (State List) of the seventh schedule of the Indian Constitution. This means that the regulation and control over intoxicating liquors, including production, distribution, and sale within a state, fall under the jurisdiction and legislative authority of the state governments in India
The prohibition of intoxicating drinks and drugs that are harmful to health in India is primarily addressed under Article 47 of the Indian Constitution. This article is located in Part IV (Directive Principles of State Policy), which outlines the principles for the state to follow in governance and policy-making. Article 47 specifically directs the state to endeavor to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health. It emphasizes the state's duty to improve public health and promote the well-being of its citizens by implementing measures to reduce the consumption of harmful substances
 
5. Advantages and Disadvantages of Liquor ban
 
Advantages of Alcohol Ban Disadvantages of Alcohol Ban
Public Health Benefits: Economic Impact:
Reduced alcohol-related diseases and disorders. Loss of revenue from alcohol sales and taxes
Decreased incidents of alcohol-related incidents Potential increase in illicit alcohol production
Lower burden on healthcare and emergency services Impact on businesses such as bars and restaurants
Social Benefits:  
Reduction in domestic violence and crime Social Implications:
Improved public safety and security Potential for underground alcohol market
Promotes healthier lifestyles and family stability Cultural and social impact on traditional practices
Psychological Benefits: Limited personal freedom and choice
Reduction in alcohol addiction and dependency Potential for civil unrest or resistance
Better mental health outcomes in communities  
 
6. Way Forward
Implementing an alcohol ban involves balancing public health and social considerations with potential economic and cultural impacts, which can vary significantly based on local context and enforcement strategies
 
Source: The Hindu
 

NATIONAL INVESTIGATION AGENCY (NIA)

1. Context

The National Investigation Agency (NIA) on Friday searched multiple locations in Delhi, Haryana, and Rajasthan to identify people involved in the Laos human trafficking and cyber- fraud case. Five locations were subjected to thorough searches by the NIA teams

2. About National Investigation Agency (NIA)

  • The National Investigation Agency (NIA) is a federal counter-terrorism law enforcement agency in India.
  • It was established in 2008 after the Mumbai terror attack the same year.
  • The NIA is empowered to deal with the investigation of terror-related crimes across states without special permission from the states under written proclamation from the Ministry of Home Affairs.
  • The primary mandate of the National Investigation Agency is to investigate and prosecute offences that have national and cross-border implications, specifically focusing on terrorism, insurgency, and other related matters.
  • The NIA is headquartered in New Delhi and has 12 regional offices across the country.
  • It is headed by a Director General of Police (DGP) rank officer.
  • The NIA has a team of highly trained and experienced officers who are experts in counter-terrorism investigations.
  • The NIA has been successful in investigating and prosecuting several high-profile terrorism cases, including the 26/11 Mumbai attacks, the 2012 Pune bombing, the 2013 Hyderabad blasts, and the 2014 Pathankot attack.
  • The NIA has also played a key role in disrupting terrorist networks and preventing terrorist attacks.
  • It has arrested several senior terrorist operatives and seized a large quantity of arms and ammunition.

3. The Changes Made under the NIA (Amendment) Act 2019

The National Investigation Agency (Amendment) Act, 2019, brought significant changes and enhancements to the powers and jurisdiction of the National Investigation Agency (NIA) in India. The amendments aimed to strengthen the agency's ability to combat terrorism and other transnational crimes effectively.

The key changes made under the NIA (Amendment) Act, 2019

  • The amendment expanded the jurisdiction of the NIA. Previously, the agency could investigate cases related to terrorism and certain other offences listed in the NIA Act.
  • The Act adds new offences to the list of scheduled offences that can be investigated by the NIA. These include
  • Cyber terrorism under Section 66-F of the Information Technology Act, 2000
  • Human trafficking under Section 370 of the Indian Penal Code, 1860
  • Counterfeiting of currency or bank notes under Sections 489C and 489E of the Indian Penal Code, 1860
  • Manufacture or sale of prohibited arms or ammunition under Sections 25 and 26 of the Arms Act, 1959
  • Offenses under the Explosive Substances Act, 1908
  • This extension of jurisdiction gives the NIA greater reach and authority in handling cases with international ramifications.
  •  The amendment allowed for the establishment of special courts for the trial of NIA cases.
  • These courts are designated to expedite the trial process and ensure that cases are heard and disposed of more quickly, particularly in terrorism-related cases.
  • The NIA (Amendment) Act introduced provisions for the protection of witnesses.
  • It empowers the NIA to request the central government to issue orders for the protection of witnesses.
  • Ensuring the safety of witnesses is crucial for the successful prosecution of cases, especially in terrorism-related trials.
  • The amended law allows the NIA to seize and attach properties that are believed to be the proceeds of terrorism or used for terrorism-related activities.
  • This provision is essential in disrupting the financial networks of terrorist organizations.
  • The NIA can now request the central government to seek extradition of individuals involved in terrorism and other offences under the NIA Act.
  • This provision facilitates the extradition of accused persons from foreign countries to face trial in India.
  • The central government has the authority to designate session courts as NIA Special Courts.
  • These courts are responsible for the trial of NIA cases and follow the procedures outlined in the NIA Act.
  • The NIA Act includes a schedule listing offences that fall under its jurisdiction.
  • The amendment allows for offences in this schedule to be amended by the central government through notification.
  • This flexibility allows for the inclusion of new offences based on emerging threats and challenges.
  • The NIA (Amendment) Act includes provisions to enhance transparency and accountability in the agency's functioning.
  • It mandates the submission of an annual report on its activities to the central government, which is then laid before both houses of Parliament.

4. The Way Forward

The NIA is a vital component of India's counter-terrorism architecture. By taking the necessary steps to improve the NIA's functioning, the government can make the agency more effective in combating terrorism and protecting the country from terrorist threats.
 
For Prelims: National Investigation Agency, Terrorism, NIA Act,2008,  NIA (Amendment) Act, 2019, the Ministry of Home Affairs, Information Technology Act, 2000, Indian Penal Code, Arms Act 1959, Explosive Substances Act, 1908, 
For Mains: 
1. "The NIA (Amendment) Act, 2019, introduced provisions for the confiscation of property believed to be connected to terrorism." Analyze the significance of this provision in curbing the financial networks of terrorist organizations and its alignment with international counter-terrorism efforts. (250 Words)
 
 
Previous Year Questions

1. The Stiglitz Commission established by the President of the United Nations General Assembly was in the international news. The commission was supposed to deal with: (UPSC CSE 2010)

(a) The challenges posed by the impending global climate change and prepare a road map
(b) The workings of the global financial systems and to explore ways and means to secure a more sustainable global order
(c) Global terrorism and prepare a global action plan for the mitigation of terrorism
(d) Expansion of the United Nations Security Council in the present global scenario

Answer: B

2. Match List - I with List-II and select the correct answer using the codes given below the lists: (UPPSC 2020)

List – I                              List – II

A. Indian Arm Act             1. 1876

B. Royal Title Act              2. 1878

C. Indian High Court Act   3. 1869

D. Indian Divorce Act        4. 1861

A. (A) 2, (B) 3, (C) 1, (D) 4

B. (A) 3, (B) 1, (C) 2, (D) 4

C. (A) 1, (B) 2, (C) 3, (D) 4

D. (A) 2, (B) 1, (C) 4, (D) 3

Answer: D

3. Which one of the following is NOT correctly matched? (UPPSC RO/ARO 2020) 

A. Prevention of Sedition Meetings Act - 1908
B. Explosive Substances Act - 1908
C. Indian Criminal Law Amendment Act - 1908
D. Newspaper (Incentive to Offence) Act - 1908

Answer: A

 
Source: indianexpress
 

FINANCIAL ACTION TASK FORCE (FATF)

 

1. Context

India has achieved an outstanding outcome in the mutual evaluation conducted during 2023-24 by the Financial Action Task Force (FATF), the government said on 28/06/2024

2. Financial Action Task Force (FATF)

  • The FATF is an inter-governmental body that sets international standards seeking to prevent international financial crimes that aid terrorism. The FATF  was established in July 1989 by a G-7 summit in Paris to examine and develop measures to combat money laundering.
  • The FATF currently comprises 37 member jurisdictions and two regional organizations European Commission and Gulf Cooperation Council, representing most major financial centers in all parts of the globe. India has been a member of the FATF since 2010. India is also a member of its regional partners, the Asia Pacific Group (APG) and the Eurasian Group (EAG).
  • Its secretariat is located at the Organisation for Economic Cooperation and Development (OECD) headquarters in Paris.

3. Mandate of FATF

After the 9/11 attacks, the FATF in October 2001 expanded its mandate to incorporate efforts to combat terrorist financing. In April 2012, it added efforts to counter the financing of the proliferation of weapons of mass destruction. The FATF has developed the FATF recommendations, or FATF standards, which ensure a coordinated global response to prevent organized crime, corruption, and terrorism.

4. FATF Lists

4.1 Grey List
Countries that are considered safe heaven for supporting terror funding and money laundering are put on the FATF Grey list. This inclusion serves as a warning to the country that it may enter the Black list.
Recently Democratic Republic of Congo, Mozambique, and Tanzania are added to the Grey List.
4.2 Black List
Countries known as Non-cooperative countries or Territories are put on the Black list. These countries support Terror funding and Money Laundering activities. The FATF revises the blacklist regularly, adding or deleting entries.
Currently, Iran and the Democratic people's Republic of Korea are under High-risk jurisdiction or Black list. Myanmar was added to the list.
Moved Myanmar is from the "grey list" taken by the military junta since they overthrew the government in a coup last February.

5. Why Pakistan is removed from the Grey List?

  • Deliberations of the FATF are made in complete secrecy, and decisions are meant to be made strictly on the basis of technicalities and procedure, so the greylisting of Pakisthan has to be seen in the totality of the process and measures it has undertaken.
  • Pakistan was also on the "grey list" from 2012-2015 when FATF mandated many steps. Since 2018, it has been handed two action plans, comprising 34 points (27+7), asking Islamabad to bring in laws on money laundering, and anti-terror laws in line with international requirements.
  • Pakistan also had to maintain a database of terror groups operating on its soil and the actions taken against them.

6. Benefits for Pakistan

  • If removed from the grey list Pakistan would essentially receive a reputational boost and get a clean bill of health from the international community on terror financing. 
  • There is research that suggests grey listing negatively impacts the relationship of the concerned countries with the international funders including Banks and financial institutions that take note of FATF rankings as well as existing potential overseas investors in those countries.

7. Indias Response

  • India is a member, and hence party to all FATF decisions that are made by consensus. As a result, it also agreed to the decision to take Pakistan off the list, conceding in a statement that due to the FATF, Pakistan had been "forced to take" some action against well-known terrorists", including those involved in the Mumbai 26/11 attacks.
  • The Narendra Modi Government is preparing for India's turn at FATF scrutiny or MER process, set to begin in early 2023, which it hopes will be a smooth process. In July this year while introducing the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Amendment. 
  • External Minister S. Jaishankar told parliament that India had to take its international commitments on WMD seriously, both at the UN Security Council, and FATF recommendations which had "mandated provisions against financing in relation to WMDs.

For Prelims & Mains

For Prelims: FATF, Grey list, Black List, UN Security Council, Weapons of mass destruction, Asia Pacific Group (APG), Organisation for Economic Cooperation and Development (OECD), and the Eurasian Group (EAG).
For Mains: 1. Discuss the mandate of FAFT on Terror Financing and explain the benefits of Pakistan after removing it from the grey list. 
 
Source: The Hindu
 

CONSUMER PRICE INDEX (CPI)

1. Context

Inflation, based on the official consumer price index (CPI), stood at 8.69 % for cereals in May, and almost twice as much (17.14%) for pulses. These rates would probably have been higher, but for the sales from buffer stocks, especially of wheat and chana (chickpea), built by government agencies during surplus production years. 

2. Consumer Price Index

  • The Consumer Price Index (CPI) is a measure of the change in prices of a basket of goods and services that are commonly purchased by consumers. It is the most commonly used measure of inflation.
  • The CPI is calculated by comparing the prices of the goods and services in the basket in a particular period to those of the same in a base period.
  • The base period is usually the previous year's corresponding period. The difference in prices is expressed as a percentage, and this is the CPI inflation rate.
  • The CPI is calculated for eight different categories of goods and services Food and beverages, Housing, Clothing and footwear, Transport, Health, Education, Communication, Recreation and Miscellaneous goods and services.
  • The weights of each category in the CPI are determined by the expenditure patterns of urban households. For example, food and beverages have the highest weight in the CPI, followed by housing and transport.
  • The CPI inflation rate is an important indicator of the cost of living.
  • It is used by the government to set monetary policy and by businesses to make pricing decisions.

3. Wholesale Price Index

  • The Wholesale Price Index (WPI) is a measure of the change in prices of goods and services at the wholesale level.
  • It is calculated by comparing the prices of a basket of goods and services in a particular period to those of the same in a base period.
  • The base period is usually the previous year's corresponding period. The difference in prices is expressed as a percentage, and this is the WPI inflation rate.
  • The WPI is calculated for 67 groups of commodities, which are further divided into 225 subgroups.
  • The weights of each group and subgroup in the WPI are determined by the value of the goods and services produced in each group and subgroup.
  • The WPI inflation rate is an important indicator of inflation at the wholesale level.
  • It is used by businesses to make pricing decisions and by the government to set monetary policy.

4. Findings of the Report

4.1. Food inflation

  • Food inflation in India remained high in August, at 9.94%. This was driven by rising prices of essential food items, such as cereals, pulses, vegetables, and oils.
  • Eleven of the 12 items on the heavyweight food and beverages group of the CPI logged price increases, with oils and fats, the sole item logging a year-on-year decline in prices, posting its first sequential increase in nine months.
  • Vegetables provided some relief, with tomatoes leading an appreciable month-on-month deflation of 5.88% in the 19-member basket.
  • However, the cooking staples of potatoes and onions were among the seven items that continued to log sequential inflation (2.3% and 12.3%, respectively).

4.2. Monsoon deficit and rising crude oil prices

  • The near-term inflation outlook is also made more uncertain by other factors, including a distinct deficit in monsoon rainfall.
  • Besides the overall 10% shortfall, sharp regional and temporal anomalies in rain distribution have impacted either the sowing or the quality of produce of several farm items.
  • Kharif's sowing of pulses had, as of September 8, recorded an 8.6% shortfall compared with the year-earlier period.
  • Another inflation driver, crude oil, has also seen a steady rise in prices as the output cuts by major oil producers of the OPEC+ grouping start to bite.
  • The price of India's crude basket had, as of September 12, climbed 7.2% from the average in August to $92.65/barrel, according to official data.

4.3. RBI measures to control inflation

  • For the RBI, the latest inflation data further roils its interest rate calculus.
  • Unless CPI inflation decelerates by an incredible 250 basis points in September to a 4.33% pace, price gains are certain to substantially overshoot the monetary authority's 6.2% forecast for the July-September quarter, leaving it with few real options to achieve its medium-term price stability goal of 4% inflation.
  • As the RBI has been at pains to stress, failure to anchor inflation expectations risks hurting growth.

5. About the sticky Consumer Price Index (CPI)

  • The sticky Consumer Price Index (CPI) is a subset of the CPI that includes goods and services that change prices relatively infrequently.
  • These goods and services are thought to incorporate expectations about future inflation to a greater degree than prices that change more frequently.
  • Some of the items included in the sticky CPI are Rent, Housing costs, Utilities, Education, Healthcare, Transportation, Household furnishings and appliances, Personal insurance, Recreation, and Miscellaneous goods and services. 
  • The sticky CPI is often used by economists to measure inflation expectations.
  • This is because prices of sticky goods and services are less likely to be affected by short-term changes in supply and demand, and are therefore more likely to reflect changes in inflation expectations.
  • The sticky CPI is also used by central banks to set monetary policy.
  • This is because the central bank wants to make sure that inflation expectations are anchored at a low level.
  • If inflation expectations start to rise, the central bank may raise interest rates to bring them back down.

6. How India’s retail inflation is measured?

  • India's retail inflation is measured by the Consumer Price Index (CPI), a basket of goods and services commonly purchased by urban households.
  • The CPI is calculated by the National Statistical Office (NSO) every month.
  • The CPI is calculated by comparing the prices of the goods and services in the basket in a particular month to those of the same in a base month.
  • The base month is usually the previous year's corresponding month. The difference in prices is expressed as a percentage, and this is the CPI inflation rate.
  • The CPI is calculated for eight different categories of goods and services, Food and beverages, Housing, Clothing and footwear, Transport, Health, Education, Communication, Recreation and Miscellaneous goods and services.
  • The weights of each category in the CPI are determined by the expenditure patterns of urban households. For example, food and beverages have the highest weight in the CPI, followed by housing and transport.
  • The CPI inflation rate is an important indicator of the cost of living in India.
  • It is used by the government to set monetary policy and by businesses to make pricing decisions.

7. Calculation of Inflation

  • Inflation is the rate at which the prices of goods and services increase over time.
  • It is calculated by comparing the prices of a basket of goods and services in a particular period to the prices of the same basket of goods and services in a base period.
  • The base period is usually the previous year's corresponding period. The difference in prices is expressed as a percentage, and this is the inflation rate.

There are two main ways to calculate inflation

1. Consumer Price Index (CPI): The CPI is a measure of the change in prices of a basket of goods and services that are commonly purchased by consumers. It is the most commonly used measure of inflation.

The CPI is calculated by the following formula:

CPI = (Cost of a basket of goods and services in current period / Cost of a basket of goods and services in base period) * 100

2. Producer Price Index (PPI): The PPI is a measure of the change in prices of goods and services that are produced by businesses. It is used to track inflation at the wholesale level.

The PPI is calculated by the following formula:

PPI = (Cost of a basket of goods and services at the wholesale level in the current period / Cost of a basket of goods and services at the wholesale level in the base period) * 100

 

For Prelims: Consumer Price Index, Wholesale Price Index, Inflation,  retail inflation, Producer Pirce Index, National Statistical Office, OPEC+, Crude oil, Kharif season, Monsoon, 
For Mains: 
1. Analyse the factors contributing to high food inflation in India in recent months. Discuss the impact of high food inflation on the Indian economy and suggest measures to mitigate it. (250 words)
2. Explain the concept of sticky inflation. What are the various factors that contribute to sticky inflation? Discuss the implications of sticky inflation for the Indian economy. (250 words)
 
 
Previous Year Questions
 
1. With reference to inflation in India, which of the following statements is correct? (UPSC 2015)
A. Controlling the inflation in India is the responsibility of the Government of India only
B. The Reserve Bank of India has no role in controlling the inflation
C. Decreased money circulation helps in controlling the inflation
D. Increased money circulation helps in controlling the inflation
 
Answer: C
 
2. With reference to India, consider the following statements: (UPSC 2010)
1. The Wholesale Price Index (WPI) in India is available on a monthly basis only.
2. As compared to Consumer Price Index for Industrial Workers (CPI(IW)), the WPI gives less weight to food articles.
Which of the statements given above is/are correct? 
A. 1 only       B. 2 only       C. Both 1 and 2          D.  Neither 1 nor 2
 
Answer: C
 
3. Consider the following statements: (UPSC 2020)
1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.
Which of the statements given above is/are correct?
 A. 1 and  2 only       B. 2 only       C. 3 only           D. 1, 2 and 3
 
4. India has experienced persistent and high food inflation in the recent past. What could be the reasons? (UPSC 2011)
1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30.
2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
3. The food supply chain has structural constraints.
Which of the statements given above are correct? 
A. 1 and 2 only          B. 2 and 3 only        C. 1 and 3 only          D. 1, 2 and 3
 
Answer: B
 
 
5. The Public Distribution System, which evolved as a system of management of food and distribution of food grains, was relaunched as _______ Public Distribution System in 1997. (SSC JE EE 2021) 
A. Evolved         B. Transformed      C. Tested            D. Targeted
 
Answer: D
 
6. Under the Antyodaya Anna Yojana, up to what quantity of rice and wheat can be purchased at a subsidised cost? (FCI AG III 2023) 
A. 35 kg          B. 40 kg          C. 30 kg           D. 25 kg           E. 50 kg
 
Answer: A
 
7. As per the the National Statistical Office (NSO) report released on 7 January 2022, India's Gross domestic product (GDP) is expected to grow at ___________ per cent (in first advance estimates) in the fiscal year 2021-22?  (ESIC UDC 2022) 
A. 17.6 per cent     B. 9.5 per cent     C. 11 per cent        D. 9.2 per cent   E. None of the above
 
Answer: D
 
8. The main emphasis of OPEC (Organisation of the Petroleum Exporting Countries) is on which of the following? (UKPSC 2016)
A. The production of petroleum
B. Control over prices of petroleum
C. Both (a) and (b)
D. None of the above
 
Answer: C
 
9. In the context of global oil prices, "Brent crude oil" is frequently referred to in the news. What does this term imply? (UPSC 2011)
1. It is a major classification of crude oil.
2. It is sourced from the North Sea.
3. It does not contain sulfur.
Which of the statements given above is/are correct?
A. 2 only    B. 1 and 2 only        C. 1 and 3 only         D. 1, 2 and 3
 
Answer: B
 
10. The term 'West Texas Intermediate', sometimes found in news, refers to a grade of (UPSC 2020)
A. Crude oil   B. Bullion         C. Rare earth elements       D.  Uranium
 
Answer: C
 
11. With reference to the cultivation of Kharif crops in India in the last five years, consider the following statements: (UPSC 2019)
1. Area under rice cultivation is the highest.
2. Area under the cultivation of jowar is more than that of oilseeds.
3. Area of cotton cultivation is more than that of sugarcane.
4. Area under sugarcane cultivation has steadily decreased.
Which of the statements given above are correct? 
A. 1 and 3 only        B.  2, 3 and 4 only        C. 2 and 4 only         D. 1, 2, 3 and 4
 
Answer: A
 
Source: The Hindu
 

FISCAL RESPONSIBILITY AND BUDGET MANAGEMENT (FRBM) ACT 

 
 
 
1. Context
 
In most advanced economies, the annual budget is a non-event. In emerging markets, on the other hand, the budget presentation has special significance. In the case of India, the budget is a legacy inherited from colonial times to the extent that the timing of the presentation was also aligned with British time.
 
 
2. Article 293 
  • Article 293 (1) empowers states to borrow money for their functioning, but with limitations set by their respective legislatures. This ensures responsible borrowing and prevents excessive debt accumulation by state governments.
  • Article 293 (2) allows the Central Government to provide loans to state governments.
  • Article 293 (3) restricts states from raising loans without the Central Government's consent if they already have outstanding loans or guarantees from the Central Government. This provision aims to ensure states manage their finances responsibly and avoid excessive debt.
  • Article 293 (4) A consent under clause (3) may be granted subject to such conditions, if any, as the Government of India may think fit to impose.
 
 
3. Fiscal Responsibility and Budget Management Act, 2003
 

The Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) is a crucial piece of legislation in India that aims to achieve fiscal discipline by the government. 

Objectives

  • Reduce India's fiscal deficit: The act sets targets for the government to gradually bring down the fiscal deficit, which is the gap between its revenue and expenditure.
  • Improve macroeconomic management: By ensuring responsible borrowing and spending, the FRBM Act aims to promote economic stability and growth.
  • Enhance transparency in fiscal operations: The act mandates the government to present medium-term fiscal policy statements, promoting greater transparency in budgeting and debt management.

Key Provisions

  • Fiscal deficit targets: The act originally laid out a roadmap for reducing the fiscal deficit to 3% of GDP (Gross Domestic Product) by March 2008. This target has been revised over time.
  • Fiscal policy statements: The government is required to present three statements to the Parliament along with the annual budget
    • Medium-Term Fiscal Policy Statement (MTFPS) outlines the fiscal roadmap for the next three years, including revenue and expenditure projections.
    • The Fiscal Policy Strategy Statement (FPSS) document focuses on the medium-term fiscal strategy for achieving the deficit targets.
    • Macroeconomic Framework Statement (MFS) statement presents the government's assessment of the overall economic situation and its implications for fiscal policy.
  • Fiscal responsibility rules: The act empowers the government to frame rules for achieving the fiscal deficit targets. These rules may specify measures for curtailing expenditure, improving revenue collection, and managing public debt.

Criticisms and Challenges

  • Balancing fiscal discipline with growth: Critics argue that a rigid focus on deficit reduction might hinder government spending on essential sectors, impacting economic growth.
  • Achieving targets: The government has not always been able to meet the stipulated deficit targets due to various factors like economic slowdowns or unforeseen circumstances.
  • Flexibility: Debates exist regarding the need for flexibility in the act to accommodate economic emergencies or unforeseen circumstances.

Significance

Despite the challenges, the FRBM Act has played a significant role in promoting fiscal discipline and transparency in India's public finances. It has helped to:

  • Reduce the fiscal deficit over time, leading to greater macroeconomic stability.
  • Increase awareness of fiscal issues and promote public debate on budgetary matters.
  • Provide a framework for medium-term fiscal planning and debt management.
 
 
4. Can States borrow beyond FRBM Limits?

States in India can sometimes borrow beyond the FRBM (Fiscal Responsibility and Budget Management) Act limits but with some restrictions. 

FRBM Act and Borrowing Limits: The FRBM Act sets targets for the government to gradually reduce the fiscal deficit (the gap between revenue and expenditure). These targets apply to both the central government and state governments.

Exceptions for States

  • Legislative Flexibility: State legislatures can set their own borrowing limits within the FRBM framework. This allows some flexibility for states based on their specific circumstances.
  • Central Government Loans: Article 293 (2) of the Indian Constitution allows the Central Government to provide loans to state governments. In critical situations, the central government might offer loans exceeding the FRBM limits to support states.
  • Natural Disasters and Emergencies: In unforeseen circumstances like natural disasters or national emergencies, states may be allowed to borrow beyond the FRBM limits to meet immediate needs. However, this usually requires approval from the central government.

Restrictions on Borrowing Beyond Limits

  • Article 293 (3) of the Constitution: This provision restricts states from raising loans without the central government's consent if they already have outstanding loans or guarantees from the central government. This discourages excessive borrowing and ensures some level of control.
  • Loan Conditions: The central government may impose conditions on loans exceeding FRBM limits. These conditions could involve stricter fiscal discipline measures or reforms from the state government.
 
5. The recommendations or targets for state governments regarding their net borrowing limits as a percentage of Gross State Domestic Product (GSDP). 

These recommendations are typically part of fiscal discipline measures to ensure responsible borrowing and debt management by state governments.

  • 2021-22: 4% of GSDP: This recommendation implies that for the fiscal year 2021-22, state governments are advised to keep their net borrowing within 4% of their respective Gross State Domestic Product. This limit serves as a guideline to prevent excessive borrowing that could strain state finances.
  • 2022-23: 3.5% of GSDP: For the following fiscal year 2022-23, the recommended net borrowing limit is lowered to 3.5% of GSDP. This reduction indicates a gradual tightening of fiscal discipline, aiming to curb borrowing and promote fiscal sustainability.
  • 2023-24 to 2025-26: 3% of GSDP: The subsequent years from 2023-24 to 2025-26 see a further reduction in the recommended net borrowing limit to 3% of GSDP. This signifies a sustained effort to limit state borrowing and manage public debt within manageable levels relative to the state's economic output.
 
6. The Way Forward
 
Addressing Kerala's fiscal stress requires a multi-pronged approach that combines internal efforts to improve financial management and economic growth with seeking external support from the central government. Transparency, public participation, and a commitment to long-term sustainability are crucial for Kerala to navigate its current fiscal challenges.
 
 
For Prelims: Kerala, Fiscal Responsibility and Budget Management Act, Article 293, GSDP, Reserve Bank of India
For Mains: 
1. Explain the constitutional provisions related to states' borrowing powers as outlined in Article 293 of the Indian Constitution. How do these provisions ensure responsible borrowing and prevent excessive debt accumulation by state governments? (250 Words)
 
 
Previous Year Questions
 
1. With reference to the Indian economy, consider the following statements: (UPSC 2022)
1. An increase in the Nominal Effective Exchange Rate (NEER) indicates the appreciation of the rupee.
2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.
3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.
Which of the above statements are correct?
A. 1 and 2 only     B. 2 and 3 only       C. 1 and 3 only        D. 1, 2 and 3
 

2. With reference to Indian economy, consider the following statements: (UPSC 2015)

1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade.
2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.

Which of the statements given above is/are correct?

(a) 1 only       (b) 2 only          (c) Both 1 and 2                (d) Neither 1 nor 2

 

3. Consider the following statements: (UPSC 2018)
1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.
2. The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.
3. As per the Constitution of India, it is mandatory for a State to take the Central Government's consent for raising any loan if the former owes any outstanding liabilities to the latter.
Which of the statements given above is/are correct?
A. 1 only        B. 2 and 3 only       C. 1 and 3 only          D. 1, 2 and 3
 
 
4. Recently, which one of the following currencies has been proposed to be added to the basket of IMF’s SDR? (UPSC 2016)
A. Rouble
B. Rand
C. Indian Rupee
D. Renminbi
 
 
5. Rapid Financing Instruments" and "Rapid Credit Facility" are related to the provisions of lending by which one of the following? (UPSC 2022)
A. Asian Development Bank
B. International Monetary Fund
C. United Nations Environment Programme
D. Finance Initiative World Bank
 
 
6. With reference to Indian economy, consider the following statements: (UPSC CSE, 2015)
1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade.
2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.
Which of the statements given above is/are correct?
(a) 1 only         (b) 2 only           (c) Both 1 and 2          (d) Neither 1 nor 2
 

7. A decrease in tax to GDP ratio of a country indicates which of the following? (UPSC CSE, 2015)
1. Slowing economic growth rate
2. Less equitable distribution of national income
Select the correct answer using the code given below:
(a) 1 only        (b) 2 only            (c) Both 1 and 2            (d) Neither 1 nor 2
 
Answers: 1-C, 2-B, 3-C, 4-D, 5-B, 6-B, 7-A
 
Mains

1. Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP? (UPSC 2020)
2. Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015. (UPSC 2021)
Source: The Indian Express
 

HEATWAVE

 

1. Context

An analysis of heat action plans (HAP) for nine cities and five districts found that there was no clear assessment of heat impact on the local population, lack legal and financial backing and that the response mechanism needs to be strengthened by identifying heat waves as a national disaster

2. What is a Heat Wave?

  • A heatwave is a period of abnormally high temperatures, a common phenomenon in India during the months of May-June and in some rare cases even extends till July.
  • Indian Meteorological Department (IMD) classifies heat waves according to regions and temperature ranges. As per IMD, the number of heatwave days in India has increased from 413 over 1981-1990 to 600 over 2011-2020.
  • This sharp rise in the number of heatwave days has resulted due to the increasing impact of climate change.
  • The last three years have been La Niña years, which has served as a precursor to 2023 likely being an El Niño year. (The El Niño is a complementary phenomenon in which warmer water spreads west­east across the equatorial Pacific Ocean.)
  • As we eagerly await the likely birth of an El Niño this year, we have already had a heat wave occur over northwest India.
  • Heat waves tend to be confined to north and northwest India in El Niño years.
 
Image Source:News18

3. How do Heat waves Occur?

  • Heat waves are formed for one of two reasons warmer air is flowing in from elsewhere or it is being produced locally.
  • It is a local phenomenon when the air is warmed by higher land surface temperature or because the air sinking down from above is compressed along the way, producing hot air near the surface.
  • First of all, in spring, India typically has air flowing in from the west­northwest. This direction of air­flow is bad news for India for several reasons.
  • Likewise, air flowing in from the northwest rolls in over the mountains of Afghanistan and Pakistan, so some of the compression also happens on the leeward side of these mountains, entering India with a bristling warmth.
  • While air flowing over the oceans is expected to bring cooler air, the Arabian Sea is warming faster than most other ocean regions.
  • Next, the strong upper atmospheric westerly winds, from the Atlantic Ocean to India during spring, control the near-surface winds.
  • Any time winds flow from the west to the east, we need to remember that the winds are blowing faster than the planet which also rotates from west to east.
  • The energy to run past the earth near the surface, against surface friction, can only come from above. This descending air compresses and warms up to generate some heat waves.

4. Impacts of heat waves in India

  • The frequent occurrence of heat waves also adversely affects different sectors of the economy.
  • For instance, the livelihood of poor and marginal farmers is negatively impacted due to the loss of working days.
  • Heatwaves also have an adverse impact on daily wage workers' productivity, impacting the economy.
  • Crop yields suffer when temperatures exceed the ideal range.
  • Farmers in Haryana, Punjab, and Uttar Pradesh have reported losses in their wheat crop in the past rabi season. Across India, wheat production could be down 6-7% due to heat waves.
  • Mortality due to heat waves occurs because of rising temperatures, lack of public awareness programs, and inadequate long-term mitigation measures.
  • According to a 2019 report by the Tata Center for Development and the University of Chicago, by 2100 annually, more than 1.5 million people will be likely to die due to extreme heat caused by climate change.
  • The increased heat wave will lead to an increase in diseases like diabetes, circulatory and respiratory conditions, as well as mental health challenges.
  • The concurrence of heat and drought events is causing crop production losses and tree mortality. The risks to health and food production will be made more severe by the sudden food production losses exacerbated by heat-induced labor productivity losses.
    These interacting impacts will increase food prices, reduce household incomes, and lead to malnutrition and climate-related deaths, especially in tropical regions.

5. How does air mass contribute to heat waves?

  • The other factors that affect the formation of heat waves are the age of the air mass and how far it has traveled.
  • The north northwestern heatwaves are typically formed with air masses that come from 800-1600 km away and are around two days old.
  • Heat waves over peninsular India on the other hand, arrive from the oceans, which are closer (around 200-400km) and are barely a day old. As a result, they are on average less intense.

6. Way ahead for Heat waves

  • Identifying heat hot spots through appropriate tracking of meteorological data and promoting timely development and implementation of local Heat Action Plans with strategic inter-agency coordination, and a response that targets the most vulnerable groups.
  • Review existing occupational health standards, labor laws, and sectoral regulations for worker safety in relation to climatic conditions.
  • Policy intervention and coordination across three sectors health, water, and power are necessary.
  • Promotion of traditional adaptation practices, such as staying indoors and wearing comfortable clothes.
  • Popularisation of simple design features such as shaded windows, underground water storage tanks, and insulating house materials.
  • Advance implementation of local Heat Action Plans, plus effective inter-agency coordination is a vital response that the government can deploy in order to protect vulnerable groups.

For Prelims & Mains

For Prelims: Heat Wave, India Meteorological Department (IMD), El Nino, Equatorial Pacific Ocean, La Nina, Malnutrition, Heat Action Plans.
For Mains: 1. Examine the various adverse impacts caused by heat waves and how India should deal with them.
 
Previous Year Questions
 
1.What are the possible limitations of India in mitigating global warming at present and in the immediate future? (UPSC CSE 2010)

1. Appropriate alternate technologies are not sufficiently available.

2. India cannot invest huge funds in research and development.

3. Many developed countries have already set up their polluting industries in India.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer (a)

India faces challenges in addressing Global Warming: Developing and underdeveloped nations lack access to advanced technologies, resulting in a scarcity of viable alternatives for combating climate change. Being a developing nation, India relies partially or entirely on developed countries for technology. Moreover, a significant portion of the annual budget in these nations is allocated to development and poverty alleviation programs, leaving limited funds for research and development of alternative technologies compared to developed nations. Analyzing the statements provided: Statements 1 and 2 hold true based on the aforementioned factors. However, Statement 3 is inaccurate as the establishment of polluting industries by developed countries within India is not feasible due to regulations governing industrial setup

Mains

1.Bring out the causes for the formation of heat islands in the urban habitat of the world. (UPSC CSE Mains GS 1 2013)

 

Source: The Hindu
 

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