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DAILY CURRENT AFFAIRS, 30 NOVEMBER 2024

UNLAWFUL ACTIVITIES (PREVENTION) ACT (UAPA)

 
1. Context
 
The Union Home Ministry on Thursday declared Hizb-ut-Tahrir (HuT) a terrorist organisation under the Unlawful Activities (Prevention) Act (UAPA).
 
 
2. About Unlawful Activities (Prevention) Act (UAPA)
 

The Unlawful Activities (Prevention) Act (UAPA) is an Indian law that was enacted in 1967 to effectively prevent unlawful activities that pose a threat to the sovereignty and integrity of India.

Key highlights of the UAPA

  • Objective: The primary objective of the UAPA is to provide law enforcement agencies with effective tools to combat terrorism and other activities that threaten the security of the nation.
  • Definition of Unlawful Activities: The act defines unlawful activities to include actions that intend to or support the cession of a part of the territory of India or disrupt the sovereignty and integrity of the country.
  • Powers of Designation: The government has the authority to designate an organization as a terrorist organization if it believes that such an organization is involved in terrorism. This designation has significant legal consequences, including the freezing of assets.
  • Powers of Arrest and Detention: The UAPA provides law enforcement agencies with powers of arrest and detention to prevent individuals from engaging in unlawful activities. The act allows for preventive detention to curb potential threats before they materialise.
  • Banning of Terrorist Organizations: The government can proscribe organizations as terrorist organizations, making their activities illegal. This includes banning these organisations, freezing their assets, and taking other measures to curb their operations.
  • Admissibility of Confessions: The UAPA allows for confessions made to police officers to be admissible in court, subject to certain safeguards. This provision has been a point of contention, with concerns about potential misuse and coercion.
  • Designation of Individuals as Terrorists: In addition to organizations, the UAPA allows the government to designate individuals as terrorists. This designation carries legal consequences, including restrictions on travel and freezing of assets.
  • Amendments and Stringency: Over the years, the UAPA has undergone several amendments to strengthen its provisions and make it more effective in dealing with emerging threats. However, these amendments have also been criticized for potential violations of civil liberties.
  • International Cooperation: The UAPA allows for cooperation with foreign countries in matters related to the prevention of unlawful activities. This includes extradition of individuals involved in such activities.
 

3. Unlawful Activities (Prevention) Act (UAPA) and Human Rights

 

The Unlawful Activities (Prevention) Act (UAPA) and human rights lie in the impact the act can have on various fundamental rights guaranteed by the Constitution of India and international human rights standards.

The key points connecting the UAPA and human rights:

  • The UAPA allows for preventive detention, which means individuals can be detained without formal charges based on suspicions of involvement in unlawful activities. This raises concerns about the right to liberty, as individuals may be deprived of their freedom without the presumption of innocence until proven guilty.
  • The admissibility of confessions made to police officers under the UAPA raises issues related to the right against self-incrimination. There is a risk that such confessions might be obtained under duress or coercion, compromising the fairness of legal proceedings.
  • Designating individuals as terrorists and proscribing organizations without due process may impinge on the right to a fair trial. This includes the right to be informed of charges, the right to legal representation, and the right to present a defense.
  • The UAPA provides authorities with the power to proscribe organizations as terrorist organizations, limiting their activities. Critics argue that this may infringe upon the right to freedom of association, particularly when such designations are made without sufficient evidence or proper legal procedures.
  • The potential for misuse of the UAPA to target individuals or organizations critical of the government raises concerns about freedom of expression. If the act is used to suppress dissent or stifle legitimate political or social activities, it can undermine this fundamental right.
  • The UAPA grants authorities the power to intercept communications and conduct surveillance on individuals suspected of engaging in unlawful activities. This raises concerns about the right to privacy, as individuals may be subjected to intrusive surveillance without adequate safeguards.
  • Human rights standards require that any restrictions on rights, such as those imposed by the UAPA, must be proportionate and necessary for achieving a legitimate aim. Critics argue that the broad scope of the UAPA may lead to disproportionate measures that unduly restrict individual rights.
  • The UAPA's compatibility with international human rights standards, including the International Covenant on Civil and Political Rights (ICCPR), is a critical point of consideration. Ensuring that the act aligns with these standards is essential to upholding human rights principles.
 

4. Unlawful Activities (Prevention) Act (UAPA) and Article 22 of the Constitution

 

The Unlawful Activities (Prevention) Act (UAPA) and Article 22 of the Indian Constitution lie in how the UAPA's provisions for arrest and detention intersect with the constitutional safeguards provided under Article 22. 

  • Article 22 provides certain protections to individuals who are arrested or detained. It outlines the rights of arrested individuals, emphasizing safeguards to prevent arbitrary or unlawful detention.
  • Article 22(1) states that every person who is arrested and detained shall be informed, as soon as may be, of the grounds for such arrest. This provision ensures that individuals are aware of the reasons behind their arrest, preventing arbitrary or secret detentions.
  • Article 22(1) also guarantees the right of an arrested person to consult and be defended by a legal practitioner of their choice. This ensures that individuals have access to legal assistance during the legal process, contributing to a fair and just legal system.
  • The UAPA includes provisions for preventive detention, allowing authorities to detain individuals to prevent them from committing certain offences. However, Article 22(4) allows preventive detention only under specific circumstances, and certain safeguards must be followed, such as providing the detenu with the grounds for detention and an opportunity to make a representation against the detention.
  • Article 22(4) further mandates that a person detained under a law providing for preventive detention must be afforded the earliest opportunity to make a representation against the detention. Additionally, the case of every person detained is required to be placed before an advisory board within three months.
  • The UAPA allows for confessions made to police officers to be admissible in court, subject to certain safeguards. However, this provision has been a point of concern concerning Article 22, as confessions obtained under duress or coercion may violate the right against self-incrimination.
  • Article 22(2) ensures the right to be brought before the nearest magistrate within 24 hours of arrest, excluding the time necessary for the journey. This provision aims to prevent prolonged detention without judicial oversight and contributes to the right to a speedy trial.
 
 
For Prelims: Unlawful Activities (Prevention) Act, Article 22, Terrorism
For Mains: 
1. Discuss the key provisions of the Unlawful Activities (Prevention) Act (UAPA) and analyze how they may impact fundamental human rights. Elaborate on the balance between national security concerns and the protection of individual rights. (250 Words)

 

Previous Year Questions

1. Under Article 22 of the Constitution of India, with the exception of certain provisions stated there in, what is the maximum period for detention of a person under preventive detention? (MPSC 2014)

A. 2 months       B. 3 months         C. 4 months           D. 6 months

 

2. Article 22 of the Constitution ensures (CTET 2016)

A. Right not to be ill-treated during arrest or while in custody

B. Right to Constitutional Remedies

C. Right against Exploitation

D. Right to Education

Answers: 1-B, 2-A

Mains

1. Indian government has recently strengthed the anti-terrorism laws by amending the Unlawful Activities(Prevention) Act, (UAPA), 1967 and the NIA Act. Analyze the changes in the context of prevailing security environment while discussing scope and reasons for opposing the UAPA by human rights organizations. (UPSC 2019)

Source: The Indian Express

INDIA'S TEXTILE INDUSTRY 

 
1. Context
 
Union Minister for Textiles Giriraj Singh recently said that the Indian textile and apparel sector is aiming for a total business of $350 billion annually by 2030, which is to generate 3.5 crore jobs. However, the industry went through a tumultuous phase during the last two financial years, casting a shadow on the possibility for 10% CAGR.
 
2. India's Textile Industry
 
  • In 2021, the Indian textile and apparel industry was valued at approximately $153 billion, with nearly $110 billion coming from domestic operations. By the end of FY22, India ranked as the third-largest textile exporter worldwide, holding a 5.4% share of the global market.
  • The country is also recognized for having the second-largest manufacturing capacity in this sector, showcasing a strong presence across the entire value chain.
  • The textile industry's contribution to the GDP was around 2.3% in FY21, while it accounted for 10.6% of the total manufacturing Gross Value Added (GVA) in FY23. The sector employs about 105 million people, both directly and indirectly.
  • Given that 80% of the industry’s capacity is distributed among micro, small, and medium enterprises (MSMEs), it is highly sensitive to global market changes. The fiscal year 2021-2022 witnessed significant growth, with exports reaching $43.4 billion.
  • However, the demand slowdown that began in 2022-2023 continued to worsen into FY24, resulting in declines in both exports and domestic demand. This downturn severely affected manufacturing hubs, such as Tamil Nadu, which houses the country’s largest spinning capacity.
  • Over the past two years, approximately 500 textile mills have closed in the state. In Tiruppur, a key center for knitwear production, many businesses experienced a 40% reduction in sales during FY23

 

3. India's Textile Exports

  • Geopolitical changes and a decline in demand from purchasing countries have significantly impacted exporting units. This situation has been worsened by rising prices of raw materials, including cotton and Man-Made Fibres (MMF), along with an increase in imported fabrics and garments.
  • The introduction of a 10% import duty on cotton has made Indian cotton less competitive compared to global prices. In the case of MMF, the implementation of quality control orders has disrupted the availability of raw materials and caused fluctuations in pricing.
  • Industry stakeholders are consistently advocating for the removal of the import duty on cotton, especially during the off-peak months from April to October. A representative from a prominent industry association emphasized, “This is an industry where stakeholders compete globally against countries that significantly support their domestic production.
  • Therefore, India requires long-term schemes, lasting at least five years, to encourage investments. Raw materials must be accessible to the domestic industry at prices that are competitive with international markets.”
4. Challenges
 
The textile industry aims to attract $100 billion in investments across various segments of its value chain by 2030 to enhance production capacities and achieve the ambitious $350 billion target. Labor costs make up about 10% of the overall production expenses in this sector. Reports indicate that the average daily wage for a trained textile worker is approximately ₹550, while unskilled workers earn around ₹450 per day. Industry experts emphasize the necessity of adopting technology and enhancing the skills of the workforce to boost productivity and minimize waste
 
5. What is the Compound Annual Growth rate (CAGR)?
 
Compound Annual Growth Rate (CAGR) is a useful measure that indicates the mean annual growth rate of an investment over a specified time period, assuming that the investment grows at a steady rate. It is often expressed as a percentage and can be particularly useful for comparing the growth rates of different investments or industries over time
 

 

The formula for CAGR is:

CAGR = (Ending Value / Beginning Value)^(1/n) - 1

where:

  • Ending Value is the final value of the investment.
  • Beginning Value is the initial value of the investment.
  • n is the number of years.
Source: The Hindu
 

RIGHT TO INFORMATION ACT

1. Context

Amid protests from stakeholders including Opposition parties and the civil society on provisions of the Digital Personal Data Protection Act, the government faced some pushback from within as well. Niti Aayog, the top think tank of the government, had opposed some of the provisions of the law, and particularly red flagged the changes proposed to the Right to Information (RTI) Act that could “weaken” the legislation..

2. The Right to Information (RTI) Act:

  • The Right to Information (RTI) Act is a landmark legislation enacted in India in 2005.
  • It empowers citizens to access information held by public authorities and promotes transparency and accountability in government functioning.

Here are key points about the RTI Act:

Objective

The primary objective of the RTI Act is to provide citizens with the legal right to request and receive information from government agencies and departments.

Applicability

The Act applies to all government bodies at the central, state, and local levels, including ministries, departments, public sector undertakings, and even non-governmental organizations receiving government funding.

Information Disclosure

It mandates government bodies to proactively disclose certain categories of information to the public, reducing the need for citizens to file RTI applications for routine information.

Request Process

  • Citizens can file RTI applications in writing, seeking specific information. They need to pay a nominal fee with the application.
  • Information must be provided within 30 days (or 48 hours for information concerning life and liberty), failing which authorities must explain the delay.

Exemptions

The Act specifies certain categories of information that are exempt from disclosure, primarily to protect national security, privacy, and sovereignty.

Public Interest Override

Even if the information falls under exempt categories, it must still be disclosed if there is an overriding public interest.

Promoting Accountability

  • The RTI Act is a powerful tool for holding public officials accountable for their actions and decisions.
  • It has been instrumental in exposing corruption, inefficiency, and human rights violations.

Challenges and Amendments:

Over the years, there have been concerns about the Act's effectiveness due to delays, procedural hurdles, and some amendments that activists argue weaken its provisions.

Impact

  • The RTI Act has empowered citizens to participate in governance, making the government more transparent and accountable.
  • It has been hailed as a significant step toward strengthening democracy in India.

Role of Information Commissions

Information Commissions at the central and state levels are responsible for hearing appeals and resolving disputes related to RTI applications.

3. RTI Act Amendment:

  • The Digital Personal Data Protection Act, of 2023, amended the RTI Act.
  • It changed the prohibition on disclosing personal data from qualified to the total.
  • NCPRI opposed this change, as it hinders social audits and may protect powerful officials.
  • The Right to Information (Amendment) Act, of 2019, gave Union Government unilateral power over information commissioners' tenure and salaries.
  • This raised concerns about their independence and effectiveness.

4. Undermining the RTI Act:

Dependence on Subordinate Rules:

  • The RTI Act's effectiveness relies on subordinate rules set by Union and State Governments.
  • States have autonomy in determining payment methods for RTI applications, causing disparities.

Payment Method Variations

  • Inconsistencies exist in payment methods across states.
  • Example: Tamil Nadu doesn't accept Indian Postal Orders (IPOs), a convenient payment method.
  • Court fee stamps and demand drafts may be less accessible and burdensome alternatives.

Tardy Appointments to Information Commissions

  • Delays in appointing members to Information Commissions, like the Central Information Commission (CIC) and State Information Commissions (SICs), erode confidence.
  • Appeals can languish for months or years without resolution.
  • Jharkhand SIC, for instance, lacked commissioners since May 2020, rendering the appeals process ineffective.

5. Online RTIs:

  • Online RTI applications ease accessibility by eliminating the need for uncommon financial instruments.
  • Payment via UPI simplifies the process.
  • Many Indian states lack online RTI portals, limiting access for citizens.
  • Even when available, some state government bodies may not be registered on these portals.
  • The Union Government's RTI portal, launched in 2013, faces usability issues.
  • Account creation, which streamlined the application process, has been removed.
  • Users must now enter personal details for each application.
  • Past applicant data has experienced glitches, with applications disappearing and later being restored.

6. Challenges and Dissatisfaction:

  • Dissatisfaction with the RTI Act's effectiveness is increasing at a fundamental level.
  • More first appeals are being filed, indicating public dissatisfaction with the information provided by public officials.
  • The RTI Act faces structural problems related to institutions and websites.
  • These issues hinder citizens' ability to conveniently access information and file requests.
  • Activists highlight that the weakening of the RTI Act isn't limited to changes in the law's text.
  • It stems from various government institutions' ways of discharging duties, narrowing avenues for information access, and understaffed appellate bodies.
For Prelims: Right to Information Act, 2005, Central Information Commission (CIC), State Information Commissions (SICs), Indian Postal Orders (IPOs), Digital Personal Data Protection Act, of 2023.
For Mains: 1. Examine the impact of recent amendments to the Right to Information (RTI) Act on its core principles of transparency and accountability. How can the Act strike a balance between protecting sensitive information and ensuring citizens' access to government-held data?
 

Previous year Question

1. Which of the following is related to the Right to Information Act, of 2005? (UPPSC 2015)
A. Lily Thomas v/s Union of India
B. Nandini Sundar v/s State of Chhattisgarh
C. Namit Sharma v/s Union of India
D. None of the above
Answer: C
Source: The Hindu
 

SOVEREIGN GREEN BONDS

 
1. Context
 
The government would take a decision on issuing fresh sovereign gold bonds (SGBs) based on the need and assessment of market conditions, said sources.Experts, however, feel that the government does not seem keen on issuing fresh gold bonds given the overall cost and rising gold prices.
 
 
2. About Sovereign Green Bonds
 
  • Sovereign Green Bonds are a type of government debt instrument issued by a sovereign nation specifically to finance environmentally sustainable projects. These bonds are dedicated to funding initiatives that contribute to the transition to a low-carbon economy, mitigate climate change, and promote environmental sustainability.
  • The proceeds from Sovereign Green Bonds are earmarked for projects such as renewable energy infrastructure development, energy efficiency improvements, green transportation initiatives, sustainable agriculture, and other environmentally friendly endeavours.
  • The key characteristic of Sovereign Green Bonds is their alignment with internationally recognized green finance principles and standards.
  • Issuers typically establish a framework outlining the types of projects eligible for financing through these bonds, ensuring transparency and accountability in the allocation of funds.
  • Investors in Sovereign Green Bonds are attracted not only by the financial returns but also by the opportunity to support sustainable development and address pressing environmental challenges.
 

3. Facilitating the Green Transition

 

  • Enabling Foreign Institutional Investors (FIIs) to invest in India's green projects expands the financial resources available to support the country's ambitious goals for transitioning to a greener economy by 2070. These goals include ensuring that 50% of India's energy is sourced from non-fossil fuel-based sources and reducing the carbon intensity of the nation's economy by 45%, as pledged by Prime Minister Narendra Modi at COP26 in Glasgow in 2021.
  • The Reserve Bank of India (RBI) had issued Sovereign Green Bonds (SGrBs) worth ₹16,000 crore in two tranches in January and February of the previous year, with maturities in 2028 and 2033. While these bonds were oversubscribed on both occasions, the primary participants were domestic financial institutions and banks, limiting the avenues for government borrowing. Additionally, these green Government-Securities (G-Secs) were classified under the Statutory Liquidity Ratio (SLR), further constraining the financial institutions' lending capacity.
  • SGrBs typically offer lower interest rates compared to conventional G-Secs, leading to what is termed as a "greenium" - the amount foregone by a bank by investing in them. However, central banks and governments worldwide are encouraging financial institutions to embrace green investments to accelerate the transition to a sustainable future.
  • Climate finance experts believe that allowing FIIs to invest in green G-Secs would benefit India. They point out that FIIs are seeking to diversify their portfolio of green investments, especially in light of significant regulatory support in developed countries. Investing in India's green G-Secs presents an opportunity for them to do so.
  • FIIs may also be motivated to acquire green credentials, particularly when such investment opportunities are limited in their home markets. India's successful implementation of the Sovereign Green Bonds Framework in late 2022 has addressed concerns about greenwashing, further enhancing the attractiveness of these investments.
 

4. Understanding the Green Taxonomy Gap

 

  • In the 2022-23 Union Budget, Finance Minister Nirmala Sitharaman announced the government's decision to issue Sovereign Green Bonds (SGrBs) to expedite funding for various government projects, including initiatives such as offshore wind harnessing, grid-scale solar power production, and promoting the transition to battery-operated Electric Vehicles (EVs).
  • However, a critical gap emerged as the Reserve Bank of India (RBI) had not established a green taxonomy or a standardized method to evaluate the environmental or emissions credentials of investments. This gap raised concerns about potential greenwashing, wherein projects falsely claim environmentally friendly characteristics to secure funding.
  • To bridge this gap, the Finance Ministry unveiled India's inaugural SGrB Framework on November 9, 2022, outlining the types of projects eligible for funding through this category of Government-Securities (G-Secs).
  • These projects encompassed a range of initiatives, including investments in small-scale solar/wind/biomass/hydropower energy projects with integrated energy generation and storage, upgrades to public lighting systems (e.g., transitioning to LED lights), construction of low-carbon buildings, energy-efficiency retrofits for existing buildings, enhancements to public transportation infrastructure, subsidies to promote EV adoption, and the establishment of EV charging infrastructure.
  • Furthermore, the government sought validation from Norway-based validator Cicero to compare India's SGrB Framework with the green principles outlined by the International Capital Market Association (ICMA).
  • Cicero rated India's framework as a "green medium," highlighting its good governance practices.
  • The importance of identifying new green projects with credible audit trails and significant impact, particularly those areas that have received limited private capital, such as Distributed Renewable Energy and clean energy transition finance for Micro, Small, and Medium Enterprises (MSMEs).
  • Addressing this gap is crucial for effectively deploying the proceeds from SGrBs and advancing India's sustainable development goals.
 
5. The Way Forward
 
India can leverage Sovereign Green Bonds as a powerful tool to mobilize resources, foster international collaboration, and achieve its ambitious green goals. This integrated approach will pave the way for a sustainable and low-carbon future for the nation.
 
 
For Prelims: Sovereign Green Bonds, MSMEs, Climate Change, RBI, International Capital Market Association, Government-Securities
For Mains: 
1. Discuss the significance of Sovereign Green Bonds (SGrBs) in India's transition to a low-carbon economy. How can the issuance of SGrBs attract foreign investment and support the country's ambitious green goals?  (250 Words)
 
 
Previous Year Questions
 
1. Which of the following statements regarding the Green bonds is NOT true? (UPPSC RO/ARO 2020)
A. Green Bond investment is only for climate friendly projects
B. Green bonds were first introduced by European Investment Fund in 2007
C. Green Bonds are Financial Market Innovation
D. Green Bonds are fixed interest loan is short date maturities
 
2.  Indian Government Bond Yields are influenced by which of the following? (2021)
1. Actions of the United States Federal Reserve
2. Actions of the Reserve Bank of India
3. Inflation and short-term interest rates

Select the correct answer using the code given below.

(a) 1 and 2 only           (b) 2 only               (c) 3 only           (d) 1, 2 and 3

3. With reference to ‘IFC Masala Bonds’, sometimes seen in the news, which of the statements given below is/ are correct? (2016)

1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank.
2. They are the rupee-denominated bonds and are a source of debt financing for the public and private sector.

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

Answer: 1-D, 2-D, 3-C

 Source: The Hindu

NON BANKING FINANCIAL COMPANIES (NBFC)

 
1. Context
 
The non-banking financial companies (NBFC) sector in India continues to demonstrate resilience within the scale-based regulations (SBR) framework, improving in asset quality and diversifying funding base, Reserve Bank of India (RBI) officials said.
 
2. What are the non-banking financial companies (NBFCs)?
 
  • Non-Banking Financial Companies (NBFCs) are financial institutions that provide banking services but do not hold a banking license.
  • They are crucial to the financial system as they cater to the financial needs of sectors where traditional banks may not reach or provide services.
  • NBFCs offer various financial services such as loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority, leasing, hire-purchase, insurance business, chit business, etc.
  • They differ from traditional banks because they cannot accept demand deposits and do not form part of the payment and settlement system like banks do.
  • However, they play a significant role in providing credit to individuals, small businesses, and the unorganised sector, thereby contributing to financial inclusion and economic growth. Examples of NBFCs include companies engaged in equipment leasing, hire-purchase finance, vehicle finance, and microfinance

3. Classification of NBFCs

NBFCs can be classified into various categories based on their activities, ownership structure, and regulatory requirements.

Here are some common classifications:

  • Asset Financing NBFCs: These NBFCs primarily provide financing for the purchase of assets such as vehicles, machinery, equipment, etc.

  • Investment and Credit NBFCs: These NBFCs primarily make investments in securities or extend credit facilities.

  • Infrastructure Finance Companies (IFCs): These NBFCs focus on financing infrastructure projects such as roads, ports, power, telecommunications, etc.

  • Housing Finance Companies (HFCs): These NBFCs specialize in providing finance for housing and related activities.

  • Microfinance Institutions (MFIs): These NBFCs provide financial services, including small loans, savings, and insurance, to low-income individuals and microenterprises.

  • Non-Deposit Taking NBFCs: These NBFCs do not accept deposits from the public. They rely on other sources of funding such as borrowings from banks, financial institutions, and capital markets.

  • Deposit Taking NBFCs: These NBFCs accept deposits from the public and are regulated more closely, similar to banks, to ensure the safety of depositor funds.

  • Systemically Important NBFCs (SI-NBFCs): These are NBFCs whose failure could potentially disrupt the financial system. They are subject to additional regulatory requirements to mitigate systemic risks.

  • Core Investment Companies (CICs): These NBFCs are primarily engaged in the business of acquisition of shares and securities and hold not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, bonds, debentures, debt, or loans in group companies.

  • Infrastructure Debt Funds (IDFs): These NBFCs are set up to facilitate the flow of long-term debt into infrastructure projects.

4. What is the 50-50 Criteria of Principal Business?
 
  • The 50-50 criteria of principal business refers to a regulatory guideline set by the Reserve Bank of India (RBI) for determining whether a company's principal business is that of a Non-Banking Financial Company (NBFC).
  • According to this criterion, if more than 50% of a company's total assets or gross income comes from financial assets or income derived from financial assets, it is considered to be primarily engaged in the business of an NBFC. In other words, if at least 50% of the company's assets or income is from financial activities, it falls under the purview of NBFC regulations.
  • This guideline helps to differentiate between companies engaged primarily in non-financial activities with some incidental financial activities and those whose main business revolves around financial services, thereby ensuring appropriate regulation and supervision of NBFCs by the RBI. It is an important criterion used by regulators to determine the regulatory classification of companies operating in the financial sector

5.RBI rules on Non Banking Financial Companies

The Reserve Bank of India (RBI) regulates Non-Banking Financial Companies (NBFCs) in India to ensure financial stability, consumer protection, and the smooth functioning of the financial system.
 
Some of the key rules and regulations imposed by the RBI on NBFCs include:
  • NBFCs need to obtain a Certificate of Registration (CoR) from the RBI to commence or carry on the business of non-banking financial institution.
  • RBI imposes prudential regulations on NBFCs to ensure the safety and soundness of their operations. These norms cover aspects such as capital adequacy, income recognition, asset classification, provisioning, liquidity management, and exposure limits.
  • NBFCs are required to adhere to a Fair Practices Code (FPC) prescribed by the RBI, which outlines the principles of transparency, fairness, and responsible lending practices.
  • NBFCs are mandated to follow KYC norms while onboarding customers, including verification of identity, address, and other relevant information, to prevent money laundering and terrorist financing activities
  • NBFCs are required to implement effective AML/CFT measures, including customer due diligence, transaction monitoring, and reporting of suspicious transactions, to mitigate the risks of money laundering and terrorist financing.
  • RBI mandates NBFCs to adhere to good corporate governance practices, including the composition of the board of directors, risk management framework, internal controls, and disclosure requirements
  •  NBFCs are required to have robust risk management systems in place to identify, assess, monitor, and mitigate various risks such as credit risk, market risk, liquidity risk, and operational risk.
  • NBFCs need to submit various regulatory returns and reports to the RBI periodically, providing details of their financial performance, capital adequacy, asset quality, and compliance with regulatory requirements.
  • RBI conducts regular inspections and supervisory reviews of NBFCs to assess their financial health, compliance with regulations, and adherence to best practices.
  • RBI has the authority to issue directions, impose restrictions, and take corrective actions against NBFCs that fail to comply with regulatory requirements or pose risks to the financial system.
 
6. Way Forward
Non-Banking Financial Companies (NBFCs) play a vital role in India's financial landscape, serving as critical intermediaries between traditional banking institutions and underserved segments of the economy. With their diverse range of financial services and flexible approach to lending, NBFCs contribute significantly to promoting financial inclusion, fostering entrepreneurship, and driving economic growth. However, the regulatory framework governing NBFCs remains paramount in ensuring the stability and integrity of the financial system. As the sector continues to evolve and face new challenges, effective regulation, prudent risk management, and adherence to best practices will be essential for NBFCs to sustain their growth trajectory and fulfill their socio-economic mandate in a responsible and sustainable manner
 
 
For Prelims: Economy
For Mains: GS-III: Indian Economy and issues relating to planning, mobilisation, of resources, growth, development, and employment.
 
 

Previous Year Questions

1.The RBI acts as a bankers’ bank. This would imply which of the following? (UPSC CSE 2012)

1. Other banks retain their deposits with the RBI.

2. The RBI lends funds to the commercial banks in times of need.

3. The RBI advises the commercial banks on monetary matters.

Select the correct answer using the codes given below :

(a) 2 and 3 only

(b) 1 and 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer (d)

The central bank, also known as the apex bank, has overarching control over a nation's banking system. It holds the exclusive authority for issuing currency and regulates the money supply within the economy. As outlined in the Reserve Bank of India Act, 1934, the central bank fulfills several key functions:

  • Banking functions: Acting as the banker, agent, and advisor to both the central and state governments, the Reserve Bank handles all banking operations for these entities. It extends advisory services to the government on economic and monetary policy matters and manages the public debt. Furthermore, it functions similarly to a commercial bank for other banks, including providing loans to all commercial banks nationwide.

  • Supervisory functions: The central bank supervises and monitors other banks and governmental entities, guiding them through various economic conditions, especially during periods of inflation or deflation.

  • Promotional functions: In addition to its regulatory role, the central bank undertakes promotional activities such as fostering connections with global economies and managing foreign reserves. These efforts contribute to representing the country's economy on the international stage.

  • Advisory functions: Offering guidance on monetary issues to commercial banks is another essential role of the central bank, ensuring effective monetary policy implementation.

2.With reference to the Non-banking Financial Companies (NBFCs) in India, consider the following statements: (UPSC CSE 2010)
  1. They cannot engage in the acquisition of securities issued by the government.
  2. They cannot accept demand deposits like Savings Account.

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: (b)

  • Statement 1: They cannot engage in the acquisition of securities issued by the government. This statement is False. NBFCs can invest in government securities like bonds.
  • Statement 2: They cannot accept demand deposits like Savings Account. This statement is True. NBFCs are unlike banks and cannot accept demand deposits that are withdrawable on demand. They can only accept fixed deposits with a predetermined maturity period
Source: Indianexpress
 

COMPTROLLER AUDITOR GENERAL (CAG)

1. Context

The Comptroller and Auditor General of India has blown the lid off major irregularities in Odisha’s mining sector, estimating the loss of mining revenue and value of minerals at a whopping ₹22,392.51 crore.

2. About CAG

  • Article 148 of the Indian Constitution provides for an Independent Office of Comptroller Auditor General (CAG)
  • Head of the Indian Audits and Account Department 
  • It is an apex authority for external and internal audits of the expenses of the National and State governments

3. Appointments, Term & Removal

  • The CAG is appointed by the President, they should take oath before the president or before someone from the President's office
  • CAG holds Office for six years or up to the age of 65 years whichever is early
  • CAG can resign by addressing their resignation to the President
  • CAG can be removed by the President from Office in the same manner as a Supreme court Judge or Resolution passed by the President in both houses of the Parliament with a special majority, either on the ground of misbehaviour or incapacity
  • CAG is not eligible to join any Central Government Post or any State government Post
  • Expenses, allowances, and salaries are drawn from the Consolidated Fund of India.

4. Duties of CAG

Articles 148,149,150 and 151 of the Constitution of India describe the function and power of the CAG office
  • CAG will conduct all expenses from Consolidated Fund in all the states and UT has a legislative assembly
  • CAG Audits all the expenses from the Contingency Fund of India and Public accounts of India as well as the Contingency Fund of State and Public Accounts of a State
  • CAG Audits all trading accounts, manufacturing, profit and loss accounts, balance sheets and other subsidiary accounts kept by any department of the Central and State Governments
  • CAG Audits the receipts and expenditures of all bodies and Authorities which are financed by the Central and State Government revenues
  • CAG Submits audit reports relating to the Central Government to President and State Governments to Governor, they will furnish these reports in parliament as well as in-state assemblies
  • CAG submits three reports to the President 1-Report on Appropriation accounts, a report on financial accounts, a report on public undertakings

5. CAG Audit and Financial Irregularities

The Comptroller and Auditor General (CAG) of India conducted an audit of expenses in nine BMC departments between November 28, 2019, and October 31, 2022.
The audit was initiated by the state government, which highlighted alleged irregularities amounting to Rs 12, 000 crores in 76 projects, primarily undertaken during the pandemic.

Obstacles Faced by CAG The CAG's audit covered Rs 8, 500 crores of the total expenditure, as the BMC objected to auditing the remaining amount. The BMC issued a legal notice to halt the audit of any acts, works or decisions related to Covid management and expenditure amounting to Rs 3, 538.73 crores, citing provisions of the Epidemic Act, 1897 and the Disaster Management Act 2005.

Project Audits and Findings The CAG report, spanning 146 pages, highlighted weaknesses in internal control mechanisms within the BMC. It revealed instances where work orders were awarded without tenders, contractual documents were not executed and third-party auditors were not appointed to assess the quality of work.

Departments Under Scrutiny Various BMC departments were found to have financial irregularities. The Development Plan Department was flagged for overvaluation of expenditure during land acquisition and delays in acquiring land for public amenities.  The Bridges Department awarded work orders without registering private contractors with the BMC. The report also mentioned cost escalations, delayed clearances and irregularities in various other projects and departments.

Financial Transactions During the Pandemic While the ED is investigating financial transactions during the Pandemic period, the CAG report sheds light on the wide-ranging financial irregularities across multiple BMC departments.

6. The way forward

The ED raids and the CAG report have brought to light alleged financial irregularities in the BMC's operations. Investigations and further actions will be taken to determine the extent of the scam and hold those responsible accountable.

For Prelims: Enforcement Directorate, Brihanmumbai Municipal Corporation, Special Investigation Team, Comptroller Auditor General, Consolidated Fund of India, Contingency Fund of India, Report on Appropriation accounts, a report on financial accounts, a report on public undertakings, 
 
For Mains: 
1. Examine the constitutional provisions and powers of the CAG in conducting audits of government expenses at both the central and state levels. Discuss the significance of the CAG's role in upholding financial discipline and promoting good governance. (250 Words)
2. Explore the role of technology and digital platforms in improving financial oversight and preventing irregularities in government projects. Discuss the potential benefits and challenges associated with the implementation of digital auditing mechanisms. (250 Words)
 
 
 
Previous Year Questions
 
1. Which one of the following is not correct in respect of Directorate of Enforcement? (CDS 2021) 
A. It is a specialized financial investigation agency under the Department of Revenue, Ministry of Finance.
B. It enforces the Foreign Exchange Management Act, 1999.
C. It enforces the Prevention of Money Laundering Act, 2002.
D. It enforces the Prohibition of Benami Property Transaction Act, 1988.
 
Answer: D
 
2. The Comptroller and Auditor-General (CAG) of India can be removed from office only by the: (UPSC CAPF 2015) 
A. President on the advice of the Union Cabinet.
B. Chief justice of the Supreme Court.
C. President of India after an address in both Houses of Parliament.
D. President on the advice of Chief Justice of India.
 
Answer: C
 
3. With reference to the Union Government, consider the following statements: (UPSC 2015) 
1. The Department of Revenue responsible for the preparation of Union Budget that is presented to the Parliament.
2. No amount can be withdrawn from the Consolidated Fund of India without the authorization from the Parliament of India
3. All the disbursements made from Public Account also need authorization from the Parliament of India.
Which of the statements given above is/are correct? 
A. 1 and 2 only           B. 2 and 3 only          C. 2 only          D. 1, 2 and 3
 
Answer: C
 
4. The Contingency Fund of India is placed at whose disposal? (SSC CGL 2017)
A. The Prime Minister
B. Judge of Supreme Court
C. The President
D. The Finance Minister
 
Answer: C
 
5. In India, other than ensuring that public funds are used efficiently and for their intended purpose, what is the importance of the office of the Comptroller and Auditor General (CAG)? (UPSC 2012)
1. CAG exercises exchequer control on behalf of the Parliament when the President of India declares a national emergency/financial emergency.
2. CAG reports on the execution of projects or programs by the ministers are discussed by the Public Accounts Committee.
3. Information from CAG reports can be used by investigating agencies to press charges against those who have violated the law while managing public finances.
4. While dealing with the audit and accounting of government companies, CAG has certain judicial powers for prosecuting those who violate the law.
Which of the statements given above is/are correct? 
A. 1, 3 and 4 only      B. 2 only          C. 2 and 3 only            D. 1, 2, 3 and 4
 
Answer: C
 
 
Source: The Indian Express
 

CLOUD SEEDING

 
1. Context
 
The newly-launched Mission Mausam will not just help in improving weather forecasts in the country but also enable the Met department to develop capabilities to ‘manage’ certain weather events, like enhancing or suppressing rainfall over an area according to requirements
 
2. What is Cloud Seeding?
Cloud seeding is a form of weather modification technology designed to induce artificial rainfall.
Its effectiveness relies on the presence of adequate pre-existing clouds in the atmosphere.
Rain occurs when atmospheric moisture reaches a saturation point, and cloud seeding aims to expedite this process by introducing chemical 'nuclei.'
These nuclei provide surfaces around which condensation can occur.
Examples of rain-inducing nuclei include silver or potassium iodides, solid carbon dioxide (dry ice), or liquid propane. Delivery methods for these seeding agents include aerial dispersal via aircraft or ground-based spraying.
 
3. Cloud Seeding Methods

Cloud seeding is a weather modification technique used to enhance precipitation by introducing seeding agents into clouds. Various methods are employed to disperse these agents, promoting the formation of precipitation. Here are some common cloud seeding methods:

Aerial Seeding:

    • Aircraft Dispersion: Cloud seeding agents, such as silver iodide or other materials, are released into the atmosphere from aircraft. Flares or canisters containing the seeding agents are ignited and dispersed at appropriate cloud levels. The aircraft may fly through clouds or release seeding agents from above, depending on the cloud characteristics.

Ground-Based Seeding:

    • Ground-Based Generators: These are stationed on the ground to release seeding agents into the atmosphere. These generators may use flares or other mechanisms to disperse the seeding agents vertically into the air. Ground-based seeding is often employed in areas where aircraft may not be practical or cost-effective.

    • Rocket Launches: Some cloud seeding programs use rockets equipped with seeding agents to reach specific altitudes in the atmosphere. The rockets are launched from the ground and disperse the seeding agents into the target clouds.

Hygroscopic Flares:

    • Hygroscopic Materials: Certain seeding agents, known as hygroscopic materials, have an affinity for water vapor. These materials can absorb moisture from the air, promoting the coalescence of water droplets and eventually precipitation. Calcium chloride is an example of a hygroscopic material used in cloud seeding.

Remote Sensing and Monitoring:

    • Weather Radar: Meteorologists use weather radar to monitor cloud development and precipitation patterns. This information helps identify suitable clouds for seeding and assess the effectiveness of cloud seeding operations.

    • Weather Balloons and Instruments: Instruments carried by weather balloons provide data on atmospheric conditions, helping meteorologists determine the feasibility of cloud seeding. These instruments measure factors such as temperature, humidity, and wind speed at different altitudes.

Natural Ice Nuclei:

    • Collecting Natural Ice Nuclei: In some cases, natural ice nuclei (particles that can initiate the freezing of water droplets) are collected and dispersed into clouds to encourage the formation of ice crystals. This method is less common than using artificial seeding agents.
4. Applications of Cloud Seeding

Cloud seeding is primarily employed to enhance precipitation in specific regions, and it has applications in various fields. Some notable applications of cloud seeding include:

Water Resource Management:

    • Increased Precipitation: Cloud seeding aims to boost rainfall or snowfall in targeted areas, contributing to increased water resources. This is particularly valuable in regions facing water scarcity or drought conditions.

Agriculture:

    • Enhanced Crop Irrigation: Increased precipitation resulting from cloud seeding can benefit agriculture by providing additional water for crop irrigation. This is especially significant in arid or semi-arid regions where water availability is a limiting factor for agricultural productivity.

Water Supply Augmentation:

    • Reservoir Replenishment: Cloud seeding can help replenish reservoirs and aquifers, contributing to the augmentation of water supplies for domestic, industrial, and agricultural use.

Snowpack Augmentation:

    • Winter Sports Industry: In mountainous regions, cloud seeding is sometimes employed to enhance snowpack, particularly for ski resorts and winter sports areas. Increased snowfall can extend the winter season and improve conditions for skiing and other activities.

Forest Fire Prevention:

    • Reducing Fire Risk: In certain cases, cloud seeding is explored as a tool for reducing the risk of forest fires. By inducing precipitation, especially in dry and fire-prone areas, the moisture content of vegetation may increase, lowering the likelihood of wildfires.

Air Quality Improvement:

    • Particle Removal: Cloud seeding can contribute to the removal of particulate matter and pollutants from the atmosphere. The process of precipitation can capture particles and cleanse the air.

Research and Climate Studies:

    • Scientific Investigations: Cloud seeding is sometimes used in scientific research to study cloud dynamics, precipitation processes, and atmospheric interactions. These studies help improve our understanding of weather patterns and climate systems.

Hydropower Generation:

    • Improved Reservoir Levels: Increased precipitation resulting from cloud seeding can contribute to higher water levels in reservoirs, positively impacting hydropower generation.
5. What are the Challenges involved in Cloud Seeding?

Cloud seeding, despite its potential benefits, is a practice that comes with several challenges and considerations. Some of the key challenges involved in cloud seeding include:

Effectiveness and Unpredictability:

    • The effectiveness of cloud seeding can be variable and is dependent on various factors such as cloud type, atmospheric conditions, and the presence of suitable seeding materials. Predicting the outcome of cloud seeding operations with certainty remains a challenge.

Ethical and Environmental Concerns:

    • Cloud seeding involves the intentional modification of weather patterns, raising ethical and environmental questions. Concerns include potential unintended consequences, ecological impacts, and the ethical considerations of altering natural precipitation processes.

Public Perception and Acceptance:

    • Cloud seeding initiatives may face public skepticism and opposition due to concerns about the unknown environmental impacts, the artificial manipulation of weather, and potential health effects of the seeding agents. Public acceptance is crucial for the success and continuation of cloud seeding programs.

Regulatory Approval:

    • Implementing cloud seeding programs often requires regulatory approval and adherence to environmental regulations. Obtaining permits and addressing regulatory concerns can be a time-consuming and complex process.

Scientific Uncertainty:

    • The scientific understanding of cloud seeding is still evolving, and uncertainties remain regarding its long-term effects, environmental impact, and overall effectiveness. Ongoing research is essential to address these uncertainties and improve the understanding of the practice.

Limited Scope and Scale:

    • Cloud seeding is generally effective within certain weather conditions and specific cloud types. Its applicability may be limited to certain regions and may not work in all meteorological conditions.

Weather Variability:

    • Natural weather variability can impact the success of cloud seeding. Unpredictable changes in atmospheric conditions, including wind patterns and temperature fluctuations, can influence the dispersion and effectiveness of seeding agents.

Technical Challenges:

    • The technology involved in cloud seeding, including the delivery of seeding agents, can face technical challenges. For example, the dispersion of seeding agents from aircraft or ground-based generators must be carefully calibrated for optimal results.

Cost:

    • Implementing and maintaining cloud seeding programs can be expensive. The costs include aircraft operations, ground-based generators, and the purchase of seeding materials. Cost-effectiveness is a consideration in the decision to pursue cloud seeding initiatives.

Data Collection and Monitoring:

    • Adequate data collection and monitoring are essential for assessing the impact of cloud seeding. Establishing comprehensive monitoring systems to evaluate changes in precipitation patterns and environmental conditions requires significant resources and infrastructure
 
For Prelims: General issues on Environmental ecology
For Mains: General Studies III: Conservation, environmental pollution and degradation, environmental impact assessment
 
Previous Year Questions

1.In the context of which of the following do some scientists suggest the use of cirrus cloud thinning technique and the injection of sulphate aerosol into stratosphere? (UPSC CSE 2019)

(a) Creating the artificial rains in some regions
(b) Reducing the frequency and intensity of tropical cyclones
(c) Reducing the adverse effects of solar wind on the Earth
(d) Reducing the global warming

Answer (d)
 
Source: Indianexpress
 
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