MINIMUM SUPPORT PRICE
1. Context
A fresh round of talks between protesting farmers and the Centre will be held here on Saturday evening to discuss their various demands, including a legal guarantee for MSP on crops.
2. What is Minimum Support Price (MSP)?
- MSP is the minimum price a farmer must be paid for their food grains as guaranteed by the government. They are recommended by the Commission for Agricultural Costs and Prices (CACP) and approved by the Cabinet Committee on Economic Affairs.
- The CACP submits its recommendations to the government in the form of Price Policy Reports every year.
- After considering the report and views of the state governments and also keeping in view the overall demand and supply situation in the country, the central government takes the final decision.
- Food Corporation of India (FCI) is the nodal agency for procurement along with State agencies, at the beginning of the sowing season.
The minimum support price (MSP) is set for 23 crops every year. They include:
- 7 cereals (paddy, wheat, maize, bajra, jowar, ragi, and barley)
- 5 pulses (chana, tur/arhar, moong, urad, and Masur)
- 7 oilseeds (rapeseed-mustard, groundnut, soya bean, sunflower, sesamum, safflower, and nigerseed) and
- 4 commercial crops (sugarcane, cotton, copra, and raw jute).
3. How MSP is Cauclated?
- MSP, presently, is based on a formula of 1.5 times the production costs.
- The CACP projects three kinds of production costs for every crop, both at state and all-India average levels.
- A2 covers all paid-out costs directly incurred by the farmer — in cash and kind — on seeds, fertilizers, pesticides, hired labor, leased-in land, fuel, irrigation, etc.
- A2+FL includes A2 plus an imputed value of unpaid family labor.
- C2: Estimated land rent and the cost of interest on the money taken for farming are added to A2 and FL.
- Farm unions are demanding that a comprehensive cost calculation (C2) must also include capital assets and the rentals and interest forgone on owned land, as recommended by the National Commission for Farmers.
4. The issue with the calculation of MSP
- To calculate MSP, the government uses A2+FL cost. The criticism of A2+FL is that it doesn’t cover all costs and that a more representative measure, C2, needs to be used.
- For example, in the 2017-18 rabi season, CACP data shows that C2 for wheat was 54% higher than A2+FL.
- The Swaminathan Commission also stated that the MSP should be based on the comprehensive cost of production, which is the C2 method.
5. Key Points about the Farmer's Demand
- After the recent decision to repeal three contentious farm laws, protesting farmer unions are now pressing for their demand of the legalization of the Minimum Support Price (MSP).
- They want a legal guarantee for the MSP, which at present is just an indicative or a desired price.
- Legalising MSP would put the government under a legal obligation to buy every grain of the crops for which MSPs have been announced.
- At present, the PM has announced the formation of a committee to make MSP more transparent, as well as to change crop patterns and to promote zero-budget agriculture which would reduce the cost of production.
- The entire issue of enforcing MSP legally is a tricky, complicated, and multidimensional one, involving lots of factors.
- Core demand: MSP based on a C2+50% formula should be made a legal entitlement for all agricultural produce. This would mean a 34% increase in the latest MSP for paddy and a 13% increase for wheat. MSP should also be extended to fruit and vegetable farmers who have been excluded from benefits so far.
6. The rationale behind the demand for legislation of MSP
- Farmers receive less than MSP: In most crops grown across much of India, the prices received by farmers, especially during harvest time, are well below the officially-declared MSPs. And since MSPs have no statutory backing, they cannot demand these as a matter of right.
- Limited procurement by the Govt: Also, the actual procurement at MSP by the Govt. is confined to only about a third of wheat and rice crops (of which half is bought in Punjab and Haryana alone), and 10%-20% of select pulses and oilseeds. According to the Shanta Kumar Committee’s 2015 report, only 6% of the farm households sell wheat and rice to the government at the MSP rates.
7. Why has the committee been set up?
- It has been constituted by the Ministry of Agriculture and Farmers Welfare as a follow-up to an announcement by the Prime Minister when he declared the government’s intention to withdraw the three farm laws.
- The protesting farm unions had demanded a legal guarantee on MSP based on the Swaminathan Commission’s ‘C2+50% formula’ (C2 is a type of cost incurred by farmers;). This was in addition to their demand for repeal of the three farm laws.
8. Committee on MSP, Natural Farming and Crop Diversification
On Minimum Support Price (MSP)
- To suggest measures to make MSP available to farmers by making the systems more effective and transparent,
- Give more autonomy to Commission for Agricultural Costs and Prices (CACP).
On Natural Farming: To make suggestions for programs and schemes for value chain development, protocol validation, and research for future needs and support for area expansion under the Indian Natural Farming System.
On Crop diversification:
To provide suggestions related to crop diversification including
- Mapping of existing cropping patterns of agro-ecological zones of producer and consumer states,
- Strategy for diversification policy to change the cropping pattern according to the changing needs of the country and
- A system to ensure remunerative prices for the sale of new crops.
9. Why have the protesting farm unions opposed this committee?
- Firstly, this committee includes members who supported the now-repeated farm laws.
- Secondly, the terms and references of the committee do not mention the legal guarantee to MSP. Instead, it mentions making MSP more effective and transparent.
10. Challenges associated with MSP
- Protest by Farmers: Farm unions have been protesting for more than six months on Delhi's outskirts, demanding legislation to guarantee MSP for all farmers for all crops and a repeal of three contentious farm reforms laws.
- MSP and Inflation: When announcing the MSP, inflation should be taken into account. But often the price is not increased up to the mark. For example, this time MSP for Maize has not even considered inflation then how it will benefit farmers! Also, frequent increases in the MSPs can lead to inflation too.
- High Input Costs: The input costs have been rising faster than sale prices, squeezing the meager income of the small farmers and driving them into debt.
- Lack of Mechanism: There is no mechanism that guarantees that every farmer can get at least the MSP as the floor price in the market. So proper mechanisms need to be fixed for all times to come.
- Restriction in Europe: Even after producing surplus grains, every year a huge portion of these grains gets rotten. This is due to the restrictions under WTO norms, that grain stocks with the FCI (being heavily subsidized due to MSP) cannot be exported.
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For Prelims: Minimum Support Price (MSP), World Trade Organisation (WTO), Commission for Agricultural Costs and Prices (CACP), Cabinet Committee on Economic Affairs, Food Corporation of India (FCI).
For Mains: 1. The Minimum Support Price (MSP) scheme protects farmers from price fluctuations and market imperfections. In light of the given statement, critically analyze the efficacy of the MSP. (250 Words)
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| Previous year Question
1. Consider the following statements: (UPSC CSE 2020)
1. In the case of all cereals, pulses, and oil seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.
2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.
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: D
2.Which of the following factors/policies were affecting the price of rice in India in the recent past? (UPSC CSE, 2020)
(1) Minimum Support Price (2) Government’s trading (3) Government’s stockpiling (4) Consumer subsidies Select the correct answer using the code given below: (a) 1, 2 and 4 only (b) 1, 3 and 4 only (c) 2 and 3 only (d) 1, 2, 3 and 4 Answer (d)
3.In India, which of the following can be considered as public investment in agriculture? (UPSC GS1, 2020)
(1) Fixing Minimum Support Price for agricultural produce of all crops (2) Computerization of Primary Agricultural Credit Societies (3) Social Capital development (4) Free electricity supply to farmers (5) Waiver of agricultural loans by the banking system (6) Setting up of cold storage facilities by the governments. In India, which of the following can be considered as public investment in agriculture? Select the correct answer using the code given below: (a) 1, 2 and 5 only (b) 1, 3, 4 and 5 only (c) 2, 3 and 6 only (d) 1, 2, 3, 4, 5 and 6 Answer (c)
4.The Fair and Remunerative Price (FRP) of sugarcane is approved by the (UPSC CSE, 2015)
(a) Cabinet Committee on Economic Affairs (b) Commission for Agricultural Costs and Prices (c) Directorate of Marketing and Inspection, Ministry of Agriculture (d) Agricultural Produce Market Committee Answer (a)
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Source: The Indian Express
FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)
1. Context
The Enforcement Directorate (ED) issued an adjudication order levying a penalty of over ₹3.44 crore on BBC World Service (WS) India, along with a fine of ₹5,000 per day after October 15, 2021, till the date of compliance, for the alleged violation of the Foreign Exchange Management Act (FEMA) provisions, according to agency sources
2.Foreign Exchange Management Act(FEMA)
The Foreign Exchange Management Act (FEMA) is an important piece of legislation in India that governs foreign exchange and payments.
Here is an overview of FEMA and its history:
FEMA replaced the Foreign Exchange Regulation Act (FERA) of 1973. FERA was considered stringent and primarily aimed at controlling and regulating foreign exchange in India. However, it was felt that the economic environment required a more liberalized and contemporary approach
FEMA was introduced in 1999 to replace FERA, aligning with the economic reforms and liberalization measures undertaken by the Indian government in the early 1990s. The primary objective was to promote external trade and payments and to facilitate foreign investment in India.
3.Key Features of FEMA
- FEMA brought about a more liberalized approach compared to its predecessor. It aimed to simplify and rationalize foreign exchange management, making it more conducive for foreign trade and investment
- FEMA distinguishes between current account transactions (related to trade in goods, services, and short-term financial transactions) and capital account transactions (related to long-term investments and capital movements)
- FEMA provides a comprehensive regulatory framework for foreign exchange transactions and seeks to manage and regulate various aspects, including dealings in foreign exchange, export and import of currency, and opening and maintenance of foreign currency accounts
- The act empowers the Reserve Bank of India (RBI) to regulate foreign exchange transactions. It also prescribes penalties for contravention of its provisions to ensure compliance.
- FEMA establishes adjudicating authorities to hear cases related to violations. It also provides for the establishment of the Foreign Exchange Appellate Tribunal to hear appeals against the orders of the adjudicating authorities
- Since its enactment, FEMA has undergone several amendments to keep pace with changing economic scenarios and to address emerging challenges. Amendments have been made to enhance regulatory measures, facilitate ease of doing business, and align with international best practices
4.Foreign Exchange Management Act: Objectives
The Foreign Exchange Management Act (FEMA) in India was enacted with several objectives, aiming to govern and facilitate foreign exchange transactions while aligning with the broader economic goals of liberalization and globalization.
The key objectives of FEMA include:
- One of the primary objectives of FEMA is to liberalize and facilitate foreign exchange transactions. It aims to simplify procedures and create a conducive environment for foreign trade and investment
- FEMA seeks to promote external trade and payments by providing a regulatory framework that governs the flow of foreign exchange in and out of the country. This includes facilitating imports and exports of goods and services
- FEMA is designed to encourage foreign direct investment (FDI) and foreign portfolio investment (FPI) by providing a transparent and predictable regulatory environment. The act lays down the rules and regulations governing the acquisition and transfer of immovable property by non-residents
- FEMA empowers the Reserve Bank of India (RBI) to manage and regulate the country's foreign exchange reserves effectively. This involves maintaining stability in the foreign exchange market and ensuring the availability of adequate reserves to meet external obligations
- FEMA distinguishes between current account transactions (related to day-to-day trade in goods, services, and short-term financial transactions) and capital account transactions (related to long-term investments and capital movements). This helps in applying appropriate regulations to different types of transactions
- The act aims to establish a robust adjudication and enforcement mechanism to ensure compliance with its provisions. It provides for penalties and adjudicating authorities to address violations and maintain the integrity of the foreign exchange management system
- FEMA is designed to align with international best practices in the field of foreign exchange management. This alignment is essential for integrating India into the global economy and ensuring compatibility with international norms and standards
- The act allows for amendments to be made to its provisions to adapt to changing economic conditions and emerging challenges. This ensures that the regulatory framework remains relevant and effective in a dynamic global economic environment.
5.Foreign Exchange Management Act: Applicability
The Foreign Exchange Management Act (FEMA) in India has a wide applicability, covering various individuals, entities, and transactions involved in foreign exchange dealings. Here's a breakdown of its applicability:
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Residents and Non-Residents: FEMA applies to both residents and non-residents of India. Residents are individuals or entities ordinarily resident in India, while non-residents are those residing outside India.
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Indian Entities: Indian entities, including companies, partnerships, trusts, and other forms of organizations, are subject to FEMA regulations concerning foreign exchange transactions.
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Foreign Entities: Foreign entities, including companies, branches, subsidiaries, and other organizations, are also subject to FEMA regulations when conducting transactions involving Indian currency or assets in India.
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Foreign Exchange Transactions: FEMA governs various foreign exchange transactions, including the acquisition and transfer of foreign exchange, remittances, import and export of goods and services, external commercial borrowings, and investments in India by non-residents.
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Current and Capital Account Transactions: FEMA distinguishes between current account transactions and capital account transactions. Current account transactions include day-to-day trade in goods and services, while capital account transactions involve long-term investments and capital movements. FEMA applies different regulations to these types of transactions.
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Authorized Persons: FEMA designates certain individuals and entities as authorized persons, such as authorized dealers, authorized banks, and other financial institutions. These authorized persons play a crucial role in facilitating foreign exchange transactions and are responsible for complying with FEMA regulations.
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Regulatory Authorities: The Reserve Bank of India (RBI) is the primary regulatory authority responsible for administering FEMA and enforcing its provisions. The RBI issues regulations, notifications, and guidelines to ensure compliance with FEMA requirements.
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Penalties and Enforcement: FEMA establishes penalties for contravention of its provisions, including fines, confiscation of assets, and imprisonment. Adjudicating authorities and appellate tribunals are designated to hear cases related to violations and enforce compliance with FEMA regulations.
6.Categories of Authorised Persons under FEMA
| Category | Description | Examples |
|---|---|---|
| Authorized Dealers (ADs) | Broadest category, authorized for a wide range of forex transactions. | State banks, commercial banks, co-operative banks, foreign banks. |
| Full-Fledged Money Changers (FFMCs) | Authorized to buy and sell foreign currency notes, travelers' cheques and foreign currency instruments. | Money exchange companies, authorized hotels. |
| Authorised Money Changers (AMCs) | Limited scope compared to FFMCs, can only buy and sell foreign currency notes and travelers' cheques. | Small money exchange booths, airport counters. |
| Authorized Banks | Specific banks authorized for limited forex transactions, like specific export-import transactions. | Export houses, financial institutions engaged in specific foreign exchange activities. |
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Previous Year Questions
1.Which one of the following groups of items is included in India’s foreign-exchange reserves? (UPSC CSE 2013) (a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries Answer: (b) Mains
1.Discuss how emerging technologies and globalisation contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels. (2021) |
Source: The Hindu
OLIVE RIDLEY TURTLES
1. Context
Wildlife enthusiasts are thrilled as a record 6.5 lakh Olive Ridley turtles have arrived at the Rushikulya beach in Ganjam district of Odisha for mass nesting after a gap of two years.
2. Olive Ridley Turtles
- The Olive ridley turtles are the smallest and most abundant of all sea turtles found in the world.
- These turtles are carnivores and get their name from their olive-colored carapace.
- They are best known for their unique mass nesting called Arribada, where thousands of females come together on the same beach to lay eggs.
- They are found in warm waters of the Pacific, Atlantic, and Indian oceans.
- Odisha's Gahirmatha Marine Sanctuary is known as the world's largest rookery of sea turtles.
Image Source: Down to Earth3. Conservation of Olive Ridley Turtles
- Conservation of the Olive Ridley turtles in Odisha began with the discovery and worldwide recognition of the Gahirmatha rookery close to the mouth of the Brahmani-Baitarani (Dharma) River, in 1974.
- A second mass nesting was discovered in 1981 at the Devi River mouth, about 55 nautical miles south of Gahirmatha.
- In 1994, a third mass nesting area was also discovered at the Rushkulya river mouth, 162 nautical miles south of Gahirmatha.
- The Olive Ridley Turtles come to the beaches of the Odisha coast annually between November and December and stay on until April and May for nesting.
- Off late, nesting has been observed to start from late January to early February. The turtles choose the narrow beaches near estuaries and bays for laying their eggs.
- Each adult female lays approximately a hundred to hundred and forty eggs at a time.
4. Threats faced by Olive Ridley Turtles
- The Olive Ridleys face serious threats across their migratory route, habitat, and nesting beaches, due to human activities such as turtle-unfriendly fishing practices, and the development and exploitation of nesting beaches for ports, and tourist centers.
- Though international trade in these turtles and their products is banned, they are still extensively poached for their meat, shell, and leather.
- Turtles eggs, though illegal to harvest, have a significantly large market around the coastal regions.
- The most severe threat faced by the Olive Ridleys is the accidental killing of adult turtles through entanglement in trawl nets and gill nets due to uncontrolled fishing around nesting beaches during their mating season.
- Over 1.3 lakh turtles are believed to have been killed after being entangled in the nets of mechanized fishing trawlers in the last thirteen years.
5. Legislation for the Protection of Olive Ridley Turtles
- All five species of sea turtles occurring in India, including the Olive Ridley Turtles, are legally protected under Schedule I of the Wildlife Protection Act, 1972, and Appendix I of the CITES convention which prohibits trade in turtle products.
- The mass nesting beach of Gahirmatha is a part of Bhitarkanika Wildlife sanctuary and the waters around Bhitarkanika was declared as Gahirmatha (Marine) Wildlife Sanctuary in September 1997, to protect the nesting and breeding habitat of the Olive Ridley.
- The coastal waters off Devi and Rushikulya rookery are declared as a no-fishing zone during the sea turtle breeding season under the Odisha Marine.
- Fisheries Regulation Act (OMFRA), 1982, and Odisha Marine Fisheries Regulation Rules, 1983. The Coast Guard is empowered to enforce the provisions of the Act.
- To reduce accidental entrapment and death of turtles, the Odisha government has made it mandatory for the mechanized fishing trawlers to use Turtle Excluder Devices or TEDs, which is a specially designed net with an exit cover that retains the catch while allowing the turtles to escape.
6. Operation Olivia, 2014
- As the nesting period stretched over six months, the Indian Coast Guard undertakes the Olive Ridley Turtle protection program under the code name 'Operation Olivia' every year.
- Coast Guard District No.7 (Odisha) commenced Operation Olivia 2014 on 08 Nov 2014 under the coordination and control of Commander Coast Guard Region (North East).
- As part of the operation, fishing boats found close to the marine reserve area were regularly checked by the ship's boarding party for confirming the usage of turtle excluder devices (TEDs).
- Offenders were warned and reported to the Assistant Director of Fisheries. Close coordination was maintained with the fisheries and forest department during the entire operation.
7. Gahirmatha Marine Sanctuary
- Gahirmatha Marine Sanctuary is a marine wildlife sanctuary located in Odisha.
- It extends from the Dhamra River mouth in the north to the Mahanadi river mouth in the south.
- It is very famous for its nesting beach for olive ridley sea turtles.
- It is the one of world's most important nesting beaches for turtles.
- The olive ridley turtles turn up in millions for mass nesting along the Odisha coast every year. This phenomenon is referred to as 'arribada'.
- Apart from Gahirmatha, these aquatic animals turn up at the Rushikulya river mouth and Devi river mouth for mass nesting.
- Rushikulya river mouth is considered the second-biggest nesting site for Olive Ridley Turtles in India.
Previous year question
| 1. Which one of the following is the national aquatic animal of India? (UPSC 2015)
A.Saltwater crocodile Answer: C 2. The 'Olive Ridley Turtles are considered to be endangered because of their few remaining nesting sites in the world. In this context, which among the following statement(s) is/are correct? (OPSC 2016) (1) Their peculiar behavior of synchronized nesting in mass numbers is known as Arribada'. (2) Gahirmatha Beach in Orissa is one of their few nesting grounds in the world. A. Only 1 B. Only 2 C. Both 1 and 2 D. Neither 1 nor 2 Answer: C 3. Which of the following statements about the olive ridley turtles is/are correct? (CDS 2018) 1. They are the smallest and most abundant of all sea turtles found in the world. 2. They live in warm waters of Pacific, Atlantic and Indian Oceans. 3. The Coromandel Coast in India is the largest mass nesting site for the olive ridley turtles. Select the correct Answer using the code given below. A. 1, 2 and 3 B. 1 and 2 only C. 2 and 3 only D. 1 only Answer: B |
For Prelims
| For Prelims: Olive Ridley turtles, arribada, Gahirmatha Marine Sanctuary, Brahmani-Baitarani (Dharma) River, Devi River, Rushkulya river, Wildlife Protection Act, 1972, CITES convention, Bhitarkanika Wildlife sanctuary, Fisheries Regulation Act (OMFRA), 1982, and Turtle Excluder Devices or TEDs. |
Source: Down to Earth
DOLLAR RUPEE SWAP
1. Context
To meet durable liquidity needs of the system, the Reserve Bank of India (RBI) has decided to infuse Rupee liquidity for greater duration through long-term USD-INR Buy/Sell swap auction.
2. What is a Currency Swap?
A currency swap, also known as a foreign exchange swap or forex swap, is a financial derivative transaction in which two parties exchange the principal amount of one currency for another currency for a specified period and then reverse the exchange at a later date.
Currency swaps are commonly used by corporations, financial institutions, and governments to manage their foreign exchange risk, lower borrowing costs, or gain access to different currencies
Key Characteristics:
- In a currency swap, two parties agree to exchange a specified amount of one currency for an equivalent amount of another currency. This initial exchange is usually at the prevailing exchange rate
- The currency swap has a predetermined maturity date when the initial exchange is reversed. At the maturity date, the parties reverse the initial exchange, returning the original principal amounts to each other. Any interest payments made are also settled at this point
- Currency swaps can be used to hedge against exchange rate risk. If a company has cash flows in multiple currencies, a currency swap can help them lock in a favorable exchange rate and reduce exposure to currency fluctuations
- Currency swaps can enable entities to access lower interest rates in different currency markets. For example, a company in the United States might have better borrowing terms in U.S. dollars, while a European company might find better terms in euros. They can use a currency swap to take advantage of these favorable rates
3. What’s the impact of the swap?
The impact of a currency swap depends on the specific goals and motivations of the parties involved in the swap transaction
The following are the key impacts of Swap:
- Currency swaps can help mitigate exchange rate risk. By swapping one currency for another, entities can lock in a favorable exchange rate for future transactions, thereby reducing the impact of adverse currency movements on their financial position
- One of the primary objectives of currency swaps is to access lower borrowing costs in a foreign currency. This can result in reduced interest expenses for one or both parties involved in the swap.
- Currency swaps provide access to foreign currencies, which can be crucial for entities engaged in international business. This can enable companies to conduct transactions or investments in a foreign market without the need to convert currencies in the open market
- Traders and financial institutions may use currency swaps to exploit arbitrage opportunities arising from differences in interest rates between two currencies. If executed successfully, this can lead to profits
- Some currency swaps are structured to provide tax advantages, such as reducing tax liabilities. However, the tax implications of currency swaps can vary depending on the jurisdiction and the specific structure of the transaction
- Currency swaps may also be structured to comply with regulatory requirements or to take advantage of regulatory incentives, such as favorable treatment of certain financial instruments
- Currency swaps may result in gains or losses due to changes in exchange rates or interest rates during the life of the swap. These gains or losses may impact financial statements and tax liabilities
4. Dollar-Rupee Swap
- A Dollar-Rupee Swap, also known as a currency swap or a forex swap, is a financial agreement between two parties, typically a bank and a corporation or another financial institution, to exchange a specified amount of U.S. dollars (USD) for Indian rupees (INR) and vice versa at an agreed-upon exchange rate for a predetermined period.
- The swap auction can be done in the reverse way also when there is shortage of liquidity in the system. The RBI then buys dollars from the market and releases an equivalent amount in the rupeesThese transactions allow participants to meet their currency needs, manage exchange rate risk, and access funds in foreign currency
- The RBI sold $5.135 billion to banks and simultaneously agreed to buy back the dollars at the end of the swap settlement period. When the central bank sells dollars, it sucks out an equivalent amount in rupees, thus reducing the rupee liquidity in the system.
- Dollar inflow into the market will strengthen the rupee which has already hit the 77 level against the US dollar
5. Way forward
With the rupee under pressure and inflation posing a big risk to the economy, the central bank is expected to come out with more such measures to rein in inflation and prevent a big slide in the rupee. The market is also gearing up for more RBI actions in the near future.
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For Prelims: Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.
For Mains: General Studies III: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment
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Previous Year Questions
1. Which one of the following groups of items is included in India's foreign exchange reserves? (UPSC CSE 2013)
A.Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
B.Foreign-currency assets, gold holdings of the RBI and SDRs
C. Foreign-currency assets, loans from the World Bank and SDRs
D.Foreign-currency assets, gold holdings of the RBI and loans from the World Bank
Answer (B)
2. Currency swap is a method of (UGC NET Paper 2 2019)
A. hedging against foreign exchange risk
B. speculating in foreign exchange
C. leverage instrument used by cooperative banks
D. mode of payment in international trade
Answer (A)
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Source: indianexpress
PURCHASING MANAGERS INDEX (PMI)
1. Context
India’s service sector activity, as measured by the HSBC Flash India Composite Purchasing Managers’ Index (PMI), rose to 60.6 in February, up from 57.7 in January 2025, according to a statement from HSBC
2. What is the Purchasing Managers Index (PMI)?
The Purchasing Managers' Index (PMI) is an economic indicator that provides insights into the health of a country's manufacturing or services sector.
PMI is widely used by businesses, economists, and policymakers to gauge the economic performance and future trends in these sectors.
It is usually expressed as a numerical value that reflects the prevailing business conditions.
2.1. Key Aspects of PMI
- PMI is typically calculated through surveys of purchasing managers in various industries. These managers are asked about their perception of different aspects of business activity, including new orders, production levels, employment, supplier deliveries, and inventories.
- PMI is usually reported as a number between 0 and 100.
- A PMI value above 50 generally indicates expansion in the sector, while a value below 50 suggests contraction. The farther the PMI is from 50, the stronger the perceived expansion or contraction.
- PMI is considered a leading indicator because it provides insights into economic conditions before official economic data, such as GDP growth or employment figures, are released. It can be used to anticipate changes in economic activity.
- PMIs are calculated separately for manufacturing and services sectors. A Manufacturing PMI focuses on the manufacturing sector, while a Services PMI provides insights into the services sector. These sector-specific PMIs can give a more detailed view of the economy.
Components: PMI is composed of several components, including:
- New Orders: This component measures the number of new orders received by businesses. An increase in new orders often signals growing demand and economic expansion.
- Production: This component reflects changes in production levels. An increase suggests increased economic activity.
- Employment: The employment component indicates changes in the level of employment within the sector. An increase typically means job growth.
- Supplier Deliveries: This measures the speed at which suppliers can deliver materials. Slower deliveries may indicate supply chain issues or increased demand.
- Inventories: Inventory levels can be an indicator of expected demand. A decrease in inventories might suggest an expectation of rising demand.
3. Significance of PMI
- The Purchasing Managers' Index (PMI) is a significant economic indicator with several important implications and uses
- PMI serves as a barometer of the economic health of a country or region. A PMI above 50 generally indicates economic expansion, while a PMI below 50 suggests contraction.
- This provides a quick and easily understandable snapshot of the direction of economic activity, making it a valuable tool for assessing the overall economic climate.
- PMI is a leading indicator, meaning it often provides insights into economic conditions ahead of other official economic data, such as GDP growth or employment figures. As such, it is used by businesses, investors, and policymakers to anticipate changes in economic activity and make informed decisions
4. Way forward
Purchasing Managers' Index (PMI) is a valuable economic indicator that helps gauge the economic health and trends in the manufacturing and services sectors. It provides timely insights into business activity and is widely used by businesses and policymakers for decision-making and economic forecasting
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Previous Year Questions
1.What does S & P 500 relate to? (UPSC CSE 2008) (a) Supercomputer Answer: (d) |
Source: The Hindu
CAMPA
1. Context
As per CAMPA guidelines, after receiving funds, afforestation should be conducted within a year, or two growing seasons. However, the report flagged that in 37 cases, compensatory afforestation was executed after more than eight years of getting final clearance.
2. About CAMPA Funds
- Establishment in 2004, the Ministry of Environment and Forests constituted the Compensatory Afforestration Fund Management and Planning Authority (CAMPA) to oversee and manage the Compensatory Afforestration Fund (CAF) as directed by the Supreme Court.
- CAMPA Act or Compensatory Afforestation Fund act is an Indian legislation that seeks to provide an appropriate institutional mechanism, both at the centre and in each state and Union Territory, to ensure expeditious utilisation in the efficient and transparent manner of amounts released instead of forest land diverted for the non-forest purpose which would mitigate the impact of diversion of such forest land.
3. Objectives of CAMPA
The funds are meant to promote afforestation and regenerative activities as a way of compensating for forest land diverted to non-forest uses.
National CAMPA Advisory Council has been established with the following mandate:
- Lay down broad guidelines for State CAMPA.
- Facilitate scientific, technological and other assistance that may be required by State CAMPA.
- Make recommendations to State CAMPA based on a review of their plans and programmes.
- Provide a mechanism to State CAMPA to resolve issues of an inter-state or Centre-State character.
4. Intergovernmental Panel on Climate Change
- It is the international body for assessing the science related to climate change.
- It was set up in 1988 by the World Meteorological Organisation (WMO) and United Nations Environment Programme (UNEP) to provide policymakers with regular assessments of the scientific basis of climate change, its impacts and future risks, and options for adaptation and mitigation.
- IPCC assessments provide a scientific basis for governments at all levels to develop climate-related policies, and they underlie negotiations at the UN Climate Conference- the United Nations Framework Convention on Climate Change (UNFCCC).
5. What is the Assessment report of the IPCC?
- The Assessment Reports, the first of which had come out in 1990, are the most comprehensive evaluation of the state of the earth's climate.
- Every few years (about 7 years), the IPCC produces assessment reports.
- Hundreds of experts go through every available piece of relevant, published scientific information to prepare a common understanding of the changing climate.
- The four subsequent assessment reports, each thousand of pages long, came out in 1995, 2001, 2007 and 2015. These have formed the basis of the global response to climate change.
- Over the years, each assessment report has built on the work of the previous ones, adding more evidence, information and data. So that most of the conclusions about climate change and its impacts have far greater clarity, certainty and wealth of new evidence now than earlier.
- It is these negotiations that have produced the Paris Agreement, and previously the Kyoto Protocol. The Paris Agreement was negotiated based on the Fifth Assessment Report.
6. Why is afforestation Contested?
- India has committed to adding “an additional (cumulative) carbon sink of 2.53 GtCO2e through additional forest and tree cover by 2030”, as part of its climate commitments to the U.N.
- Afforestation is also codified in the Compensatory Afforestation Fund Management and Planning Authority (CAMPA), a body chaired by the Environment Minister.
- When forest land is diverted to nonforest use, such as building a dam or a mine, that land can longer provide its historical ecosystem services nor host biodiversity.
- According to the Forest (Conservation) Act, of 1980, the project proponent that wishes to divert the land must identify land elsewhere to afforest and pay for the land value and the afforestation exercise. That land will, thereafter, be stewarded by the forest department.
7. Why does CAMPA matter?
- The money paid sits in a fund overseen by the CAMPA. As of 2019, the fund had ₹47,000 crores.
- The CAMPA has come under fire for facilitating the destruction of natural ecosystems in exchange for forests to be set up in faraway places.
8. How do ecosystems compare to renewable energy?
- The IPCC report also found that the sole option (among those evaluated) with more mitigating potential than "reducing the conversion of natural ecosystems" was solar power and that the third-highest was the wind.
- But many solar parks in India have triggered conflicts with people living nearby because they limit land use and increase local water consumption.
- A 2018 study published in Nature Ecology & Evolution also found that wind farms in the western ghats had reduced the abundance and activity of predatory birds, which consequently increased the density of lizards.
- However, the IPCC report also noted that reducing the conversion of natural ecosystems could be more expensive than wind power, yet still less expensive than ecosystem restoration, afforestation and restoration for every GtCO2e.
Previous year Question
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1. Consider the following statements: (UPSC 2019)
1. As per law, the Compensatory Afforestation Fund Management and Planning Authority exists at both National and State levels.
2. People's participation is mandatory in the compensatory afforestation programmes carried out under the Compensatory Afforestation Fund Act, 2016.
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: A
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For Prelims & Mains
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For Prelims: Intergovernmental Panel on Climate Change (IPCC), Compensatory Afforestation Fund Management and Planning Authority (CAMPA), Compensatory Afforestation Fund (CAF), World Meteorological Organisation (WMO), United Nations Environment Programme and (UNEP) United Nations Framework Convention on Climate Change (UNFCCC).
For Mains: 1. What are CAMPA Funds and explain why is India's CAMPA at odds with the new IPCC report?
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Source: The Hindu
EUROPEAN FREE TRADE ASSOCIATION (EFTA)
1. Context
Amid rising protectionism and geoeconomic instability worldwide, India’s partnership with the European Free Trade Association (EFTA) presents a vital opportunity for economic diversification and growth.
2. About European Free Trade Association
The European Free Trade Association (EFTA) is an intergovernmental organization that aims to facilitate free trade and economic cooperation among its member states. EFTA was established on May 3, 1960, as an alternative trade bloc to the European Economic Community (EEC), which later evolved into the European Union (EU). The founding members of EFTA were Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the United Kingdom.
The key aspects of EFTA
EFTA comprises four member countries: Iceland, Liechtenstein, Norway, and Switzerland. The organization has experienced changes in membership over the years, with some countries joining or leaving.
- EFTA's primary objectives include promoting free trade and economic cooperation among its member states. It aims to facilitate the reduction or elimination of barriers to trade in goods and services, enhance economic relations, and foster mutual understanding and collaboration in various economic sectors.
- While EFTA is a distinct organization, its member states often have close economic ties with the European Union. EFTA countries have developed various agreements and arrangements with the EU to facilitate trade and economic cooperation. However, EFTA member states are not part of the EU Customs Union or the EU Single Market.
- EFTA has engaged in numerous free trade agreements (FTAs) with countries and regions around the world. These agreements aim to reduce or eliminate tariffs and other trade barriers, promoting the flow of goods and services. EFTA countries have FTAs with countries in Europe, Asia, Africa, and South America.
- The EFTA Surveillance Authority oversees the application of EFTA's rules in its member states. It monitors compliance with agreements, including ensuring that competition rules and other regulations are adhered to by member countries.
- The EFTA Court serves as the judicial body for the EFTA states. It handles disputes related to the interpretation and application of EFTA law. The court's decisions contribute to the legal framework of EFTA's trade and economic agreements.
- Over the years, EFTA has seen changes in its membership. Some countries have joined, while others have left. Accession to EFTA involves negotiations and the fulfillment of certain criteria, reflecting the organization's commitment to free trade and economic cooperation.
- EFTA member countries have diverse and developed economies. They are known for their high living standards, economic stability, and competitiveness. The organization provides a platform for these countries to collaborate and engage in trade with partners around the world.
- While trade is a central focus, EFTA member states also collaborate in other areas, including research and development, innovation, and cultural exchanges. The organization serves as a forum for discussing and addressing various economic and policy issues.
Main Goals of EFTA
- To promote free trade and economic integration among its member states.
- To strengthen member states' economies and improve their competitiveness on the global market.
- To cooperate with other countries and international organizations to further liberalize trade and promote economic development.
Institutional Structure
- The EFTA Council is the organization's highest governing body, consisting of representatives from each member state. It meets regularly to discuss and decide on important matters related to EFTA's objectives and activities.
- The EFTA Secretariat, based in Geneva, Switzerland, provides administrative support and facilitates communication among member states.
- EFTA actively engages in negotiations and establishes free trade agreements (FTAs) with various countries and regions outside the organization, contributing to the expansion of economic cooperation.
Current Status of EFTA
- Despite not being part of the EU, EFTA members maintain close economic ties with the EU through a series of bilateral agreements.
- They participate in the European Single Market and are part of the Schengen Area, allowing for the free movement of goods, services, capital, and people.
- EFTA remains an important economic player in Europe, with a combined GDP of over €1 trillion and a population of over 13 million.
Benefits of EFTA Membership
- EFTA's free trade agreements and common market have led to a significant increase in trade and investment between member states and their trading partners.
- EFTA's focus on free trade and economic cooperation has helped to stimulate economic growth in member states.
- By cooperating on research and development, innovation, and education, EFTA member states have become more competitive in the global market.
- EFTA membership has contributed to a higher standard of living and greater prosperity for the citizens of member states.
Challenges for EFTA
- The EU remains EFTA's largest trading partner, but it also poses a significant challenge. The EU's larger size and economic power give it an advantage in negotiations, and some EFTA businesses have expressed concerns about being at a disadvantage compared to their EU counterparts.
- With the ongoing integration of the EU, EFTA needs to ensure that it remains relevant and attractive to potential members and trading partners. The association needs to continue to find ways to differentiate itself from the EU and to offer unique benefits to its members.
- The global economy is constantly evolving, and EFTA needs to be able to adapt to these changes. The association needs to focus on emerging markets and new technologies to ensure that its members remain competitive in the long term.
3. The Way Forward
EFTA remains a vital economic force in Europe. The association is well-positioned to continue to prosper in the coming years, thanks to its strong member states, its focus on free trade and economic cooperation, and its adaptability. By continuing to adapt to the changing global economy and by finding ways to differentiate itself from the EU, EFTA can ensure that it remains a relevant and successful organization for its members in the years to come.
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For Prelims: European Union, free trade, European Free Trade Association, European Economic Community
For Mains:
1. Examine the impact of Switzerland's policy on tariff-free entry for all industrial goods on India's potential gains from the ongoing India-EFTA Free Trade Agreement negotiations. (250 Words)
2. Discuss the strategies and opportunities for EFTA to remain relevant, differentiate itself, and adapt to the evolving global economy. (250 Words)
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Source: The Indian Express
