• It is the rise in prices of goods and services within a particular economy wherein consumers' purchasing power decreases, and the value of the cash holdings erodes.
• In India, the Ministry of Statistics and Programme Implementation (MoSPI) measures inflation.
• Some causes that lead to inflation are demand increases, reduction in supply, demand-supply gap, excess circulation of money, increase in input costs, devaluation of the currency, and rise in wages, among others.

3. How is Food Inflation measured in India?

Food inflation in India is measured using various indices and indicators. The primary indices used to measure food inflation in India include the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). Both indices provide insights into the overall price movements of goods and services, including food items, but they differ in terms of their coverage and methodology.

Consumer Price Index (CPI)

• The CPI is a key indicator used by the Government of India and the Reserve Bank of India (RBI) to monitor inflation, including food inflation.
• The CPI measures the average change over time in the prices paid by urban and rural consumers for a basket of goods and services, including food items, housing, clothing, transportation, and more.
• Within the CPI, food and beverages form a significant component, and food inflation is specifically derived from the changes in food prices within the CPI basket.
• The CPI is released monthly by the Central Statistics Office (CSO) under the Ministry of Statistics and Programme Implementation.

Wholesale Price Index (WPI)

• The WPI is another important index that tracks price changes at the wholesale level for a selected group of commodities, including food products, manufactured goods, fuel, and more.
• The WPI measures price changes from the perspective of producers and wholesalers, providing insights into inflationary pressures in the production and distribution stages.
• Food articles, such as cereals, pulses, vegetables, fruits, and edible oils, are included in the WPI basket for monitoring food inflation.
• The WPI is released weekly by the Office of Economic Adviser under the Ministry of Commerce and Industry.

In addition to these indices, other indicators such as the Food Sub-Index within the CPI and specific price indices for essential food items (like vegetables, pulses, and cereals) are also used to gauge food inflation more accurately. The RBI closely monitors food inflation trends as part of its monetary policy framework to make informed decisions regarding interest rates and economic stability. Overall, the combination of CPI, WPI, and specific food-related indices provides a comprehensive assessment of food inflation in India.

4. Headline and Core Inflation

Inflation is a key economic indicator that measures the rate at which prices of goods and services rise over time. In India, two important measures of inflation are headline inflation and core inflation.

• Headline Inflation: Headline inflation refers to the overall rate of inflation in an economy, taking into account the price changes across all goods and services included in the consumer basket. It reflects the broad-based movement in prices, including food, fuel, housing, transportation, and other essential and non-essential items. Headline inflation is typically measured using indices such as the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). Fluctuations in headline inflation can be influenced by various factors, including changes in global commodity prices, government policies, supply chain disruptions, and demand-side pressures.
• Core Inflation: Core inflation, on the other hand, excludes volatile items such as food and energy from the basket of goods used to calculate inflation. By excluding these volatile components, core inflation provides a more stable measure of underlying inflationary trends in the economy. Core inflation is often considered a better gauge of long-term inflationary pressures and helps policymakers in making informed decisions regarding monetary policy. The Reserve Bank of India (RBI), for example, closely monitors core inflation to assess the underlying inflationary trends and formulate appropriate monetary policy responses.

Understanding the distinction between headline and core inflation is essential for policymakers, businesses, and consumers alike. While headline inflation provides a comprehensive view of overall price movements, core inflation offers insights into the underlying inflationary pressures, helping to distinguish between temporary fluctuations and sustained inflation trends. By closely monitoring both measures of inflation, policymakers can effectively manage inflationary risks and maintain price stability, contributing to sustainable economic growth and stability.

5. Monetary Policy Committee (MPC)

The Monetary Policy Committee (MPC) is a crucial institutional framework established by the Reserve Bank of India (RBI) to formulate and implement monetary policy decisions in India. 

Role

• Formulating Monetary Policy: The primary role of the MPC is to formulate and implement monetary policy in India. This includes setting the key policy interest rates, such as the repo rate, reverse repo rate, and marginal standing facility (MSF) rate, to achieve the objectives of price stability and economic growth.
• Targeting Inflation: The MPC's main objective is to maintain price stability, which is primarily achieved by targeting a specific inflation rate. In India, the RBI has adopted a flexible inflation targeting framework, where the MPC aims to keep the Consumer Price Index (CPI) inflation within a specified target range over the medium term. Currently, the inflation target is set at 4% with a tolerance band of +/- 2%.
• Evaluating Economic Conditions: The MPC assesses various economic indicators, such as GDP growth, inflation expectations, fiscal policy measures, global economic developments, and financial market conditions, to make informed decisions about monetary policy.
• Communication: The MPC communicates its monetary policy decisions, rationale, and outlook for the economy through periodic press releases, statements, and the publication of meeting minutes. This transparency enhances predictability and credibility in monetary policy.

Composition

• Members: The MPC consists of six members, including three members nominated by the Government of India and three members from the Reserve Bank of India. The Governor of the RBI serves as the ex-officio Chairperson of the MPC.
• Appointment: The members of the MPC are appointed by the Central Government based on their expertise and experience in economics, banking, finance, or related fields. The RBI Governor and Deputy Governor (in charge of monetary policy) are automatic members of the MPC.
• Voting Rights: Each member of the MPC, including the RBI Governor, has one vote in the decision-making process. Decisions are made by a majority vote, with the Governor having the casting vote in case of a tie.
• Terms: Members of the MPC serve fixed terms, typically for four years, with eligibility for reappointment. This ensures continuity and stability in monetary policy formulation.

6. The Way Forward

By implementing the measures and fostering collaborative efforts among policymakers, regulators, and stakeholders, India can effectively manage inflationary pressures, maintain price stability, and promote sustainable economic growth and development.

HEATWAVE

 

1. Context

As the equinox approaches and the Sun rises higher in the sky, people throughout the Northern Hemisphere wonder: How hot will it get? They have good reason to worry. 2023 had been the hottest year on record until 2024 left it far behind. 2025 is already off to a hot start

2. What is a Heat Wave?

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

 

Image Source:News18

3. How do Heat waves Occur?

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

4. Impacts of heat waves in India

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

5. How does air mass contribute to heat waves?

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

6. Way ahead for Heat waves

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

For Prelims & Mains

For Prelims: Heat Wave, India Meteorological Department (IMD), El Nino, Equatorial Pacific Ocean, La Nina, Malnutrition, Heat Action Plans. For Mains: 1. Examine the various adverse impacts caused by heat waves and how India should deal with them.

 

Previous Year Questions   1.What are the possible limitations of India in mitigating global warming at present and in the immediate future? (UPSC CSE 2010) 1. Appropriate alternate technologies are not sufficiently available. 2. India cannot invest huge funds in research and development. 3. Many developed countries have already set up their polluting industries in India. Which of the statements given above is/are correct? (a) 1 and 2 only (b) 2 only (c) 1 and 3 only (d) 1, 2 and 3 Answer (a) India faces challenges in addressing Global Warming: Developing and underdeveloped nations lack access to advanced technologies, resulting in a scarcity of viable alternatives for combating climate change. Being a developing nation, India relies partially or entirely on developed countries for technology. Moreover, a significant portion of the annual budget in these nations is allocated to development and poverty alleviation programs, leaving limited funds for research and development of alternative technologies compared to developed nations. Analyzing the statements provided: Statements 1 and 2 hold true based on the aforementioned factors. However, Statement 3 is inaccurate as the establishment of polluting industries by developed countries within India is not feasible due to regulations governing industrial setup Mains 1.Bring out the causes for the formation of heat islands in the urban habitat of the world. (UPSC CSE Mains GS 1 2013)

 

Source: The Hindu

 

HOUTHIS

 

 

1. Context

The US this week conducted over 40 strikes across Yemeni territories — including the Houthi-controlled capital Sanaa, the northern Sadaa governorate, and the Hodeidah Port — in what it called “precision strikes against Iran-backed Houthi targets”.

 

2. Who are Houthis?

• "The Houthis, a prominent clan affiliated with the Zaidi Shia sect, have their origins in Yemen's northwestern Saada province. The Zaidis constitute approximately 35 percent of Yemen's population.
• For over a thousand years, the Zaidis held dominion over Yemen until their overthrow in 1962, leading to a protracted civil war that extended until 1970.
• During the 1980s, the Houthi clan began a resurgence of the Zaidi tradition in response to the rising influence of the Salafists, who received support from the state.
• In 2004, the Houthis initiated an insurgent movement against the Yemeni government, adopting the name of Hussein Badreddin al-Houthi, a prominent political, military, and religious leader who was assassinated by Yemeni security forces in September of that year. Subsequent years witnessed ongoing conflict between the Houthis and Yemen's Sunni-majority government.
• In 2012, Ali Abdullah Saleh, who had served as Yemen's president since 1990 and earlier as the president of pre-unified North Yemen from 1978, was compelled to resign in the wake of the Arab Spring protests. He was succeeded by his vice-president, Abd Rabbu Mansour Hadi.
• In 2015, Saleh allied himself with the Houthis against Hadi, resulting in the insurgency capturing Sana'a. President Hadi fled to Aden and later sought refuge in Saudi Arabia, where he continues to reside for the most part.
• However, in 2017, Saleh severed his ties with the Houthis and joined forces with their adversaries, including the Saudis, the UAE, and President Hadi. In December of that year, Saleh was assassinated."

3. How did the UAE and Saudi Arabia get involved in the war?

• "In March of 2015, shortly after Hadi's removal from power, a coalition consisting of nine nations and led by Saudi Arabia, with logistical and intelligence support provided by the United States, initiated an aerial campaign against the Houthi forces.
• These airstrikes aimed to bolster Hadi's troops, who were attempting to retake control of Sana'a from the Houthi faction. Nonetheless, at the core of this intervention was the underlying power struggle in the region, pitting Saudi Arabia against Iran.
• Both Riyadh and Western nations believed that the Houthi group received military and financial backing from the Iranian regime.
• Saudi Arabia, due to its extensive 1,300-kilometer border with Yemen, initially asserted that the conflict would conclude within a few months.
• However, progress by the coalition has been limited, resulting in a prolonged stalemate, with the Houthi faction retaining control over Sana'a and a dire humanitarian crisis unfolding in Yemen.
• Since 2015, the nature of the conflict has constantly evolved, with various factions switching allegiances among the Saudi-supported Popular Resistance Committees, Iran-backed groups, and an array of Islamist militants, including those associated with al-Qaeda and the Islamic State."

 

4.Way Forward

More than the UAE, it is Saudi Arabia that has been in the crosshairs of the Houthis. Since 2015, they have repeatedly fired missiles and mortar at Saudi military and civilian facilities including airports and oil facilities, and killed many Saudi soldiers. Over the last year, the two sides have been engaged in a tense battle to capture the Marib province, which is the government’s only remaining stronghold in northern Yemen, and houses vast oil and gas infrastructure.

 

Source: Indianexpress

 

RUPEE EXCHANGE RATE

 

 

1. Context

On November 5, 2024, the day the US voted for its next president, the euro, which is the common currency of 20 countries (out of 27) in the European Union, was equal to 1.0933 US dollars

 

2. What is the rupee exchange rate?

The rupee's exchange rate with the dollar signifies the quantity of rupees needed to purchase one US dollar. This metric is crucial not only for acquiring American goods but also for engaging in trade involving other commodities and services, like crude oil, which is conducted in US dollars. When the rupee depreciates, the cost of importing goods and services increases. However, for those exporting products and services, particularly to the United States, the depreciation enhances the competitiveness of India's offerings by making them more affordable for foreign buyers

Exchange rate for 1 Indian Rupee (INR) is as follows:

• United States Dollar (USD): 0.012011 INR
• Euro (EUR): 0.011223 INR
• British Pound (GBP): 0.009784 INR
• Australian Dollar (AUD): 0.018827 INR
• Singapore Dollar (SGD): 0.016343 INR
• Swiss Franc (CHF): 0.010845 INR
• Malaysian Ringgit (MYR): 0.056619 INR
• Japanese Yen (JPY): 1.824210 INR

3. Effects on rupee

• If the rupee experiences a faster depreciation rate than its long-term average, it surpasses the dotted line, and vice versa.
• Over the past couple of years, the rupee has demonstrated greater resilience than the long-term trend, but the current decline indicates a correction.
• When considering a diverse range of currencies, data indicates that the rupee has strengthened or appreciated against this basket.
• To clarify, while the US dollar has strengthened against various major currencies, including the rupee, the rupee, in contrast, has strengthened compared to many other currencies like the euro. For example, forex reserves have decreased by over $50 billion between September 2021 and now. Over these 10 months, the rupee's exchange rate with the dollar has declined by 8.7%, from 73.6 to 80.
• To provide context, historically, the rupee typically depreciates by around 3% to 3.5% in a year. Moreover, many experts anticipate further weakening of the rupee in the next 3-4 months, potentially falling to as low as 82 to a dollar.

4. What is rupee depreciation?

Rupee depreciation refers to a decrease in the value of a country's currency, specifically the Indian rupee in this context, in comparison to other currencies. It means that more units of the domestic currency are required to purchase a fixed amount of foreign currency, usually the US dollar. Depreciation can occur due to various factors, including changes in supply and demand for the currency in the foreign exchange market, economic conditions, inflation rates, and geopolitical events

When the rupee depreciates, it has several implications:

Import Costs: Imported goods and services become more expensive, as it takes more rupees to buy the same amount of foreign currency needed for these transactions. This can contribute to inflationary pressures in the economy.

Export Competitiveness: On the positive side, a depreciated rupee can make the country's exports more competitive in the global market. Foreign buyers find the country's products and services relatively cheaper, potentially boosting export volumes.

External Debt: Countries with significant external debt denominated in foreign currencies may face increased repayment burdens when their domestic currency depreciates. Servicing debt in stronger foreign currencies becomes more expensive.

Inflation: Depreciation can contribute to inflationary pressures by increasing the cost of imported goods and raw materials.

 

5. Effects on the Indian economy

• Due to a substantial portion of India's imports being priced in dollars, these imports will become more expensive.
• An illustrative example is the higher cost associated with the crude oil import bill. The increased expense of imports, in turn, will contribute to the expansion of the trade deficit and the current account deficit.
• This, in consequence, will exert pressure on the exchange rate. On the export side, the situation is more complex, as noted by Sen.
• In bilateral trade, the rupee has strengthened against many currencies. In exports conducted in dollars, the impact is contingent on factors such as how much other currencies have depreciated against the dollar.
• If the depreciation of other currencies against the dollar is greater than that of the rupee, the overall effect could be negative.

6. Way forward

Defending the rupee will simply result in India exhausting its forex reserves over time because global investors have much bigger financial clout. Most analysts believe that the better strategy is to let the rupee depreciate and act as a natural shock absorber to the adverse terms of trade

 

 

For Prelims: Inflation, Deflation, Depreciation, Appreciation For Mains: General Studies III: How does Depreciation of rupee affect Indian economy

 

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.Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee? (UPSC CSE 2019) A.Curbing imports of non-essential goods and promoting exports B.Encouraging Indian borrowers to issue rupee-denominated Masala Bonds C.Easing conditions relating to external commercial borrowing D.Following an expansionary monetary policy Answer (D)

 

Source:indianexpress