• The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, commonly known as the Wassenaar Agreement, is an international export control regime that was established in 1996 in Wassenaar, the Netherlands.
• It came into existence as a successor to the Cold War–era Coordinating Committee for Multilateral Export Controls (COCOM), which had been created to restrict the export of sensitive technologies to the Soviet bloc.
• Unlike COCOM, which was directed against specific countries, the Wassenaar Arrangement is not aimed at any single state; rather, it seeks to promote greater transparency and responsibility in transfers of arms and sensitive technologies globally.
• The key objective of the agreement is to ensure that exports of conventional arms and dual-use goods (technologies that can be used for both civilian and military purposes) do not contribute to the development or enhancement of military capabilities that could undermine regional or international security and stability.
• It emphasizes responsible transfers and prevention of destabilizing accumulations of arms, while at the same time recognizing the right of states to engage in legitimate trade for self-defence and economic development.
• Under the Wassenaar Arrangement, member states—currently numbering 42, including major arms exporters like the United States, Russia, and many EU nations—maintain and share information about their transfers of arms and sensitive technologies. The arrangement has two control lists: one for conventional arms and another for dual-use goods and technologies.
• Member countries use these lists to guide their own national export control policies. However, unlike a treaty, the Wassenaar Arrangement is not legally binding; instead, it relies on political commitments and voluntary cooperation among participants.
• For India, joining the Wassenaar Arrangement in December 2017 was a significant milestone. It gave India access to advanced technologies and boosted its image as a responsible player in global non-proliferation architecture.
• Membership also complements India’s participation in other export control regimes like the Missile Technology Control Regime (MTCR) and the Australia Group, strengthening its case for eventual entry into the Nuclear Suppliers Group (NSG)
• One of the most significant global mechanisms in this field is the Wassenaar Arrangement, a multilateral framework designed to regulate exports of conventional weapons as well as dual-use goods and technologies.
• It operates on a voluntary coordination model where member states agree to follow common control lists and share information, but each government ultimately retains autonomy in granting licenses, implementing rules, and enforcing them.
• In 2013, its scope was widened to cover “intrusion software”—programs intended to circumvent security systems in networks, and certain surveillance or cyber-surveillance tools.
• Yet, the framework was originally built at a time when export controls were primarily concerned with physical items such as chips, hardware components, and devices, while software exchanges were regarded as secondary.

• This legacy design creates ambiguity for modern digital environments, particularly with technologies linked to cloud services. For instance, the Arrangement does not consistently treat the use, access, or remote management of software as an “export,” and it leaves room for countries to interpret technology transfers differently.
• The rise of the software-as-a-service (SaaS) model complicates the situation further, as users rely on remote functionalities rather than installing programs locally, a scenario that the Arrangement does not clearly define as an export of controlled technology.
• Another limitation is its consensus-based nature, which means any single participant can block proposed changes. Even when controls are introduced, the Arrangement requires each member to enforce them through its own national export control laws, which vary significantly in scope, ambition, and political will.
• This leads to uneven application across states, and many countries maintain exceptions for purposes such as defensive security research or internal transfers of technology, leaving considerable loopholes in the system

• India became a member of the Wassenaar Arrangement in 2017 and integrated its control lists into its SCOMET framework (Special Chemicals, Organisms, Materials, Equipment, and Technologies).
• However, like many other members, India’s participation has largely been about enhancing its credibility in international export-control systems, rather than pushing for reforms that would make the Arrangement responsive to challenges posed by cloud-based technologies.
• Consequently, despite its growing membership, the regime has struggled to keep pace with emerging technologies most prone to misuse in surveillance and repression.
• For the Arrangement to stay relevant, its mandate must expand considerably. The catalogue of controlled technologies should explicitly cover digital infrastructure and services capable of enabling mass surveillance, profiling, discrimination, or cross-border data-driven policing—such as regional biometric databases or transnational data-sharing mechanisms.
• This would mean defining thresholds of capacity, while at the same time creating safeguards and licensing provisions that distinguish legitimate defensive or benign applications.
• Another limitation lies in how export is still framed predominantly as a physical transfer or software download. In the cloud era, however, an “export” could just as easily involve remote activation or an API call.
• The Arrangement therefore requires binding rules that equate remote enablement, delegation of administration rights, or authorisation with export whenever they provide access to a controlled technology.
• Moreover, stronger end-use controls are essential: for digital surveillance tools, the main danger is not military proliferation but mass violations of human rights.
• Licensing should thus be conditional not only on the technical nature of the product but also on who the user is, the jurisdiction they operate in, the governing oversight mechanisms, and the potential risk of abuse.
• The Arrangement’s voluntary character is another weakness, especially in high-risk environments.
• To be effective, a binding treaty or framework is needed, one that lays down minimum licensing standards, mandates denial of exports to atrocity-prone regions, and establishes mechanisms for peer monitoring and review.
• Given the borderless nature of cloud services, where actions in one jurisdiction can create consequences in another, stronger coordination is also vital. National authorities should be required to share information, harmonise licensing policies, and maintain common resources such as technical standards, a watchlist of suspicious users or entities, and real-time alert systems—for instance, to flag when a cloud provider extends services to a blacklisted state.
• Finally, because cloud and AI technologies evolve rapidly, the Arrangement must match that pace. A dedicated technical secretariat or expert committee could be empowered to suggest interim measures, accelerate the adoption of urgent controls, and integrate advice from independent specialists.
• Introducing a sunset clause—whereby controlled items automatically lapse unless actively renewed—could also keep the regime current. In fact, considering the difficulty of building global consensus, it may be worthwhile to establish parallel, domain-specific regimes for areas like AI, digital surveillance, and cyber weapons. These could align with the broader Wassenaar framework while retaining the flexibility to adapt more swiftly

Some influential countries may oppose tighter regulations on cloud services, claiming that such measures could hinder innovation, infringe on national sovereignty, or place excessive burdens on private companies. Because the Wassenaar Arrangement works by consensus, even a few dissenting states—particularly those that profit from exporting surveillance technologies—can obstruct reforms. On top of that, aligning cloud-based systems with existing control categories, setting thresholds, distinguishing between legitimate and harmful uses, and managing cross-border licensing make the process highly complex.

Nevertheless, a practical route forward remains feasible—and perhaps necessary—within the framework of the Arrangement. Certain countries, particularly within the European Union, have already begun introducing national-level export controls for advanced technologies that currently fall outside the scope of Wassenaar. The EU’s updated dual-use regulation, for example, now recognises that the transfer of cloud services can, in some cases, be subject to the same rules governing dual-use items

NATIONAL MAKHANA BOARD

• The newly established National Makhana Board aims to assist Makhana farmers in Bihar and other parts of India by boosting production, fostering innovation through new technologies, improving post-harvest handling, enhancing value addition, and streamlining processing and marketing. These efforts are expected to make Makhana more accessible in domestic markets, expand its export potential, and help create a strong brand identity.

• Bihar is the leading producer of Makhana, contributing nearly 90% of India’s total output. Cultivation is concentrated in nine districts of northern and eastern Bihar—Darbhanga, Madhubani, Purnea, Katihar, Saharsa, Supaul, Araria, Kishanganj, and Sitamarhi—collectively forming the Mithilanchal region. Of these, Darbhanga, Madhubani, Purnea, and Katihar account for roughly 80% of the state’s production.

• Besides Bihar, smaller-scale cultivation of Makhana is seen in Assam, Manipur, West Bengal, Tripura, and Odisha, and it is also grown in countries such as Nepal, Bangladesh, China, Japan, and Korea

 

3. Significance of the Makhana board

 

 

• The creation of the National Makhana Board in Bihar marks a crucial step for farmers engaged in Makhana cultivation. The state government had long urged the Centre to implement policies that would support and promote this sector.

• Even though Bihar contributes nearly 90% of India’s total Makhana production, it has struggled to benefit from the growing national and international demand. Interestingly, the largest exporters of Makhana in the country are Punjab and Assam, with Punjab exporting the crop despite not cultivating it at all.

• This disparity is largely due to Bihar’s underdeveloped food processing industry and weak export infrastructure. The absence of cargo facilities at the state’s airports further restricts direct exports. Additionally, productivity remains low as Makhana cultivation is highly labor-intensive, which raises input costs significantly.

• Another challenge is the slow adoption of high-yield seed varieties such as Swarna Vaidehi and Sabour Makhana-1, developed by agricultural research institutes, which could otherwise boost production efficiency.

• The establishment of the Makhana Board is expected to transform the sector by giving a strong push to production in Bihar and across India, positioning the state prominently on the global Makhana map.

• The Board’s initiatives are likely to include farmer training programs to make them more export-oriented, the development of an ecosystem to attract investments in food processing, and the creation of the necessary export infrastructure

 

4. Makhana as a black diamond

 

 

• Makhana, known in English as fox nut, is the dried edible seed of the prickly water lily or gorgon plant (Euryale ferox). This aquatic plant thrives in freshwater ponds across South and East Asia and is easily identified by its purple and white blossoms and its large, spiny, circular leaves, which can grow over a meter wide.

• The edible portion consists of small, round seeds with a black to dark brown outer covering, which has earned Makhana the nickname “Black Diamond.”

• Once processed, these seeds are often roasted or puffed into light snacks called ‘lava.’ Makhana is highly nutritious, offering a rich source of carbohydrates, proteins, and essential minerals. Owing to its health benefits and medicinal properties, it is consumed in multiple forms for dietary, therapeutic, and culinary purposes.

• In 2022, Mithila Makhana received the Geographical Indication (GI) tag, which certifies that the product originates from a specific region and possesses unique qualities or a reputation linked to that area. This GI tag remains valid for 10 years and can be renewed thereafter.

• Climatic Conditions for Cultivation:

  • Makhana is an aquatic crop grown mainly in tropical and subtropical climates.

  • It is cultivated in stagnant water bodies such as ponds, wetlands, lakes, land depressions, and ditches with water depths of 4–6 feet.

  • Ideal growth conditions include a temperature range of 20–35°C, relative humidity between 50–90%, and annual rainfall of 100–250 cm

 

 

5. National Turmeric board

 

 

• On 29th June, Union Home Minister and Minister of Cooperation Amit Shah inaugurated the newly established headquarters of the National Turmeric Board in Nizamabad, Telangana.

• The National Turmeric Board was set up by the Central Government in January this year, with a target of reaching USD 1 billion in turmeric exports by 2030.

• The Board has been tasked with boosting the turmeric sector nationwide, with a special focus on Telangana. It will serve as a nodal body for addressing issues related to turmeric cultivation and trade, coordinate with the Spices Board and other agencies, and support initiatives to strengthen production, processing, and marketing of turmeric.

• India holds the distinction of being the world’s largest producer, consumer, and exporter of turmeric, with major production concentrated in Telangana, Maharashtra, and Meghalaya. The country commands over 62% of the global turmeric trade. In FY 2023–24, India exported 1.62 lakh tonnes of turmeric and turmeric-based products worth USD 226.5 million

 

6. Makhana

 

• Makhana, also known as fox nut or gorgon nut, is the dried edible seed of the prickly water lily (Euryale ferox), an aquatic plant commonly found in freshwater ponds across South and East Asia.
• The plant is easily identifiable by its large, prickly circular leaves, which can exceed a meter in diameter, and its violet and white flowers. The edible seeds have a blackish-brown outer coating, earning them the nickname “Black Diamond.”
• After processing, the seeds are roasted or popped to make a light snack called ‘lava,’ which is widely consumed.
• Makhana is valued for its nutritional richness, being a good source of carbohydrates, protein, and minerals, and has wide applications in food, healthcare, and traditional medicine.
• Bihar is the leading producer of Makhana, accounting for nearly 90% of India’s production. Cultivation is concentrated in nine districts of the Mithilanchal region, including Darbhanga, Madhubani, Purnea, Katihar, Saharsa, Supaul, Araria, Kishanganj, and Sitamarhi, with the first four contributing almost 80% of the state’s output.
• In addition to Bihar, Makhana is cultivated in smaller quantities in Assam, Manipur, West Bengal, Tripura, and Odisha, as well as in countries like Nepal, Bangladesh, China, Japan, and Korea.
• Recognizing its unique regional identity, Mithila Makhana was granted a Geographical Indication (GI) tag in 2022, which is valid for ten years and can be renewed.
• Makhana is typically grown in tropical and subtropical climates and thrives in stagnant water bodies such as ponds, wetlands, ditches, and lakes with water depths of about 4–6 feet.
• The ideal temperature range for cultivation is 20–35°C, with relative humidity between 50–90% and annual rainfall ranging from 100 to 250 cm. Despite being the largest producer, Bihar has faced several challenges in leveraging its dominant position in the global Makhana market.
• The state lacks a robust food processing industry and export infrastructure, as none of its airports have cargo facilities.
• Cultivation remains highly labor-intensive, resulting in high input costs, and farmers have been slow to adopt high-yield varieties such as Swarna Vaidehi and Sabour Makhana-1 developed by agricultural research institutions

 

7. Way Forward

 

To address these challenges and unlock the sector’s potential, the Central Government established the National Makhana Board in 2024, headquartered in Bihar. The Board aims to promote production through modern technologies, improve post-harvest management, encourage value addition, and strengthen processing and marketing channels. It will also train farmers to become export-oriented, facilitate investment in food processing, and create the necessary infrastructure to enable exports. These efforts are expected to boost production, expand market access, and enhance Bihar’s presence on the global Makhana map

 

For Prelims: Makhana, Makhana Board, Geographical Indication (GI) tag   For Mains: GS II - Governance

 

 

Source: Indianexpress

 

 

STAMPEDE

 

 

1. Context

 

A campaign rally for Tamil star-turned-politician Vijay ended in a stampede that killed at least 38 people – among them 16 women and eight children – and left over 150 hospitalised across Karur and Trichy. At least half a dozen victims are critical and the toll could go up, officials said.

 

2. What is a stampede?

 

A stampede is a sudden rush or flight of a group of animals or people, usually caused by panic or fear. In the context of animals, it often refers to a herd of large mammals like cattle, horses, or elephants running together in the same direction. For humans, it describes a chaotic situation where a crowd moves rapidly and uncontrollably, often resulting in injuries or fatalities due to trampling or crushing.

Stampedes can be triggered by various factors, such as:

• Sudden loud noises
• Perceived threats
• Natural disasters
• Overcrowding in confined spaces
• Mass panic

Stampedes are particularly dangerous in crowded events or enclosed spaces, as people may be unable to escape the rushing crowd. 

3. What causes stampedes?

Stampedes can be caused by several factors:

• Fear or panic: A perceived threat, real or imagined, can trigger a fight-or-flight response in a crowd.
• Overcrowding: When too many people are in a confined space, even small movements can create a domino effect.
• Poor crowd management: Inadequate planning or control of large gatherings can lead to chaotic situations.
• Sudden loud noises: Unexpected sounds like explosions or gunshots can startle a crowd into fleeing.
• Physical pressure: In dense crowds, people at the back pushing forward can create dangerous force on those in front.
• Limited exits: When escape routes are few or narrow, people may rush to leave, creating bottlenecks.
• Misinformation or rumors: False alarms or spreading of incorrect information can cause panic.
• Environmental factors: Extreme weather, fire, or structural collapses can prompt rapid evacuation attempts.
• Mob mentality: People tend to follow the actions of others in a crowd, amplifying panic.
• Cultural or religious events: Large gatherings for festivals or pilgrimages can sometimes lead to stampedes if not managed properly

 

4. Major stampede cases in India

 

India has unfortunately experienced several major stampedes. Here are some notable cases:

• Kumbh Mela stampede (2013): At least 36 people died at the Allahabad railway station during the Kumbh Mela festival.
• Ratangarh temple stampede (2013): Over 100 people died near a temple in Madhya Pradesh when rumors of a bridge collapse sparked panic.
• Sabarimala temple stampede (2011): 106 pilgrims died in Kerala during the Makara Jyothi festival.
• Pratapgarh temple stampede (2010): About 63 people died at a temple in Uttar Pradesh during a free food distribution event.
• Naina Devi temple stampede (2008): At least 162 people died in Himachal Pradesh when heavy rains caused panic among pilgrims.
• Mandher Devi temple stampede (2005): 291 people died in Maharashtra during a religious festival.
• Nashik Kumbh Mela stampede (2003): 39 people died during the holy bath ritual in Maharashtra.
• Nagpur stampede (1994): 114 people died on a narrow bridge during a religious procession

5.Way Forward

Most stampede casualties are caused by traumatic asphyxia — there is partial or complete cessation of respiration due to external compression of the thorax and/or upper abdomen. Other possible reasons for stampede-related deaths include myocardial infarction (heart attack, caused by decreased or complete cessation of blood flow to a portion of the heart), direct crushing injury to internal organs, head injuries, and neck compression

 

 

 

For Prelims: Current events of national importance For Mains: GS-II, GS-III: Government policies and interventions, Disaster Management

 

Source: Indianexpress

 

 

MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE ACT (MGNREGA)

1. Context

The Centre has amended Schedule-I of the Mahatma Gandhi National Rural Employment Guarantee Act (MG-NREGA), 2005, so that a minimum amount is spent on water conservation and harvesting works in rural blocks or subdivisions

 

2. About the National Level Monitoring (NLM) report

• The National Level Monitoring (NLM) report is a study conducted by the Ministry of Rural Development (MoRD) to assess the implementation of various rural development programs in India.
• The report is based on field visits and interviews with stakeholders at the grassroots level.
• The NLM report is an important tool for the government to identify areas where improvement is needed and track rural development programs' progress.
• The report also provides valuable insights into the challenges faced by rural communities and the impact of government interventions.

The NLM report typically identifies the following areas:

• The coverage of rural development programs
• The quality of implementation of rural development programs
• The impact of rural development programs on the lives of rural people

The NLM report also provides recommendations to the government on improving the implementation of rural development programs and making them more effective.

 

3. The findings of the NLM report

• In 2017-18, the NLM report found that the quality of construction of 87% of the verified works under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was satisfactory. However, the report also found that only 139 out of 301 districts had seven registers maintained satisfactorily.
• In 2018-19, the NLM report found that the job cards, an important document that records entitlements received under MGNREGA, were not regularly updated in many districts. The report also found that there were significant delays in payments to workers.
• In 2019-20, the NLM report found that the Pradhan Mantri Awaas Yojana - Gramin (PMAY-G) program was facing challenges due to a shortage of construction materials and skilled labour. The report also found that there were delays in the processing of applications and the release of funds.
• The NLM report for 2020-21 found that the coverage of rural development programs had improved significantly in recent years. However, the report also found that there was still a need to improve the quality of implementation of these programs.
• The NLM report for 2021-22 found that the impact of rural development programs on the lives of rural people had been positive overall. However, the report also found that there were still some disparities in the impact of these programs across different regions and social groups.

 

4. Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is a social welfare program that guarantees 100 days of unskilled manual wage employment in a financial year to a rural household whose adult members volunteer to do unskilled manual work. The Act was enacted by the Government of India in 2005 and came into force on February 2, 2006.

4.1. Mandate and Goals

• The mandate of MGNREGA is to provide employment and ensure food security for rural households.
• The scheme also aims to strengthen natural resource management, create durable assets, improve rural infrastructure, and promote social equity.
• The goals of MGNREGA are to Reduce rural poverty, Increase employment opportunities, Improve food security, Create durable assets, Improve rural infrastructure and Promote social equity. 

4.2. Core Objectives 

•  The primary goal of MGNREGA is to provide at least 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work.
• The program aims to reduce poverty and distress by offering employment opportunities, especially during seasons of agricultural unemployment.
• MGNREGA encourages the creation of productive and durable assets such as water conservation structures, rural infrastructure, and land development. These assets not only improve rural livelihoods but also contribute to sustainable development.
• The Act promotes gender equality by ensuring that at least one-third of the beneficiaries are women and that their participation in the workforce is actively encouraged.

4.3. Key Stakeholders 

• Rural households are the primary beneficiaries and participants in the MGNREGA scheme.
• Gram Panchayats play a pivotal role in implementing the program at the grassroots level. They are responsible for planning, execution, and monitoring of MGNREGA projects within their jurisdiction.
• The central government provides the funds and sets the broad guidelines, while the state governments are responsible for the program's effective implementation.
• The DPC is responsible for the overall coordination and monitoring of MGNREGA activities within a district.
• Rural labourers, both skilled and unskilled, participate in MGNREGA projects and directly benefit from the program.

4.4. Role of Gram Sabha and Gram Panchayat

• The Gram Sabha is the village assembly consisting of all registered voters in a village. Its role in MGNREGA includes discussing and approving the annual development plan, ensuring transparency in project selection, and conducting social audits to monitor program implementation.
• The Gram Panchayat is responsible for planning, approving, executing, and monitoring MGNREGA projects within its jurisdiction. It also maintains records of employment provided, ensures timely wage payments, and conducts social audits. The Panchayat is accountable for the effective utilization of MGNREGA funds.

4.5. Issues with MGNREGA

•  Delayed wage payments to labourers have been a persistent issue, affecting the livelihoods of beneficiaries.
•  There have been cases of corruption and leakages in the implementation of MGNREGA projects, leading to suboptimal outcomes.
• Administrative inefficiencies, complex procedures, and bureaucratic hurdles have hampered program delivery.
• Some argue that the quality and effectiveness of assets created under MGNREGA projects have been variable and not always aligned with the intended goals.
• Not all eligible rural households are provided 100 days of guaranteed employment, which can limit the program's impact.
• Adequate budget allocation to meet the program's demands and inflation-adjusted wages remains a concern.

5. Conclusion

MGNREGA has made a positive impact on the lives of rural people, particularly in terms of employment opportunities and the creation of durable assets. It remains a crucial tool in India's efforts to promote rural development, reduce poverty, and achieve social equity. Addressing the identified issues will be critical in ensuring the continued success and effectiveness of the program in the years to come.

 

For Prelims: MGNREGA, National Level Monitoring (NLM) report, Ministry of Rural Development, rural development, Pradhan Mantri Awaas Yojana - Gramin (PMAY-G),  For Mains:  1. Evaluate the importance of the Mahatma Gandhi National Rural Employment Guarantee Act in the context of rural development and food security in India. How does MGNREGA contribute to sustainable development and rural infrastructure improvement? (250 Words)

 

 

 

Previous Year Questions   Prelims 1. Among the following who are eligible to benefit from the “Mahatma Gandhi National Rural Employment Guarantee Act”? (UPSC 2011) (a) Adult members of only the scheduled caste and scheduled tribe households (b) Adult members of below poverty line (BPL) households (c) Adult members of households of all backward communities (d) Adult members of any household Answer: D 2. The Multi-dimensional Poverty Index developed by Oxford Poverty and Human Development Initiative with UNDP support covers which of the following? (UPSC 2012) Deprivation of education, health, assets and services at household level Purchasing power parity at national level Extent of budget deficit and GDP growth rate at national level Select the correct answer using the codes given below: (a) 1 only             (b) 2 and 3 only         (c) 1 and 3 only             (d) 1, 2 and 3 Answer: A 3. Which of the following grants/grant direct credit assistance to rural households? (UPSC 2013) Regional Rural Banks National Bank for Agriculture and Rural Development Land Development Banks Select the correct answer using the codes given below: (a) 1 and 2 only         (b) 2 only                     (c) 1 and 3 only                (d) 1, 2 and 3 Answer: C 4. How does the National Rural Livelihood Mission seek to improve livelihood options of rural poor? (UPSC 2012) By setting up a large number of new manufacturing industries and agribusiness centres in rural areas By strengthening ‘self-help groups’ and providing skill development By supplying seeds, fertilisers, diesel pump-sets and micro-irrigation equipment free of cost to farmers Select the correct answer using the codes given below: (a) 1 and 2 only          (b) 2 only                        (c) 1 and 3 only              (d) 1, 2 and 3 Answer: B  5. Under the Pradhan Mantri Awaas Yojana-Gramin (PMAY-G), the ratio of the cost of unit assistance to be shared between the Central and State Governments is: (MP Patwari 2017) A. 60:40 in plain areas and 90:10 for North Eastern and the Himalayan States B. 70:30 in plain areas and 80:20 for North Eastern and the Himalayan States C. 50:50 in plain areas and 70:30 for North Eastern and the Himalayan States D. 75:25 in Plain areas and 85:15 for North Eastern and the Himalayan States   Answer: A   Mains   1. The basis of providing urban amenities in rural areas (PURA) is rooted in establishing connectivity. Comment (UPSC 2013)

 

Source: indianexpress

 

 

RESERVE BANK OF INDIA (RBI)

 

 

 

1. Context

 

The Reserve Bank of India (RBI) Monetary Policy Committee will meet from September 29 to October 1, and is widely expected to keep the repo rate unchanged for the second consecutive time amid strong GDP growth and expectations of benign inflation

 

 

2. Establishment of the Reserve Bank of India

• The Reserve Bank of India (RBI) was established on April 1, 1935, when it was established by the Reserve Bank of India Act of 1934.
• Initially based in Calcutta, it serves as the apex monetary authority, regulator, and supervisor of India's financial system, exercising control over monetary policy, managing foreign exchanges, and overseeing payment and settlement systems.
• The establishment of the RBI was influenced by Dr. B.R. Ambedkar's seminal work, "The Problem of the Rupee – Its Origin and its Solution," and was founded based on the recommendations of the Hilton Young Commission in 1926.
• Beyond its regulatory functions, the RBI also plays a developmental role, acts as the issuer of currency, and functions as the banker to the Government of India.

The significant events in the history of the Reserve Bank of India

• The British government enacted the Reserve Bank of India Act in 1934, laying the foundation for the central bank's establishment.
• On April 1st 1935, the Reserve Bank of India commenced operations in Calcutta.
• In 1937 The RBI's headquarters were permanently relocated to Mumbai, where it continues to be situated.
• 1949 Following India's independence, the RBI underwent nationalization, transitioning from private ownership to being held by the Government of India. Before this, the bank had private stakeholders.

 

3. The preamble of the RBI

The preamble of the Reserve Bank of India (RBI) outlines the fundamental objectives and functions of the central bank. The preamble of the RBI Act 1934 states

"An Act to constitute a Reserve Bank for India to regulate the issue of Bank notes and the keeping of reserves to secure monetary stability in India and generally to operate the currency and credit system of the country to its advantage."

This preamble highlights the key roles and responsibilities of the RBI, which include:

• The RBI is responsible for regulating the issuance of currency notes in India. It ensures the stability and integrity of the currency system.
• The RBI is mandated to maintain adequate reserves to support monetary stability. This includes managing foreign exchange reserves and gold reserves.
• One of the primary objectives of the RBI is to secure monetary stability in India. This involves controlling inflation, managing interest rates, and promoting economic stability.
• The RBI operates and oversees the currency and credit system of the country. It plays a crucial role in managing liquidity, credit flow, and overall financial stability.

 

4. The objectives of RBI

The objectives of the Reserve Bank of India (RBI) encompass a range of crucial functions aimed at ensuring the stability, growth, and integrity of India's financial and economic systems. These objectives include

• The RBI is tasked with overseeing and regulating the nation's currency and credit system to ensure smooth financial operations and effective credit flow throughout the economy.
• One of the primary goals of the RBI is to safeguard monetary stability in India by managing reserves effectively and implementing policies that control inflation and stabilize the value of the currency.
• The RBI holds the responsibility of issuing banknotes, maintaining their quality, and managing their circulation across the country to facilitate efficient financial transactions.
• The RBI works diligently to maintain financial stability by engaging in prudent activities and insulating itself from undue political influences. This independence allows it to make decisions based on economic considerations rather than political pressures.
• Through its policies and interventions, the RBI aims to support economic growth and contribute to the planned advancement of the country's economy, fostering a conducive environment for sustainable development.
• The RBI acts as the banker to commercial banks, providing them with essential services such as clearing and settlement. It also serves as the banker to the government, managing its accounts, facilitating transactions, and helping in debt management. Additionally, it serves as the primary authority for issuing currency notes, ensuring the smooth functioning of the monetary system.

 

5. The Structure of RBI

The structure of the Reserve Bank of India consists of various components that work together to fulfil the central bank's functions and responsibilities.

Central Board of Directors

• The Central Board of Directors is the supreme decision-making body of the RBI.
• It comprises official directors, including the Governor, Deputy Governors, and other senior officials, as well as non-official directors appointed by the Government of India.
• The Central Board oversees the overall functioning of the RBI, including formulating policies, supervising operations, and managing key functions.

Governor

• The Governor is the highest-ranking official in the RBI and is appointed by the Government of India.
• The Governor plays a crucial role in setting monetary policy, representing the RBI in various forums, and managing the day-to-day operations of the central bank.
• The Governor chairs meetings of the Central Board and is responsible for executing RBI's policies and decisions.

Deputy Governors

• The RBI typically has four Deputy Governors, each responsible for specific areas such as monetary policy, banking regulation, currency management, and internal operations.
• Deputy Governors assist the Governor in policy formulation, decision-making, and overseeing key functions of the RBI.

Departments and Wings

The RBI operates through various departments and wings, each focusing on specific functions and responsibilities. Some of the major departments include

• Monetary Policy Department Formulates and implements monetary policies, manages interest rates and monitors economic indicators.
• Department of Banking Regulation Regulates and supervises banks and financial institutions, enforces prudential norms, and ensures financial stability.
• Department of Currency Management Manages currency issuance, circulation, and coinage operations.
• Foreign Exchange Department Manages foreign exchange reserves, formulates exchange rate policies, and regulates foreign exchange transactions.
• Financial Stability Unit Monitors systemic risks, assesses financial stability, and coordinates efforts to maintain a stable financial system.
• Information Technology (IT) Department Manages IT infrastructure, digital banking initiatives, and cybersecurity measures.

These departments work in coordination to achieve the RBI's objectives related to monetary policy, financial regulation, currency management, and economic stability.

 

Regional Offices

• The RBI has regional offices located in major cities across India.
• These regional offices play a vital role in implementing RBI policies at the grassroots level, supervising regional banks, and addressing regional banking and financial issues.

Committees and Advisory Groups

• The RBI forms various committees and advisory groups to provide expert advice, conduct research, and make recommendations on specific areas such as monetary policy, financial inclusion, risk management, and regulatory reforms.
• Examples include the Monetary Policy Committee (MPC), Board for Financial Supervision (BFS), and Internal Working Groups (IWGs) on various policy matters.

Autonomous Boards and Subsidiaries

• The RBI also oversees autonomous boards and subsidiaries that focus on specialized functions such as regulation of non-banking financial companies (NBFCs), development finance, and financial inclusion.
• Examples include the National Bank for Agriculture and Rural Development (NABARD), National Housing Bank (NHB), and Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL).

 

6. Functions of the RBI

 

The Reserve Bank of India (RBI) performs a wide range of functions that are essential for the functioning of India's monetary and financial system. These functions can be broadly categorized into the following

Monetary Policy Formulation and Implementation

• The RBI formulates and implements monetary policy to achieve price stability and promote sustainable economic growth.
• It sets key policy rates such as the repo rate, reverse repo rate, and marginal standing facility (MSF) rate to influence liquidity conditions and interest rates in the economy.
• The RBI also conducts open market operations (OMOs) to manage liquidity in the financial system.

Currency Issuance and Management

• The RBI is responsible for issuing currency notes and coins in India. It ensures an adequate supply of currency to meet the demand for cash transactions.
• It manages the distribution, circulation, and withdrawal of currency to maintain its integrity and prevent counterfeiting.

Regulation and Supervision of Banks and Financial Institutions

• The RBI regulates and supervises banks, non-banking financial companies (NBFCs), payment banks, small finance banks, and other financial institutions.
• It sets prudential norms, capital adequacy requirements, and risk management guidelines to ensure the stability and soundness of the financial system.
• The RBI conducts regular inspections, audits, and surveillance to assess compliance with regulatory standards and address potential risks.

Foreign Exchange Management

• The RBI manages India's foreign exchange reserves to support external trade, maintain exchange rate stability, and meet international payment obligations.
• It formulates policies and regulations governing foreign exchange transactions, capital flows, and external borrowings.
• The RBI intervenes in the foreign exchange market to stabilize the rupee and prevent excessive volatility in the exchange rate.

Developmental Role

• The RBI plays a developmental role by promoting financial inclusion, expanding access to banking services, and fostering the development of the financial sector.
• It implements initiatives such as priority sector lending, microfinance, and financial literacy programs to address the needs of underserved segments of the population.
• The RBI also supports the development of financial infrastructure, including payment systems, credit information bureaus, and regulatory frameworks for emerging sectors such as fintech.

Regulation of Payment and Settlement Systems

• The RBI regulates and oversees payment and settlement systems in India to ensure efficiency, safety, and reliability in financial transactions.
• It operates and manages key payment systems such as the Real-Time Gross Settlement (RTGS) system, National Electronic Funds Transfer (NEFT), and Unified Payments Interface (UPI).
• The RBI sets standards, guidelines, and regulations for participants in payment systems and monitors their compliance to mitigate systemic risks.

Financial Stability and Systemic Risk Management

• The RBI monitors and assesses systemic risks in the financial system to maintain financial stability.
• It conducts stress tests, risk assessments, and scenario analyses to identify vulnerabilities and take preventive measures.
• The RBI collaborates with other regulatory authorities and participates in international forums to address global financial stability issues.

 

 

7. Acts Administered by the RBI

The Reserve Bank of India (RBI) administers several key acts and regulations that govern various aspects of the banking, financial, and monetary system in India.

• The Reserve Bank of India Act, 1934 establishes the RBI as India's central bank and outlines its functions, powers, and governance structure.
• Public Debt Act, 1944/Government Securities Act, 2006 regulate the issuance, management, and trading of government securities in India. They provide the legal framework for government borrowing and debt management.
• Government Securities Regulations, 2007 supplement the Government Securities Act, 2006, and provide detailed guidelines for the issuance, trading, and settlement of government securities.
• Banking Regulation Act, 1949 empowers the RBI to regulate and supervise banks and banking activities in India. It covers aspects such as licensing, operations, governance, and resolution of banking crises.
• Foreign Exchange Management Act, 1999 (FEMA) governs foreign exchange transactions, capital flows, and external trade-related payments. The RBI administers FEMA and issues regulations to manage India's foreign exchange reserves and control cross-border transactions.
• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Chapter II) deals with the securitization and reconstruction of financial assets and enforcement of security interests by banks and financial institutions. The RBI oversees compliance with Chapter II of this act.
• Credit Information Companies (Regulation) Act, 2005 regulates credit information companies (CICs) that collect and disseminate credit-related information. The RBI supervises CICs and ensures compliance with data protection and consumer rights standards.
• Payment and Settlement Systems Act, 2007 provides the legal framework for regulating payment and settlement systems in India. The RBI administers and supervises payment systems to ensure their safety, efficiency, and reliability.
• Payment and Settlement Systems Regulations, 2008 regulations supplement the Payment and Settlement Systems Act, 2007, and provide detailed rules and procedures for payment system operators, participants, and settlement processes.
• Factoring Regulation Act, 2011 regulates and promotes factoring services, which involve the purchase and management of receivables or invoices. The RBI oversees compliance with the Factoring Regulation Act.

 

8. Initiatives taken by RBI

The Reserve Bank of India (RBI) undertakes various initiatives to promote financial stability, inclusion, and economic growth in India. 

Financial Inclusion

• The RBI encourages banks to provide microloans to small businesses and low-income individuals.
• Initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY) are supported to expand bank accounts and financial services in rural areas.
• The RBI simplifies regulations and promotes digital banking to make financial services more accessible.

Consumer Protection

• The RBI conducts awareness campaigns and provides resources to educate citizens about financial products and safe banking practices.
• The Integrated Ombudsman Scheme allows customers to file complaints against banks and financial institutions.
• The RBI sets guidelines for bank charges to ensure transparency and fairness for consumers.

Financial Regulation and Development

• The RBI uses monetary policy tools like interest rates to manage inflation and promote economic growth.
• Regular inspections and regulations ensure the smooth functioning and financial stability of banks.
• The RBI implements reforms to address emerging challenges and strengthen the financial system.

Digital Payments

• The RBI supports initiatives like UPI (Unified Payments Interface) to facilitate cashless transactions and financial inclusion.
• Guidelines and regulations are issued to enhance the security of digital banking platforms.
• The RBI encourages innovation in the digital payments space to improve efficiency and convenience.

Other Initiatives

• Financial Literacy Weeks-focused campaigns are organized to raise awareness on specific financial topics every year.
• The RBI takes steps to promote the development of a healthy and efficient financial market ecosystem.
• The RBI manages India's foreign exchange reserves to maintain a stable exchange rate.

 

9. Publications of RBI

The Reserve Bank of India (RBI) regularly publishes a wide range of reports, publications, and research papers covering various aspects of the economy, financial markets, banking sector, and monetary policy. 

• The RBI's Annual Report provides a comprehensive overview of the Indian economy, monetary policy developments, financial stability assessments, and the central bank's operations and initiatives throughout the year. It includes financial statements, policy reviews, and analysis of economic indicators.
• The RBI publishes bi-monthly Monetary Policy Reports, which contain detailed assessments of macroeconomic conditions, inflation projections, monetary policy decisions, and policy stance. These reports provide insights into the RBI's outlook and strategies for managing monetary policy.
• The Financial Stability Report (FSR) is published bi-annually by the RBI and assesses the overall stability of the financial system, including banking sector health, asset quality trends, risk assessments, and policy recommendations to mitigate systemic risks.
• The RBI releases various statistical publications, including the Handbook of Statistics on the Indian Economy, Monthly Bulletin, and Reports on Currency and Finance. These publications provide comprehensive data and analysis on key economic and financial indicators, monetary aggregates, and sectoral trends.
• The RBI publishes occasional papers, research studies, and working papers on topics related to monetary economics, financial markets, banking regulation, payment systems, and economic policy. These publications contribute to the central bank's research agenda and policy formulation.
• The RBI issues reports and guidelines on regulatory frameworks for banks, non-banking financial companies (NBFCs), payment systems, and other financial institutions. These include circulars, notifications, and reports on regulatory developments, prudential norms, and compliance requirements.
• The RBI Governor, Deputy Governors, and senior officials deliver speeches, addresses, and presentations at various forums, conferences, and seminars. These speeches provide insights into the RBI's policy priorities, perspectives on economic issues, and guidance on financial sector developments.
• The RBI conducts public awareness campaigns and educational initiatives to promote financial literacy, consumer protection, and awareness about banking services, digital payments, and financial products. These campaigns aim to empower individuals with knowledge and skills for informed financial decision-making.

 

10. The Way Forward

 

The RBI's future strategy should continue to prioritize financial stability, inclusive growth, technological advancements, regulatory effectiveness, and consumer welfare. Collaborative efforts with stakeholders across sectors and proactive measures in response to emerging trends and challenges will be key to achieving these objectives effectively.

 

 

For Prelims: RBI, Monetary Policy, Pradhan Mantri Jan Dhan Yojana, UPI For Mains:  1. The rise of digital payments has significantly transformed the financial landscape in India. Discuss the role of the RBI in facilitating and regulating digital payments. What are the key challenges associated with digital payments? (250 Words) 2. Analyse the relationship between the RBI and the Government of India. Discuss the importance of maintaining the central bank's independence for effective monetary policy implementation. (250 Words) 3. The RBI plays a crucial role in regulating and supervising banks and financial institutions. Explain the different functions performed by the RBI in ensuring financial stability. (250 Words)

 

 

Previous Year Questions   1. With reference to the Indian economy, consider the following statements: (UPSC 2022) 1. An increase in the Nominal Effective Exchange Rate (NEER) indicates the appreciation of the rupee. 2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness. 3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER. Which of the above statements are correct? A. 1 and 2 only     B. 2 and 3 only       C. 1 and 3 only        D. 1, 2 and 3     2. With reference to Indian economy, consider the following statements: (UPSC 2015) 1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade. 2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade. Which of the statements given above is/are correct? (a) 1 only       (b) 2 only          (c) Both 1 and 2                (d) Neither 1 nor 2   3. Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization’? (UPSC 2023) (a) Conducting 'Open Market Operations' (b) Oversight of settlement and payment systems (c) Debt and cash management for the Central and State Governments (d) Regulating the functions of Non-banking Financial Institutions   4. In India, which one of the following is responsible for maintaining price stability by controlling inflation? (UPSC 2022) (a) Department of Consumer Affairs (b) Expenditure Management Commission (c) Financial Stability and Development Council (d) Reserve Bank of India    5. With reference to India, consider the following statements: (UPSC 2021) 1. Retail investors through demat account can invest in ‘Treasury Bills’ and ‘Government of India Debt Bonds’ in primary market. 2. The ‘Negotiated Dealing System-Order Matching’ is a government securities trading platform of the Reserve Bank of India. 3. The ‘Central Depository Services Ltd.’ is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange. Which of the statements given above is/are correct? (a) 1 only       (b) 1 and 2 only        (c) 3 only              (d) 2 and 3 only   6. Consider the following statements (UPSC 2021) 1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government. 2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in public interest. 3. The Governor of the RBI draws his power from the RBI Act. Which of the above statements are correct? (a) 1 and 2 only    (b) 2 and 3 only   (c) 1 and 3 only           (d) 1, 2 and 3 Answers: 1-C, 2-B 3-A, 4-A, 5-B, 6-C

 

Source: The Indian Express