Economic Development: October 2022 Current Affairs | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Indian Currency Design Mechanism

Context

• Recently, the head of a political party asked the central government to put pictures of Goddess Lakshmi and Lord Ganesh on currency notes in order to bring “prosperity” to the country.

Who is involved in the Design and Issuance of Indian Bank Notes and Coins?
About:

• The Reserve Bank of India (RBI) and the Central Government decide the changes in the design and form of bank notes and coins.
• Any change in design of a currency note has to be approved by the RBI’s Central Board and the central government.
• Changes in the design of coins are the prerogative of the central government.

Role of RBI in Issuing Notes:

• Section 22 of The Reserve Bank of India Act, 1934, gives RBI the “sole right” to issue banknotes in India.
• The central bank internally works out a design, which is put before the RBI’s Central Board.
• Section 25 states that “the design, form, and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the RBI’s Central Board”.
• The RBI’s Department of Currency Management, currently headed by Deputy Governor, has the responsibility of administering the core function of currency management.
• If the design of a currency note has to change, the Department works on the design and submits it to RBI, which recommends it to the central government. The government gives the final approval.

Role of Central Government in minting of coins:

• The Coinage Act, 2011 gives the central government the power to design and mint coins in various denominations.
• The role of the RBI is limited to the distribution of coins that are supplied by the central government.
• The government decides on the quantity of coins to be minted on the basis of indents received from the RBI on a yearly basis.
• Coins are minted in four mints owned by the Government of India in Mumbai, Hyderabad, Kolkata and Noida.

What is RBI’s Currency Management System?

• RBI, in consultation with the central Government and other stakeholders, estimates the quantity of banknotes that are likely to be needed denomination-wise in a year, and places indents with the various currency printing presses for their supply.
• Two of India’s currency note printing presses (Nasik and Dewas) are owned by the Government of India; two others (Mysore and Salboni) are owned by the RBI through its wholly owned subsidiary, Bharatiya Reserve Bank Note Mudran Ltd (BRBNML).
• Notes that are received back from circulation are examined, after which those fit for circulation are reissued, while the soiled and mutilated notes are destroyed.

What are the Types of Notes Issued so far?

• Ashoka Pillar Banknotes: The first banknote issued in independent India was the Re 1 note issued in 1949. While retaining the existing design, the new banknotes replaced the portrait of King George with the symbol of the Lion Capital of the Ashoka Pillar at Sarnath in the watermark window.
• Mahatma Gandhi (MG) Series, 1996: All the banknotes of this series bear the portrait of Mahatma Gandhi on the obverse (front) side, in place of the symbol of Lion Capital of Ashoka Pillar, which was moved to the left, next to the watermark window. These banknotes contain both the Mahatma Gandhi watermark as well as Mahatma Gandhi’s portrait.
• Mahatma Gandhi Series, 2005: The “MG series 2005” notes were issued in denominations of Rs 10, Rs 20, Rs 50, Rs 100, Rs 500, and Rs 1,000. They contain some additional/ new security features as compared to the 1996 MG series. The Rs 500 and Rs 1,000 notes of this series were withdrawn w.e.f. the midnight of November 8, 2016.
• Mahatma Gandhi (New) Series, 2016: The “MGNS” notes highlight the cultural heritage and scientific achievements of the country. Being of reduced dimensions, these notes are more wallet friendly, and are expected to incur less wear and tear. The colour scheme is sharp and vivid.

Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)

Context

Recently, the PM of India released the 11th instalment of Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme.

More In News 

• He was speaking at a “Garib Kalyan Sammelan” at Shimla’s Ridge Maidan, where he interacted with a group of beneficiaries of Central schemes from across the country
• Government released Rs 21,000 crore in bank accounts under the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme to 10 crore families. Each beneficiary would get ?2000 each in this instalment.

Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme
About: 

• PM Kisan is a Central Sector scheme with 100% funding from Government of India.
• It has become operational from 1.12.2018.
• Under the scheme an income support of 6,000/- per year in three equal instalments will be provided to all land holding farmer families.
• Definition of family for the scheme is husband, wife and minor children.
• State Government and UT administration will identify the farmer families which are eligible for support as per scheme guidelines.
• The fund will be directly transferred to the bank accounts of the beneficiaries.

Purpose:

• The scheme is meant to provide income support to all landholding farmer's families across the country and enable them to meet expenses related to agriculture as well as domestic needs.

Changes with time:

• The Scheme initially provided income support to all Small and Marginal Farmers’ families having cultivable land up to two hectares, but later it was expanded to cover all farmer families irrespective of the size of their landholdings. 
• So far, over 1.80 lakh crore rupees have been transferred directly into the bank accounts of the farmer families under the PM -KISAN Scheme.
• This is the first time that farmers in West Bengal will also receive the cash transfer as the State government has not joined PM-KISAN yet.  

There are various Exclusion Categories for the scheme:

• All Institutional Land holders.
  • Farmer families which belong to one or more of the following categories:.
  • Former and present holders of constitutional posts
  • Former and present Ministers/ State Ministers and former/present Members of LokSabha/ RajyaSabha/ State Legislative Assemblies/ State Legislative Councils,former and present Mayors of Municipal Corporations, former and present Chairpersons of District Panchayats.
  • All serving or retired officers and employees of Central/ State Government Ministries /Offices/Departments and its field units Central or State PSEs and Attached offices /Autonomous Institutions under Government as well as regular employees of the Local Bodies(Excluding Multi Tasking Staff /Class IV/Group D employees)
  • All superannuated/retired pensioners whose monthly pension is Rs.10,000/-or more(Excluding Multi Tasking Staff / Class IV/Group D employees) of above category
  • All Persons who paid Income Tax in last assessment year
  • Professionals like Doctors, Engineers, Lawyers, Chartered Accountants, and Architects registered with Professional bodies and carried out their profession by undertaking practices.

Significance

• Cash Benefits: 
  • Under the scheme, almost 1.75 lakh crore rupees have been given to 11 crore farmers.
  • In this scheme, Samman Rashi of over Rs. 1.15 lakh crores has been transferred to farmer families so far.
• Greater Coverage: 
  • The scheme covers all farmer families in the country irrespective of the size of their land holdings.
  • It enables farmers to take care of expenses related to agriculture and allied activities as well as domestic needs.
• Reforms: 
  • Many new systems were launched spanning from seed to market and a lot of reforms were brought in the old systems in the agriculture sector. 

Challenges

• Inadequate financial support: The impact of PM-KISAN can only be realised through financial support that provides farmers with adequate purchasing power to meet their daily basic necessities. Also, the cash transfer is not linked to the size of the farmer’s land.
• Not reaching all farmers: PM-KISAN is not pro-poor since recipients of the scheme seemed to be better off than the general rural population even before the lockdown. 
• Exclusion of Landless farmers: The scheme excludes even poor rural households that do not own land. 
• Implementation issues: PM-KISAN is an ambitious scheme that has the potential to deliver significant welfare outcomes but the top-down approach of the government ignores governance constraints.
• Structural issue: If the budgetary allocations shift decisively in favour of cash transfers, they will be a cause for great concern for other long-term budgetary commitments in agricultural markets and areas of infrastructure such as irrigation.

Way Ahead

• There is a strong case to include landless tenants and other poor families.
• An alternative bottom-up strategy and well-planned implementation mechanism would allow bottlenecks to be identified and rectified at the local level.

To Read More Information on Government Schemes, Click here 

75 New Digital Banking Units in India 

Context

The Finance Minister in her Budget announcement envisaged setting up 75 digital banking units in 75 districts of the country. 

Digital Banking Units

• History:
  • In India, digital banking started taking shape in the late 1990s with ICICI Bank being the first one to bring the service to their retail clients.
• Meaning:
  • It is a business unit or hub with some digital infrastructure that helps in delivering banking products and services, in a digital form, in self-service mode.
  • In simpler language, all the traditional bank work like depositing cheques, pay-in slips etc., will happen digitally in these units.
• Players:
  • Commercial banks (other than regional rural banks, payment banks and local area banks) with past digital banking experience are permitted to open DBUs in tier 1 to tier 6 centres.
  • They are not required to take permission from the Reserve Bank of India (RBI) in each case.
• Need:
  • This is being done to give a push to financial inclusion in the country.
  • It was announced in order to ensure that digital banking reaches every nook and corner of the country and increases the speed of payments.
• Services:
  • Helping in opening saving accounts to receive money under government schemes.
  • Helping the customers in making Fixed deposits (FDs) and Recurring Deposits (RDs) along with internet banking.
  • Providing digital kits for merchants as well as customers.
  • Providing UPI QR Code and Point of Sale (PoS) mechanism.
  • Supply of Debit and credit cards, allowing ATM transactions.
  • Helping customers with the application for MSME loans.
• Other functions:
  • Other services include making applications for and onboarding of customers for identified retail, MSME or schematic loans.
  • This may also include end-to-end digital processing of such loans, starting from online application to disbursal and identified government sponsored schemes that are covered under the national portal.
• Global Scenario:
  • Digital banks have been around since 2014-15 in markets such as Hong Kong, Singapore, Malaysia, China, the UK and the US.

Disadvantages of Digital Banking

• The limitations of DBU include low public awareness and internet penetration in lower-tier cities.
• Digital banking forums are prone to vulnerabilities and hacks such as phishing, pharming, identity theft, and keylogging.
• Huge investment needed: Banking institutions are investing a lot in their security systems.

Significance of Digital Banking

• The flow of credit will improve in the rural areas.
• Poor will get easier access to money and loans.
• The establishment of these units will be cheaper than the conventional brick and mortar units.
• They will provide better technical support to customers.
• Digital Units will decrease the manpower requirement.
• For the scheduled banks, they will ensure steady profits.
• DBUs will help the government enhance digital literacy.

To Read More Information on Banking, Click here

RTI Exemption for Banks 

Context

Recently, the Supreme agreed to examine a plea by various Banks for the exemption from RTI (Right to Information).

• Various Public and Private Sector banks want to be exempted from disclosing an array of financial information relating to Non-Performing Assets (NPAs), losses from trading operations, show-cause notices, and penalties.

What is the Issue?

• The legal battle for the disclosure of inspection reports and defaulters list started when RTI activist Jayantilal Mistry sought information under RTI Act, 2005 from the RBI about a Gujarat-based cooperative bank in 2010. The matter went up to the SC as Mistry’s appeals were not entertained by several layers of the RTI process.
• In 2015, the Supreme Court had come down on the RBI for trying to keep the inspection reports and defaulters list confidential, paving the way for the public disclosure of such reports of the RBI, much against the wishes of the banking sector.
• The SC had said the RBI has no legal duty to maximize the benefit of any public sector or private sector bank, and thus there is no relationship of ‘trust’ between them. It added that the RBI was duty-bound to uphold the public interest by revealing these details under RTI.
• The central bank then allowed making such reports public following the Supreme Court order.
• Now the SC says, the 2015 judgment did not take into consideration the aspect of balancing the right to information and the right to privacy, and thus, the court is duty-bound to give banks an opportunity to argue their case on merits.

What is the Argument Provided by Banks?

• As banks are involved in dealing in money, they fear any adverse remarks — especially from the regulator RBI — will affect their performance and keep customers away.
• Banks are driven by the “trust and faith” of their clients that should not be made public.
• Banks also argued that privacy is a fundamental right, and therefore, should not be violated by making clients’ information public.

What is the RTI Act, 2005?

About:

• Right to Information Act or RTI is a central legislation, which enables the citizens to procure information from a public authority.
• It provides the mechanism for obtaining information under the control of public authority so that transparency and accountability can be increased.
• Sec 8 of the RTI ACT: Sec 8 deals with exemption from disclosure of information.
• Information which would prejudicially affect the sovereignty and integrity of India
• Information which has been expressly forbidden to be published by any court of law
• Information, the disclosure of which would cause a breach of privilege of Parliament or the State Legislature.
• Information including commercial confidence, trade secrets or intellectual property, the disclosure of which would harm the competitive position of a third party, unless the competent authority is satisfied that larger public interest warrants the disclosure of such information
• Information available to a person in his fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information.

Organic Fertilisers

Context:  With the right policy interventions, India can become the hub of organic fertiliser production

What are organic fertilisers?

• Organic fertilisers are derived from animal products and plant residues containing sufficient
• Organic fertiliser can be categorised into two segments, according to government rules:
• Bio-fertilisers are composed of living microorganisms attached to solid or liquid carriers and are useful for cultivable land, as these microorganisms help in increasing the productivity of soil and/or crops.
• Organic manure refers to partially decomposed organic matter like digestate from a biogas plant, compost and vermicompost, which provides nutrients to the soil/crops and improves yield.
• The penetration of organic fertilisers is low: The proportion of organic fertilisers of the overall fertiliser consumption was only 0.34 per cent for 2019-20.
• With the promotion of biogas production, the government can reap the benefits of its bi-product — fertiliser.

Potentials of organic fertilisers in India:

• Utilisation of Solid waste: India produces more than 150,000 tonnes of municipal solid waste (MSW), (According to the National Solid Waste Association of India and the Central Pollution Control Board. )
  • Considering collection efficiency of 80 per cent and the organic part of MSW to be 50 per cent, the total organic waste generated per day in India comes to around 65,000 tonnes per day.
  • Even if half of this is diverted to the biogas industry, the government can leverage this by the reduction in import of fossils and fertilisers.
  • Using Biogas/gobar gas plants effluents: these plants not only produce biogas but also organic fertilisers are known as digestate.
    • Digestate can help realise the vision to have a second green revolution.
• Increase Soil fertility: Digestate can provide organic carbon to the continuously depleting soil, apart from its standard nutrition value.
  • In India at present, bio-fertiliser production is just over 110,000 tonnes and 34 million tonnes of organic manure, composed of farmyard manure, city compost and vermicompost, among others.

Why India needs to promote production of organic fertlisers?

• Popularity:The popularity of organic farming has grown in the domestic market in recent years.
• Market size: The market size for Indian organic packaged food is expected to grow at a rate of 17 per cent and cross Rs 871 million by 2021.
• Growing awareness: The significant rise of this sector is linked to growing awareness about the harmful effects of synthetic fertiliser on soil, rising health concerns, expanding urban population base and an increased consumer expenditure on food goods.
• SATAT Scheme: Bio-compressed natural gas (bio-CNG) and solid organic manure or digestate can be produced in large quantities under the SATAT programme, under which more than 5,000 projects have been started across the country by the industry.
• Since organic manure can be improved with the use of bio fertilisers to meet nutrient requirements, both biofertilizers and organic manure have the potential to eliminate the usage of synthetic fertilisers completely

To Read More Information on Organic Farming, Click here

Internationalisation of Rupee

Context: RBI dy governor T Rabi Sankar has marked upon the importance of the internationalization of the rupee, its advantages and associated risks.

Internationalization of rupee

• It is the process that involves increased use of the rupee in cross-border transactions.
• Currently, while the dollar accounts for 88% of international trade, Rupee accounts for less than 1.7% of global trade.
• India currently has full convertibility of the rupee in current accounts such as for exports and imports. However, India’s capital account convertibility is not full. There are ceilings on government and corporate debt, external commercial borrowings and equity

Need for Internationalization:

• Excessive dependence on dollars combined with global inflation and economic crises has led to the depreciation of the rupee to an all-time low. If the rupee is internationalized, India would not have to depend on US Dollars for its trade.
• RBI has allowed domestic traders to settle their import-export bills in rupee.

Advantages of Internationalization:

• Appreciate currency value: It will improve the demand for the rupee in international trade.
• Mitigate exchange rate volatility: Rupee-denominated payments can help reduce price volatility associated with dollars.
• Making significant savings in Indian foreign reserves.
• Circumvent sanctions: Improving acceptance and trade in rupees can help India to diversify its trade basket by circumventing restrictions and sanctions imposed by the west.
• Improve its standing as a global economic power

Associated risks

• Impact on monetary policy: The internationalization of the rupee will limit the country’s ability to create a monetary policy specific to its local economic demand.
• The Indian economy will become more susceptible to international economic fluctuations.
• Managed currency has been utilized to protect the economy from damages during the economic crises of 1980 and 2008. It may not be the case anymore.
• The outflow of Hot money: Complete internationalization of currency will expand the risk of hot currency (highly prone to sudden outflows) to capital assets.
• g., east Asian crisis in 1997.

 Steps needed for internationalization of the rupee

• India needs to open its currency to complete capital account convertibility.
• Frame policies cautiously and test them in the Regulatory sandbox environmen
• Bilateral and multilateral trade agreements can be used to test the viability of internationalized rupee e.g. using the Vostro account for Rupee trade with Russia and Iran.
• Improvements in financial fundamentals and steps to improve sovereign credit ratings.

 Conclusion

• Internationalization of the rupee though with associated risks is inevitable if India is to emerge as a global economic power in a multipolar world.

Liquidity Adjustment Facility

Context

The Reserve Bank of India (RBI) injected Rs 72,860.7 crore of liquidity into the banking system in October 2022, the highest since April 2019 after liquidity condition tightened on higher demand for credit during the festival season.

• It is the central bank’s intervention in the foreign exchange market to curb volatility in the rupee.

What is Liquidity?

• Liquidity in the banking system refers to readily available cash that banks need to meet short-term business and financial needs.
• On a given day, if the banking system is a net borrower from the RBI under Liquidity Adjustment Facility (LAF), the system liquidity is said to be in deficit. If the banking system is a net lender to the RBI, the liquidity is said to be in surplus.

What is Liquidity Adjustment Facility (LAF)?

• It is a monetary policy tool used largely by the Reserve Bank of India (RBI) that controls the liquidity or money supply in the economy.
• It does it by either allowing banks to borrow money via repurchase agreements (repos) or lend loans to the RBI via reverse repo agreements.
• Liquidity Adjustment Facility was recommended by the Narasimhan Committee on Banking Reforms and was introduced by the RBI in 1998.
• There are two main components of Liquidity Adjustment Facility (LAF):
  • Repo Rate: It is the rate at which the Reserve Bank of India (RBI) lends to other banks.
  • Reverse Repo Rate: It is the rate at which the Reserve Bank of India (RBI) borrows from commercial banks.

Objectives of Liquidity Adjustment Facility

• It reduces liquidity demands and ensures financial market stability.
• It allows banks to use repurchase agreements, or repos, to overcome temporary cash shortages.

Liquidity Adjustment Facility - Example

Case 1

• Assume a bank is experiencing a short-term cash shortage as a result of the Indian economy's recession.
• The bank would use the RBI's liquidity adjustment facility by entering into a repo agreement with the RBI and selling government securities in exchange for a loan with an agreement to repurchase those securities.
• Assume the bank requires a one-day loan of ₹ 50,000,000 and enters into a repo agreement at 6.25 percent.
• The interest payable by the bank on the loan is ₹8,561.64 (50,000,000 x 6.25 % / 365).

Case 2

• Assume the economy is expanding and a bank has extra cash on hand.
• In this case, the bank would enter into a reverse repo agreement with the RBI by making a loan in exchange for government securities and agreeing to repurchase those securities.
• For example, suppose a bank has ₹25,000,000 available to lend to the RBI and decides to enter into a one-day reverse repo agreement at 6%.
• The RBI would pay the bank ₹4109.59 in interest (25,000,000 x 6 % / 365).

Conclusion

Liquidity Adjustment Facility is a monetary policy tool along with the Cash Reserve Ratio, Statutory Liquidity Ratio and Open Market Operation to control liquidity in the economy. The RBI uses these tools based on different circumstances in the economy.