Weekly Current Affairs (8th to 14th July 2023) Part - 1 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Internationalisation of Indian Rupee

Context: A Reserve Bank of India-appointed working group recommended inclusion of the rupee in the Special Drawing Rights (SDR) basket and recalibration of the foreign portfolio investor (FPI) regime to accelerate the pace of internationalisation of the rupee.

What is Internationalisation of Rupees?

About:

• Internationalisation of rupees is a process that involves increasing use of the local currency in cross-border transactions.
• It involves promoting the rupee for import and export trade and then other current account transactions followed by its use in capital account transactions.

Historical Context:

• In the 1950s, the Indian rupee was widely used as legal tender in the United Arab Emirates, Kuwait, Bahrain, Oman, and Qatar.
• However, the devaluation of India’s currency by 1966 led to the introduction of sovereign currencies in these countries to reduce reliance on the Indian rupee.

Benefits of Internationalisation of Rupee:

• Appreciate Currency Value: It will improve the demand for the rupee in international trade.
  • This can lead to increased convenience and reduced transaction costs for businesses and individuals dealing with India.
• Reduced Exchange Rate Volatility: When a currency is internationalized, its exchange rate tends to stabilize.
  • The increased demand for the currency in global markets can help reduce volatility, making it more predictable and reliable for international transactions.
• Geopolitical Advantages: Internationalizing the Rupee can enhance India's geopolitical influence.
  • It can strengthen economic ties with other countries, facilitate bilateral trade agreements, and promote diplomatic relations.

Challenges:

Limited International Demand:

• The daily average share for the rupee in the global forex market is only around 1.6%, while India’s share of global goods trade is ~2%.

Convertibility Concern:

• The INR is not fully convertible, meaning there are restrictions on its convertibility for certain purposes such as capital transactions. This restricts its widespread use in international trade and finance.

Demonetization Impact:

• The demonetization exercise in 2016, along with the recent withdrawal of the ₹2,000 note, has affected confidence in the rupee, particularly in neighboring countries like Bhutan and Nepal.

Challenges in Trade Settlement:

• While efforts have been made to trade with around 18 countries in rupees, transactions have remained limited.
• Also, negotiations with Russia to settle trade in rupees have been slow, hampered by currency depreciation concerns and inadequate awareness among traders.

Steps Towards Internationalization:

• In March 2023, the RBI put in place the mechanism for rupee trade settlement with as many as 18 countries.
• Banks from these countries have been allowed to open Special Vostro Rupee Accounts (SVRAs) for settling payments in Indian Rupees.
• In July 2022, the RBI issued a circular on “International Trade Settlement in Indian Rupees”.
• RBI enabled external commercial borrowings in Rupees (especially Masala Bonds)

What can be Done to Pace-up Internationalization of Rupee?

• Full Convertibility and Trade Settlement: The Rupee should aim for full Convertibility, allowing free movement of financial investments between India and other countries.
  • Encouraging Indian exporters and importers to invoice transactions in rupees would optimize trade settlement formalities.
• Liquid Bond Market: RBI should focus on developing a more liquid rupee bond market, providing investment options for foreign investors and trade partners.
  • Also, there is a need to recalibrate the foreign portfolio investor (FPI) regime in order to enhance the speed at which the rupee is internationalized.
• Expansion of RTGS system: The Real-Time Gross Settlement (RTGS) system should be expanded to settle international transactions.
  • Also, providing tax incentives to foreign businesses utilizing the rupee in India would promote its use.
• Currency Swap Agreements: Increasing currency swap agreements, as seen with Sri Lanka, would facilitate trade and investment transactions in rupees.
  • Consistent and predictable currency issuance and retrieval, along with a stable exchange rate regime, are essential for maintaining confidence.
• Inclusion in the SDR basket: Rupee should be pitched to get included in Special Drawing Rights (SDR), which is an international reserve asset created by the International Monetary Fund (IMF) based on a basket of major currencies.
  • Also, Indian Government Bonds (IGBs) can be included in global indices, attracting foreign investments into Indian debt markets.
• Lessons from China's Experience: China's approach to internationalizing the Renminbi provides valuable insights for India:
• Phased Approach: China gradually enabled the use of the Renminbi for current account transactions and select investment transactions before progressing towards its use as a reserve currency.
• Offshore Markets: The establishment of offshore markets, such as the Dim Sum bond and offshore RMBD bond market, facilitated the internationalization process.

Note:

• Foreign Portfolio Investment (FPI): It consists of securities and other financial assets passively held by foreign investors.
  • It is part of a country’s capital account and is shown on its BOP.
  • It does not provide the investor with direct ownership of financial assets.
  • FPI is more liquid, volatile and therefore riskier than FDI.
  • It is often referred to as “hot money”.
  • Examples - Stocks, bonds, mutual funds, exchange traded funds.

Special Drawing Rights:

• SDR serves as the unit of account of the IMF, but it is neither a currency nor a claim on the IMF.
• The SDR basket of currencies includes the US dollar, Euro, Japanese yen, pound sterling and the Chinese renminbi (included in 2016).

Conclusion

The Tarapore Committee's recommendations (in 1997 and 2006), including reducing fiscal deficits, inflation rates, and banking non-performing assets, should be pursued as a primary step towards internationalisation of rupee. Also, advocating for the rupee to become an official currency in international organizations would raise its profile and acceptance.

Gramodyog Vikas Yojana and Village Industries

Context: Recently, the Lieutenant Governor of Delhi distributed Honeybee-Boxes and Toolkits to 130 recipients as part of the Gramodyog Vikas Yojana (GVY) program.

• The initiative was organised by the Khadi and Village Industries Commission (KVIC).

What is Gramodyog Vikas Yojana (GVY)?

About:

• It was launched in March 2020.
• It is one of the two components of the Khadi Gramodyog Vikas Yojana which is a Central Sector Scheme (CSS).
• The other component of Khadi Gramodyog Vikas Yojana is the Khadi Vikas Yojana (KVY) which includes two new components such as Rozgar Yukt Gaon, Design House (DH)

Aim:

• GVY aims to promote and develop the village industries through common facilities, technological modernization, training etc.

Included Activities:

• Agro-Based & Food Processing Industry (ABFPI)
• Mineral-Based Industry (MBI)
• Wellness & Cosmetics Industry (WCI)
• Handmade Paper, Leather & Plastic Industry (HPLPI)
• Rural Engineering & New Technology Industry (RENTI)
• Service Industry

Components:

• R &D and Product Innovation: R&D support is given to institutions that intend to carry out product development, new innovations, design development, product diversification processes etc.
• Capacity Building: The existing MDTCs (Master Development Training Centers) and institutions of excellence address the capacity building of staff and artisans as part of the Human Resource Development and Skill Training components.
• Marketing & Publicity: The village institutions provide market support by way of preparation of a product catalogue, industry directory, market research, new marketing techniques, buyer-seller meetings, arranging exhibitions etc.

What is KVIC?

• KVIC is a statutory body established under the Khadi and Village Industries Commission Act, 1956.
• The KVIC is charged with the planning, promotion, organisation and implementation of programmes for the development of Khadi and other village industries in the rural areas in coordination with other agencies engaged in rural development wherever necessary.
• It functions under the Ministry of MSMEs.

What is the Significance of Village Industries in Indian Economy?

• Employment Generation: Village industries are labor-intensive, providing ample employment opportunities in rural areas. They contribute to reducing unemployment and underemployment, particularly among the rural population.
  • These industries absorb a substantial workforce, including skilled, semi-skilled, and unskilled workers.
• Rural Development: Village industries contribute to the overall development of rural areas. By establishing small-scale enterprises in villages, they help in creating local economic activities, reducing migration to urban areas, and preventing the concentration of population in cities.
• Poverty Alleviation: Village industries contribute to poverty alleviation by generating income for rural communities. They provide livelihood options for people who have limited access to formal employment opportunities, particularly in agriculture.
  • By promoting entrepreneurship and self-employment, these industries empower individuals to improve their socio-economic conditions.
• Utilisation of Local Resources: Village industries typically utilize local resources and raw materials available in rural areas. This helps in promoting sustainable development and reducing dependence on external resources.
  • It encourages the utilisation of locally available skills, traditional knowledge, and natural materials, thus preserving local heritage and culture.
• Export Potential: Many village industries produce traditional crafts, handlooms, handicrafts, and other unique products that have high demand in domestic as well as international markets.
  • The export of these products generates foreign exchange earnings and enhances the country's global trade competitiveness.

What are the Other Initiatives for Development of Village Industries?

• Deen Dayal Upadhayay Grameen Kaushalya Yojana
• Pradhan Mantri Kaushal Vikas Yojana
• National Rural Livelihood Mission

PCA Asserts Competence in India-Pakistan Hydroelectric Projects Dispute

Context: The Hague-based Permanent Court of Arbitration (PCA) recently ruled that it has the competence to hear Pakistan's objections to India's Kishenganga and Ratle hydroelectric projects in Jammu and Kashmir.

• India, however, rejects the constitution of the "Court of Arbitration," asserting that it goes against the provisions of the Indus Waters Treaty(IWT).

What is Indus Waters Treaty?

About:

• The Indus Waters Treaty is a water-sharing agreement between India and Pakistan.
• The treaty was brokered by the World Bank and signed on September 19, 1960.
• It governs the distribution and utilization of the waters of the Indus River system, which includes six rivers: Indus, Jhelum, Chenab, Ravi, Beas, and Sutlej.
• The treaty aims to promote cooperation and peaceful management of transboundary water resources between India and Pakistan.

Allocation of Rivers:

• Under the treaty, three eastern rivers (Ravi, Beas, and Sutlej) are allocated to India for unrestricted use.
• The three western rivers (Indus, Jhelum, and Chenab) are allocated to Pakistan for unrestricted use.
• India is allowed limited use of the western rivers for domestic, non-consumptive, and agricultural purposes.

Key Provisions:

Construction of Projects:

• The treaty permits India to construct run-of-the-river hydroelectric projects on the western rivers, subject to certain conditions.

Dispute Resolution:

Communication via Permanent Indus Commission (PIC):

• PIC has a commissioner from each country.
• Parties inform each other about planned projects on the Indus River.
• PIC facilitates the exchange of necessary information.
• Aimed at resolving differences and avoiding escalation.

Neutral Expert:

• If the PIC fails to resolve the issue, it advances to the next level.
• The World Bank appoints a neutral expert.
• Expert attempts to resolve differences.

Court of Arbitration (CoA):

• If a neutral expert fails, the dispute goes to CoA.
• CoA resolves the dispute through arbitration.
• The IWT states that Neutral Expert and CoA steps are mutually exclusive, meaning that only one of them can be used at a time for a given dispute.

What is the Hydroelectric Project Dispute Between India and Pakistan?

Hydroelectric Projects:

• The case involves a dispute between India and Pakistan over the Kishenganga hydroelectric project (on the Kishanganga River, a tributary of the Jhelum River), and the Ratle hydroelectric project (on the Chenab River) in Jammu and Kashmir.
• The two countries disagree over whether the technical design features of these two hydroelectric plants contravene the IWT.

Pakistan's Objections:

• Pakistan objects to the hydroelectric projects, citing violations of the IWT, concerns about reduced water flow, environmental impact, and differing treaty interpretations.
• In 2016, Pakistan retracted its request for a Neutral Expert and proposed a CoA instead.
• India requested the appointment of a Neutral Expert in 2016, emphasizing its importance in the process, which Pakistan sought to bypass.

World Bank Intervention:

• World Bank paused the process due to separate requests from India and Pakistan, urging resolution through the PIC.
• Pakistan refused to discuss the issue during PIC meetings, leading the World Bank to initiate actions on Neutral Expert and Court of Arbitration.
• The Treaty does not empower the World Bank to decide whether one procedure should take precedence over the other.
• The World Bank sought to fulfill its procedural obligations with respect to both the CoA and the Neutral Expert.

India's Opposition:

• India opposes the constitution of the CoA, citing contravention of Indus Waters Treaty provisions.
• India also questioned the jurisdiction and competence of the CoA, stating that it was not properly constituted as per the treaty.
• India has not appointed arbitrators or attended the court's proceedings, emphasizing the need for a single dispute resolution process.

What is the Ruling of the Permanent Court of Arbitration?

Ruling:

• The PCA ruled that the Court of Arbitration (CoA) has the competence to consider Pakistan's objections to India's hydroelectric projects in Jammu and Kashmir.
• The ruling was based on a unanimous decision, binding on both parties and without any possibility of appeal.
• The PCA rejected India's objections to the competence of the CoA, as raised through its communications with the World Bank.

India's Response:

• India has been maintaining that it will not join the Pakistan-initiated proceedings at the PCA as the dispute is being already examined by a neutral expert under the framework of the IWT.

Implications:

• The PCA's ruling adds complexity and uncertainty to the ongoing dispute between India and Pakistan regarding the hydroelectric projects.
• The ruling challenges India's position and raises questions about the effectiveness and interpretation of the IWT.
• The implications of the ruling extend beyond the specific dispute, potentially impacting bilateral relations between India and Pakistan, particularly concerning water-sharing and cooperation.

What is Permanent Court of Arbitration?

• It was established in 1899 and is headquartered in The Hague, Netherlands.
• Purpose: It is an intergovernmental organization dedicated to serve the international community in the field of dispute resolution and to facilitate arbitration and other forms of dispute resolution between States.
• It has a three-part organizational structure consisting of:
  • Administrative Council - to oversee its policies and budgets,
  • Members of the Court - a panel of independent potential arbitrators, and
  • International Bureau - its Secretariat, headed by the Secretary-General.
• Funds: It has a Financial Assistance Fund which aims at helping developing countries meet part of the costs involved in international arbitration or other means of dispute settlement offered by the PCA.

Performance Grading Index for Districts and PGI 2.0

Context: Recently, the Ministry of Education (MoE), Government of India has released the Performance Grading Index for Districts (PGI-D) combined report for 2020-21 & 2021-22, assessing the performance of the school education system at the District level.

• The MoE has also released a report on Performance Grading Index (PGI) 2.0 for States/UTs for the year 2021-22.

What is the Performance Grading Index for Districts (PGI-D)?

About:

• PGI-D assesses the performance of the school education system at the district level by creating an index for comprehensive analysis.
• The PGI-D assessed district-level performance in school education based on the data collected from various sources, including Unified District Information System for Education Plus (UDISE +), National Achievement Survey (NAS), 2017 and data provided by respective districts.
• Since 2017-18, MoE has released five annual reports that provide insights on status of school education in States and UTs.

Grades:

• The report has 10 grades under which districts are categorized,
• Daksh: Highest grade (above 90%)
• Utkarsh: 81%-90%
• Ati-Uttam: 71%-80%
• Uttam: 61%-70%
• Prachesta-1: 51%-60%
• Prachesta-2: 41%-50%
• Prachesta-3: 31%-40%
• Akanshi-1: 21% to 30%
• Akanshi-2: 11% to 20%
• Akanshi-3: Lowest (less than 10%)

Indicators:

• The PGI-D structure comprises total weight age of 600 points across 83 indicators, which are grouped under 6 categories viz., Outcomes, Effective Classroom Transaction, Infrastructure Facilities & Student’s Entitlements, School Safety & Child Protection, Digital Learning and Governance Process.

Significance:

• The PGI-D report is expected to assist state education departments in identifying gaps at the district level and improving performance in a decentralized manner.
• By prioritizing areas for intervention, districts can work towards reaching the highest grade and enhancing overall education quality.

What are the Key Highlights of the Report?

Impact of the Pandemic on District Performance:

• None of the districts were able to achieve the top two grades (Daksh and Utkarsh).
• The number of districts categorized as Ati-Uttam decreased significantly from 121 in 2020-21 to 51 in 2021-22, indicating the impact of the pandemic on educational performance.
• Several districts across different states were categorized as Ati-Uttam in both 2020-21 and 2021-22, including Krishna and Guntur in Andhra Pradesh, Chandigarh, Dadra Nagar Haveli, districts in Delhi, Karnataka, Kerala, Odisha etc.

Changes in Grades:

• In 2021-22, the number of districts categorized as Prachesta-2 (sixth-highest grade) increased from 86 in 2020-21 to 117.
• It suggests that more districts faced challenges in maintaining their performance due to the disruptions caused by the pandemic.

What is PGI 2.O?

• About PGI: The PGI is a comprehensive assessment tool devised by the MoE for evaluating the performance of the school education system at the State/UT level.
• It assesses the performance based on various indicators and creates an index for comprehensive analysis.
• The PGI was first released for the year 2017-18 and has been updated up to the year 2020-21.
• Revised Structure: The PGI was revised for the year 2021-22 and renamed as PGI 2.0. The new structure includes 73 indicators grouped into two categories:
• Outcomes and Governance Management (GM). Emphasis is given to qualitative assessment, digital initiatives, and teacher education.

Categories and Domains: The PGI 2.0 is divided into six domains:

• Learning Outcomes (LO), Access (A), Infrastructure and Facilities (IF), Equity (E), Governance Process (GP), and Teachers’ Education and Training (TE&T). These domains cover various aspects of the education system.
• Grading System: States and Union Territories are assigned grades based on their points scored across the indicators.
• The grades range from Daksh (941-1000) as the highest to Akanshi-3 (401-460) as the lowest.

Findings:

• None of the States/UTs achieved the top grades in the latest edition.
• Only two states/UTs, namely Punjab and Chandigarh have attained Grade Prachesta -2 (score 641-700).
• Andhra Pradesh has secured Grade 8 (Category: Akankshi-1) in PGI 2.0.
• Andhra Pradesh has made significant progress in its grades over the years, starting from no grade in 2017-18 to attaining Level II with a score of 901.