Weekly Current Affairs (22nd to 31st October 2024) Part - 2 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

GS3/Economy

Microfinance Institutions

Why in News?

• Recently, the Financial Services Secretary highlighted the vital role of microfinance institutions (MFIs) in promoting financial inclusion. However, he stressed the importance of avoiding reckless lending practices that could undermine this role.

What are Microfinance Institutions?

• About: Microfinance institutions (MFIs) are specialized financial organizations that provide small loans and various financial services to individuals lacking access to traditional banking. Their primary aim is to empower low-income and unemployed individuals to achieve self-sufficiency.
• Impact: MFIs serve as a significant means for enhancing financial inclusion, particularly for marginalized and low-income groups, with a focus on empowering women and fostering social equity.

Regulatory Framework:

• The Reserve Bank of India (RBI) oversees MFIs under the Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI) framework established in 2014. This framework encompasses client protection, borrower safeguards, privacy, and fair credit pricing.

Status of MFIs:

• India's microfinance sector has expanded considerably, with 168 MFIs operating across 29 states, 4 union territories, and 563 districts.
• These institutions serve over 30 million clients, showcasing their extensive reach and impact.

Business Models Under Microfinance:

• Self-Help Groups (SHGs): These are informal collectives of 10-20 members, primarily women, who save together to access bank loans through the SHG-Bank Linkage Programme.
• MFIs offer microcredit and additional services such as savings accounts, insurance, and remittances.
• Loans are commonly provided through Joint Lending Groups (JLGs), which consist of 4-10 individuals engaged in similar economic activities who collectively repay their loans.

What are Challenges for Microfinance Institutions (MFIs)?

• Regulatory Action: The RBI has prohibited certain MFIs from issuing loans due to exorbitant interest rates, which impacts their operational capacity and growth potential. MFIs are urged to reassess their lending practices and focus on affordability.
• Low Financial Literacy: A significant number of borrowers lack the necessary financial knowledge to comprehend loan terms, which escalates the risk of defaults and perpetuates cycles of poverty.
• Over-Indebtedness of Borrowers: Many borrowers take loans from multiple MFIs, resulting in unsustainable debt levels. As of March 2024, over 12% of microfinance clients had four or more active loans, with this figure reaching 18% in some states, raising concerns about defaults and reputational damage to MFIs.
• Dependency on External Funding: MFIs often rely on external funding from banks and investors, making them vulnerable during economic downturns.

Way Forward

• MFIs should prioritize responsible lending practices to avoid excessive debt and carefully evaluate borrowers' repayment capabilities to minimize the risk of over-indebtedness.
• Enhancing financial literacy among borrowers is essential to empower them to make informed decisions, which in turn can reduce default risks.
• Implementing the Malegam Committee (2010) recommendations, such as capping interest rates, creating a distinct category for NBFC-MFIs, tracking multiple loans to avert over-indebtedness, and increasing transparency.
• Establishing grievance redressal mechanisms and formulating ethical lending codes can further strengthen the sector.
• Strict adherence to regulatory frameworks set by the RBI will enhance trust and improve the sector's reputation.
• Diversifying funding sources can alleviate reliance on external capital, while robust support systems, including advisory services, can help borrowers manage their loans effectively.

Mains Question

Q. What are the challenges faced by microfinance institutions in India, and how can these be addressed?

GS2/Governance

SC Allows States to Regulate Industrial Alcohol

Why in News?

• Recently, the Supreme Court's nine-judge Constitution bench ruled with an 8:1 majority that states have the jurisdiction to regulate industrial alcohol. This decision reverses a previous ruling from 1990 (Synthetics & Chemicals Ltd v. State of Uttar Pradesh Case, 1989) that favored central government control over industrial alcohol.

What is the Constitutional Bench of the Supreme Court?

• The Constitution Bench is constituted of five or more judges specifically for certain legal issues.
• These benches are formed under special circumstances and are not a common occurrence.
• According to Article 145(3), a minimum of five judges is required to decide cases involving significant constitutional questions or references under Article 143.
• When conflicting judgments arise from different three-judge benches, a larger bench (Constitution Bench) is created to resolve these conflicts.

What has the SC Bench Ruled on Industrial Alcohol?

• Expanding the Definition: The majority bench has overruled the 1990 judgment in Synthetics & Chemicals vs State of Uttar Pradesh, which restricted the definition of "intoxicating liquor" to only potable alcohol, thus preventing states from taxing industrial alcohol.
• Majority Opinion: The bench clarified that the term "intoxicating" encompasses more than just alcoholic beverages or drinkable alcohol. It includes all types of alcohol that might adversely affect public health.
• The court emphasized that substances such as alcohol, opium, and drugs can be misused, and stated that Parliament cannot override state powers concerning intoxicating liquors, asserting that "intoxicating" can also refer to "poisonous," allowing for a broader classification.
• Dissenting Opinion: Justice B.V. Nagarathna disagreed with the majority's stance on regulating industrial alcohol, arguing that the potential for misuse does not justify extending Entry 8 – List II to include "industrial alcohol." He warned that permitting states to regulate industrial alcohol might lead to misinterpretations of the legislative intent regarding alcohol regulation.

What are the Other Similar Cases?

• Ch Tika Ramji v State of UP Case, 1956: The Supreme Court upheld Uttar Pradesh's legislation regulating the sugarcane industry, asserting states' authority to legislate even in the presence of central laws, thereby setting an important precedent for federal governance.
• Synthetics & Chemicals Ltd v. State of Uttar Pradesh Case, 1989: A seven-judge Constitution Bench ruled that states' powers under Entry 8 of the State List were limited to "intoxicating liquors," distinctly separate from industrial alcohol. The court stated only the Centre could impose levies or taxes on industrial alcohol, which is not meant for human consumption, neglecting its own previous ruling in Ch Tika Ramji.

What will be the Impact of this Ruling?

• Pending Litigations: This ruling will significantly affect ongoing litigations regarding protective taxes or special fees imposed by state governments, which had been stalled by previous judgments.
• State Regulatory Power: States now have the authority to regulate and tax industrial alcohol, likely leading to diverse tax regimes across different states.
• Revenue Generation: States can utilize this ruling to boost revenue, especially important after the implementation of GST, as they were previously limited in taxing industrial alcohol.
• Industry Perspective: Industry organizations view this ruling favorably as it clarifies regulatory control and taxation for the Indian Made Foreign Liquor (IMFL) sector, reducing uncertainty for manufacturers.
• Operational Costs: States may increase taxes on industrial alcohol, which could raise operational costs for industries that rely on it, potentially leading to price disparities.

Conclusion

The Supreme Court's recent decision empowers states to manage industrial alcohol regulation, enabling them to levy taxes and enhance local control over production and distribution. This ruling strengthens states' fiscal autonomy following GST, allows for stricter regulations to combat illegal consumption, and reinforces states' legislative rights in addressing local public health concerns.

Mains Question
Q. Discuss the implications of the Supreme Court's ruling on industrial alcohol regulation for state revenue generation and public health management in India.

[Question: 1813918]

GS3/Defence & Security

Cyberfraud Costs 0.7% of GDP

Why in News?

• Recently, the Indian Cyber Crime Coordination Centre (I4C), operating under the Union Ministry of Home Affairs (MHA), released significant projections concerning cyber frauds.

Financial Impact:

• It is estimated that Indians will lose over Rs 1.2 lakh crore to cyber fraud by 2025, which represents 0.7% of India’s GDP.
• From January to June 2024, financial fraud resulted in losses amounting to Rs 11,269 crore.

Contributors to Cyber Fraud:

• Daily, I4C identifies around 4,000 mule bank accounts.
• I4C has pinpointed 18 ATM hotspots in India where fraudulent withdrawals have occurred.
• A mule account is a bank account used for illegal activities, including money laundering and fraudulent transactions.

Origin of Scam:

• The government has discovered "scam compounds" in Southeast Asian nations like Cambodia, Myanmar, and Laos that are operated by cyber fraudsters.
• Many scams trace back to China or entities linked to China.

Modus Operandi:

• International scam compounds mimic call centers and have become hubs for investment scams.
• Fraudsters contact unsuspecting individuals in India, using various schemes such as lottery and prize scams to swindle money.

Illegal Activities:

• Cyber scams are also utilized for terror financing and money laundering.
• For example, between March and May 2024, Rs 5.5 crore worth of cryptocurrency was bought using Indian accounts and laundered abroad.
• Reported cash withdrawals using mule account debit cards occurred at ATMs in places like Dubai, Hong Kong, Bangkok, and Russia.

What is Cyberfraud?

About: Cyber fraud is a form of cyber crime aimed at stealing money or valuable assets from individuals or entities, primarily through internet-based methods.

Types of Cyberfraud:

Consequences of Cyber Fraud:

• For Individuals: Victims may face unauthorized credit card charges and loss of access to financial accounts, with personal data potentially used for harassment and blackmail.
• For Businesses: Companies that fail to safeguard client data risk heavy fines and legal repercussions, potentially diminishing their market value and affecting stock prices.
• For Government: Cyber breaches can compromise national defense and security information, posing significant threats to a nation's safety.

What is the Scenario of Cyber Fraud in India?

Overview: India has around 658 million internet users, making it the second-largest internet user population globally.

• As per "The ThreatLabz 2024 Phishing Report" by Zscaler, India ranks as the third-largest country for phishing attacks following the US and UK.
• Commitment to Cybersecurity: India achieved Tier 1 status in the Global Cybersecurity Index (GCI) 2024 by the International Telecommunication Union (ITU) with a score of 98.49 out of 100, positioning it among leading countries in cybersecurity practices.

Notable Cyberfraud Incidents:

• Aadhar Data Breach (2018): The personal data of 1.1 billion Aadhar cardholders was compromised, including sensitive details like Aadhar numbers, PAN, and bank information.
• Canara Bank ATM Attack (2018): Hackers employed skimming devices on 300 debit cards, resulting in a theft exceeding Rs 20 lakh.
• Pegasus Spyware: This spyware was utilized to gather data from devices without user consent, impacting over 300 verified Indian phone numbers.

What can be Done to Address Cyber Fraud?

Adopt Cybersecurity Best Practices:

• Utilize firewalls to serve as the initial defense for computers, monitoring and filtering network traffic to thwart unauthorized access.
• Regularly update all software and hardware to address security vulnerabilities.
• Exercise caution with unsolicited emails, texts, and phone calls, particularly those that try to persuade users to bypass security protocols.
• Create strong, unique passwords combining numbers, letters, and special characters for each account.
• Employ two-factor authentication for all employee accounts to enhance security.
• Implement encryption to safeguard sensitive business data, such as financial and customer information.

Role of Banks:

• Banks should monitor for unusually high-value transactions in low-balance or salaried accounts and notify authorities.
• Typically, stolen funds are temporarily held in these accounts before being converted to cryptocurrency and transferred abroad.

System Upgrades Needed:

• Banks should enhance their systems to detect multiple logins from the same IP address, especially if the IP originates from outside the country.

For Content Creators:

• Invest in creator insurance to protect against legal fees and potential financial losses arising from disputes or data breaches.

Mains Question:
Q. Examine the growing menace of cyber fraud in India and its financial impact on the economy.

GS2/Governance

Freebies Culture in India

Why in News?

• The topic of freebies in electoral campaigns remains a contentious issue within Indian politics. A recent survey across various urban areas in India shows diverse opinions regarding freebies, particularly as discussions on fiscal responsibility gain traction. The Prime Minister's condemnation of the so-called "revdi culture" in 2022 has sparked further debate about the ethical and sustainable nature of these election-driven handouts. Freebies, often seen as short-term incentives for voters, lack the enduring benefits associated with welfare policies that aim for long-term economic and social improvement.

What is the Difference between Freebies and Welfare Policies?

• The Reserve Bank of India characterized freebies in its 2022 report as "public welfare measures provided free of charge."
• Freebies generally provide immediate relief and include items such as free laptops, televisions, bicycles, electricity, and water, often utilized as electoral incentives.
• They are criticized for fostering dependency instead of promoting sustainable development.
• In contrast, welfare policies are broader initiatives aimed at uplifting specific populations by improving their living conditions and access to resources.
• Welfare measures align with the Directive Principles of State Policy (DPSPs), focusing on social justice and equity, aiming for positive societal impact and sustainable human development.
• Examples of welfare schemes include:
  • Public Distribution System (PDS)
  • Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)
  • Mid-Day Meal (MDM) programs

What are the Positive Aspects Related to Freebies?

• Uplifting the Lower Class: In less developed states with higher poverty, freebies can provide crucial support to impoverished communities.
• Foundation for Welfare Schemes: Many services provided by the government, including pre-election promises, fulfill constitutional obligations under the Directive Principles of State Policy.
• For instance, the Mid-Day Meal Scheme was first initiated in Tamil Nadu by Chief Minister K. Kamaraj in 1956 and became a national initiative a decade later.
• NT Rama Rao's Rs. 2/kg rice scheme in Andhra Pradesh laid the groundwork for the current National Food Security Program.
• Additionally, Telangana’s Rythu Bandhu and Odisha’s KALIA schemes became precursors to the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) for farmer support.
• Boosting Industries: States like Tamil Nadu and Bihar provide women with items such as sewing machines, saris, and bicycles, stimulating local industries and considered a productive investment.
• Enhanced Social Welfare: Freebies assist vulnerable populations by providing essential goods and services like food, healthcare, and education.
• Examples include bus passes for women, which can facilitate their entry into the workforce, promoting economic stability and empowerment.
• Increased Access to Education and Skill Development: By providing bicycles and laptops, governments enhance educational access, particularly in rural areas.
• An instance of this is the distribution of laptops to students in Uttar Pradesh, which can boost their productivity and skill set.
• A report by NITI Aayog indicated that distributing bicycles to schoolgirls in Bihar and West Bengal significantly decreased dropout rates and improved attendance and learning outcomes.
• Strengthening Political Engagement and Public Trust: Freebies can enhance political awareness and public trust by showing government accountability and responsiveness.
• A study by the Centre for Policy Research found that in states like Uttar Pradesh and Tamil Nadu, freebies increased public satisfaction with governance, raised political engagement, and boosted voter turnout.

What are the Negative Aspects Related to Freebies?

• Burden on Public Finances: The distribution of freebies places a significant strain on public finances, with costs ranging from 0.1% to 2.7% of gross state domestic product (GSDP) in various states. Some states, like Andhra Pradesh and Punjab, allocate over 10% of their revenue to subsidies.
• Against Free and Fair Election: The practice of offering irrational freebies from public funds can unduly sway voters, disrupting the election's integrity and fairness, akin to bribing the electorate.
• Distortion in Resource Allocation: Freebies can misallocate resources, diverting funds from productive sectors and hindering essential economic development and infrastructure projects.
• For example, some subsidies, like laptops in Uttar Pradesh, have been criticized for overshadowing urgent educational needs.
• Dependency Culture: Freebies may foster a culture of reliance, discouraging self-sufficiency and entrepreneurship, which are crucial for sustainable economic growth.
• Reduced Accountability: Political parties may exploit freebies to divert attention from systemic issues in public service delivery, diminishing accountability in governance.
• Environmental Impact: The provision of freebies can lead to the overuse of natural resources, such as water and electricity, undermining conservation efforts and increasing pollution levels. For instance, free electricity for farmers in Punjab has led to overexploitation of resources and declining service quality from power utilities.

What is the Ethical Perspective on Freebies?

• Government's Moral Responsibility: The government has an ethical duty to uplift marginalized sections of society through welfare measures, which can be perceived as fulfilling this obligation, especially in combating inequality.
• However, there is a thin line between genuine welfare and populism aimed solely at electoral gain.
• Accountability and Transparency: Governments must ensure that welfare schemes are transparent, targeted, and sustainable, avoiding the misuse of public funds for political benefits.
• Distortion of Incentives: Freebies can distort market dynamics, creating disincentives for work and productivity.
• Ethical governance should encourage self-sufficiency instead of dependency, motivating citizens to engage in productive economic activities.
• Citizens' Responsibility: While citizens may gain from freebies, there is an expectation for them to manage their finances wisely and pursue productive means to improve their situations.
• Dependency on government aid can impede personal and community growth.
• Equity and Justice: The allocation of freebies should be evaluated from an equity perspective, considering whether such measures favor specific groups over others and effectively address the root causes of poverty.
• Public Perception and Social Values: The culture of freebies can shape societal values, potentially fostering a mindset of entitlement rather than responsibility, raising concerns about the long-term effects on civic engagement and community welfare.

Way Forward

• Strengthening Democratic Institutions: There needs to be a focus on enhancing the autonomy of the Election Commission of India (ECI) to ensure effective oversight and regulation of freebies during elections.
• Enhancing Voter Awareness: Initiatives promoting voter education can empower citizens to make informed choices based on long-term development agendas rather than short-term incentives.
• Shifting Policy Focus: Encouraging political parties to prioritize sustainable, long-term policy planning can redirect public discourse towards meaningful developmental objectives instead of temporary benefits.
• Ensuring Transparent Governance: Emphasizing transparency and accountability in implementing welfare schemes can mitigate corruption and ensure that intended beneficiaries receive adequate support, thereby enhancing public trust in government programs.
• Strengthening Social Security Systems: Instead of an over-reliance on freebies, the government should enhance social security mechanisms, including quality healthcare, robust education systems, job creation, and comprehensive poverty alleviation programs to effectively address the underlying causes of socio-economic inequality.

Conclusion

The varying attitudes toward freebies among urban Indians highlight the conflict between electoral promises and fiscal responsibility. While voters seek a balance in welfare provisions, political parties must align their campaigns with sustainable economic goals. As India's democratic landscape evolves, the ongoing debate on freebies may significantly influence welfare and fiscal policies in upcoming state and national elections.

Mains Question:

Q. What are the ethical and governance implications of political parties using freebies as a means to gain electoral advantage?

[Question: 1813919]

GS3/Environment

Poleward Shift of Atmospheric Rivers

• A recent study reported that atmospheric rivers have shifted 6 to 10 degrees poleward over the past 40 years, influencing global weather patterns. This shift is increasing droughts in some regions while intensifying floods in others, with major implications for water resources and climate stability.

Why are Atmospheric Rivers Shifting Polewards?

• Sea Surface Temperature Changes: The poleward shift is largely due to cooling sea surface temperatures in the eastern tropical Pacific since 2000, linked to La Niña conditions. This results in prolonged droughts in subtropical regions and more extreme rainfall in higher latitudes.
• Walker Circulation: Strengthening Walker circulation over the western Pacific expands the tropical rainfall belt. This shift, along with changes in atmospheric eddy patterns, creates high-pressure anomalies that redirect atmospheric rivers (ARs) toward the poles.
• Long-term Climate Trends: According to IPCC, global temperatures have risen by approximately 1.1°C since the pre-industrial era. These warmer conditions have shifted jet stream patterns poleward, pushing ARs into higher latitudes and increasing the frequency of extreme weather events in those areas.

What are Implications of the Poleward Shift of Atmospheric Rivers?

• Water Resource Management: Regions like California and southern Brazil, which depend on ARs for essential rainfall, may face longer droughts and water shortages as ARs become less frequent. This could significantly stress agriculture and local communities.
• Increased Flooding and Landslides: Areas at higher latitudes, such as the US Pacific Northwest and parts of Europe, may experience more extreme rainfall and flooding due to the poleward movement of ARs, jeopardizing infrastructure and public safety.
• Arctic Climate Impact: The influx of ARs into the Arctic region could accelerate the melting of sea ice. Research indicates that atmospheric rivers account for 36% of the increase in summer moisture over the Arctic since 1979.
• Predictive Challenges: Variability in natural processes, such as the oscillation between El Niño and La Niña, complicates forecasts about the behavior of atmospheric rivers. Current climate models may underestimate these variabilities, leading to potential miscalculations in weather predictions and water availability.

What are Atmospheric Rivers?

About: Atmospheric rivers (ARs) are long, narrow bands of moisture that transport vast amounts of water vapor from tropical regions to mid-latitudes. An example is the "Pineapple Express," which delivers warm, humid air from the tropical Pacific near Hawaii to the west coast of North America, especially California.

Conditions Required for Formation of AR:

• Strong Low-Level Winds: These winds act as conduits for transporting water vapor, with jet streams in both hemispheres serving as high-speed channels, reaching speeds up to 442 km/h (275 mph).
• High Moisture Levels: Sufficient moisture is essential to initiate precipitation.
• Orographic Lift: When moist air masses rise over mountains, they cool, increasing humidity and leading to cloud formation and precipitation if conditions are right.

Categories:

• Category 1 (Weak): Mild, short-duration events that result in light rainfall over 24 hours.
• Category 2 (Moderate): Moderate storms with predominantly beneficial effects but some hazards.
• Category 3 (Strong): Strong events bringing 5-10 inches of rain over 36 hours, beneficial for reservoirs yet potentially hazardous.
• Category 4 (Extreme): Primarily hazardous, causing intense rainfall over several days, likely leading to flooding.
• Category 5 (Exceptional): Highly hazardous, such as the event in Central California during 1996-97 that caused damages exceeding USD 100 billion.

Key Characteristics:

• Length: Often termed "rivers in the sky," ARs can extend thousands of kilometers and vary in size and strength, similar to terrestrial rivers.
• Seasonal Occurrence: In the Northern Hemisphere, ARs typically occur from December to February, while in the Southern Hemisphere, they are most common from June to August.
• Water Vapour Capacity: An average AR carries water vapor equivalent to the flow at the mouth of the Mississippi River, with particularly strong ones transporting up to 15 times that volume.
• Variability: Each AR is unique, with characteristics shaped by atmospheric instability. ARs can yield both beneficial rainfall and destructive flooding, highlighting their dual impact on weather patterns.
• Atmospheric River on Reaching Land: When ARs reach land, the moisture-laden air rises and cools over mountains, leading to heavy precipitation as rain or snow. Unlike cold winter storms, ARs are warm, which can cause rapid snowpack melting and flooding, affecting regional water supplies.
• The Role of Climate Change: Climate change is elevating average global temperatures, resulting in increased water vapor in the atmosphere and a higher likelihood of damaging atmospheric rivers. Studies show that ARs in the Southern Hemisphere have been shifting poleward by up to 0.72° per decade due to human activities, impacting ocean temperatures, atmospheric CO2 levels, and the ozone layer. As temperatures rise, the frequency and intensity of ARs are expected to increase, leading to more extreme rainfall events in some areas.

What are the Role of Atmospheric Rivers?

Positive Role:

• Redistribution of Freshwater: ARs contribute over 50% of the mean annual runoff in many regions, with California relying on them for up to 50% of its annual rainfall, making them crucial for water supply and agriculture.
• Global Water Cycle: ARs are integral to the global water cycle, influencing water supply and flood risks, especially in the western United States. They are key to replenishing snowpacks and significantly affect weather patterns.
• Snowpack Formation: In colder months, ARs deposit snow, which melts later to maintain water levels in warmer months. Snowpacks also reflect sunlight, contributing to cooling the Earth's surface.

Negative Role:

• Flooding: Excessive precipitation from ARs can saturate soil, leading to flooding, particularly in areas lacking sufficient vegetation.
• Landslides and Mudslides: Steep terrain, deforestation, and heavy rainfall increase the risk of landslides and mudslides.
• Droughts: A scarcity of atmospheric rivers can lead to prolonged droughts, resulting in water shortages, food insecurity, and increased human conflicts.

Conclusion

• The poleward shift of atmospheric rivers, driven by climate change, is causing significant disruptions in global weather patterns. Higher latitudes are experiencing increased precipitation and flooding, while lower latitudes may face severe droughts.
• To mitigate these impacts, it is essential to enhance weather forecasting, invest in water infrastructure, and work towards reducing greenhouse gas emissions.

Mains Question: 
Q. What are atmospheric rivers? How does climate change influence their behaviour and impact?