Most Important UPSC IAS topics for UPSC Exam 2021 (Most Important UPSC IAS Topics UPSC CSE Prelims & Mains Exam 2021) and The IAS preparation is the interplay of important topics for UPSC Syllabus. Important topics for the UPSC 2021 prelims and IAS main 2021 exam;
IAS exam is all about the important topics which need to be prepared by the IAS aspirants. The candidates must develop the skill to understand and observe any current event of national and international importance from a lens of UPSC syllabus and relevance for the IAS exam. Special emphasis should be given to filter out the irrelevant events and happenings which are not important for the IAS exam. This skill can only be developed by analysing the IAS question papers of the prelims exam and main exam.
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Important topics for the UPSC Prelims and mains exam 2021 and the IAS main 2020 will have the overlapping because the time frame of the exam overlaps each other. The UPSC syllabus for prelims exam does not define the topics in detail. The candidates should understand the demand of the UPSC exam by analysing the UPSC syllabus and UPSC question paper simultaneously. UPSC preparation requires over one year of dedicated preparation in the right direction with the right strategy. Important topics for UPSC IAS exam are the tip of the iceberg of UPSC syllabus, important topics for UPSC exam provides the right direction to the UPSC IAS preparation.
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Table of contents
- Most Important topics – IAS Exam 2021 – Join here
- Tripuri Risa
- Thiruvalluvar Day
- High Cost of Green Bonds
- New Foreign Trade Policy 2021 – 26
- FTP 2015-20
- Regulatory Compliance Portal
- Section 32A of IBC
- Idea of creating a bad bank: Need and Significance
- GI tag for India’s costliest mushroom: Guchhi
- India Innovation Index 2020
- Rise of shadow entrepreneurship
- Secured Overnight Fianancing Right (SOFR)
- Bank Investment Company (BIC)
- Domestic Systemically Important Banks (D-SIBs)
- National Innovation Foundation (NIF) – India
- Nagi-Nakti Bird Sanctuaries
- Sustainable Geo-hazard Management
Context: Recently, Tripura Chief Minister sought to promote Risa, a handwoven cloth from Tripura.
Risa is a customary handwoven cloth used by Tripura’s indigenous tribal communities.
It is one of the three parts of a customary Tripuri female attire.
It is used as a head gear, stole, female upper cloth or presented to honour a distinguished recipient.
- Adolescent Tripuri girls are first given Risa to wear when she reaches 12-14 years in an event called Risa Sormani.
It is also used in
- Religious festivals like the Garia Puja
- A customary festival of the tribal communities
- As a head turban by male folks during weddings and festivals
- As a cummerbund over dhoti
- As a head scarf by young girls and boys
- As a muffler during winters.
- Rignai is used to cover lower part of the body.
- The pattern of the “rignai” is so distinct that the clan of a Tripuri woman can be identified by the pattern of the rignai she wears.
- Rikutu covers the upper half of the body.
- It is also used like a ‘chunri’ or a ‘pallu’ of the Indian saree.
- It is used to cover the head of newly married Tripuri women.
Tribal Communities in Tripura
- Tripura has rich cultural heritage of 19 different tribal communities.
- The communities are Tripura/Tripuri, Riang, Jamatia, Noatia, Uchai, Chakma, Mog, Lushai, Kuki, Halam, Munda, Kaur, Orang, Santal, Bhil, Bhutia, Chaimal, Garo, Khasia, and Lepcha.
- The Tripuris constitute the largest section of the entire tribal community, representing more than 50% of the total tribal population of the State.
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Context: Recently, the Prime Minister of India has bowed to the venerable Thiruvalluvar on Thiruvalluvar Day.
About Saint Thiruvalluvar
- Thiruvalluvar is an ancient saint born in the BC era.
- The earliest references of the poet are found in the text Tiruvalluva Maalai.
- He is credited and revered by Tamil people for writing a collection of 1330 poem couplets called ‘Thirukkural’.
- It talks about ethics and morality, and is considered to be a guideline to lead a good and righteous life.
- It is widely read and respected by the people of Tamil Nadu irrespective of the faith they belong to.
- Thiruvalluvar Day was first celebrated on May 17 and 18 in 1935 but now it is usually observed either on January 15 or 16 in Tamil Nadu and is a part of Pongal celebrations.
- In the early 16th century, a temple dedicated to Thiruvalluvar was built within the Ekambareswarar temple complex in Mylapore, Chennai.
- In 1976, a temple-memorial called Valluvar Kotam was built in Chennai and houses one of the largest auditoriums in Asia.
High Cost of Green Bonds
Context: According to the Reserve Bank of India (RBI), the cost of issuing green bonds in India has generally remained higher compared to other bonds. It is largely due to asymmetric information.
About Green Bonds
- It is a debt instrument just like any other normal bond, issued by an issuer for raising funds.
- The only difference is that these instruments are designed specifically for funds to support specific projects benefitting the environment.
- Green bonds typically come with tax incentives to enhance their attractiveness to investors.
- The World Bank issued the first official green bond in 2009.
Green Bonds in India
Yes Bank was the first Indian Bank to issue Green Infrastructure Bonds (GIBs) in India in 2015.
SEBI has allocated the following eight categories with the tag of green projects:
- a) renewable energy b) clean transportation c) sustainable water management d) climate change e) energy efficiency f) sustainable waste management and g) land use and h) biodiversity conservation.
Issues with Green Bond in India
- Green bonds constituted only 0.7% of all the bonds issued in India since 2018.
- As of March 2020, Bank lending to renewable energy constituted 7.9% of outstanding bank credit to the power sector.
- The average coupon rate for green bonds in India with maturities between 5 to 10 years has generally remained higher than the corporate and government bonds with similar tenure.
- Better information management system in India may help in reducing maturity mismatches, borrowing costs and lead to efficient resource allocation in Green Bonds.
- It is a leverage ratio that defines the total amount of debt relative to assets owned by a company.
- In other words, it is the total amount of a company’s liabilities divided by the total amount of the company’s assets.
- Using this metric, analysts can compare one company’s leverage with that of other companies in the same industry.
- This information can reflect how financially stable a company is.
- The higher the ratio, the higher the degree of leverage (DoL) and, consequently, the higher the risk of investing in that company.
- It is also known as “information failure” and occurs when one party to an economic transaction possesses greater material knowledge than the other party.
- Almost all economic transactions involve information asymmetries.
- In certain transactions, sellers can take advantage of buyers because asymmetric information exists whereby the seller has more knowledge of the good being sold than the buyer. The reverse can also be true.
- Asymmetric information is seen as the desired outcome of a healthy market economy in terms of skilled labour, where workers specialize in a trade, becoming more productive, and providing greater value to workers in other trades.
New Foreign Trade Policy 2021 – 26
Context: The Ministry of Commerce & Industry has issued a press release dated 12 Jan 2021 to give a brief on Parliamentary Consultative Committee meeting of Commerce and Industry on which was held to discuss “New Foreign Trade Policy 2021-26”.
- India’s FTP has conventionally been formulated for five years at a time.
- The FTP 2015-20 came into effect on 1st of April 2015 and the same was extended by one year till 31 March 2021, due to Covid-19 pandemic.
The new FTP (2021-26)
- It will come into effect from 1st April 2021 for a period of five years.
- It will strive to make India a leader in the area of international trade with a goal to make India a USD 5 Trillion economy.
By boosting exports – both merchandise and services, through
- Systematically addressing domestic and overseas constraints related to the policy,
- Regulatory and operational framework for lowering transactions costs and enhancing ease of doing business,
- Creating a low cost operating environment through efficient,
- Cost-effective and adequate logistical and utilities infrastructure.
- Correcting the imbalances within India: By improving operations of the domestic manufacturing and services sector in combination with efficient infrastructure support.
- Growth and employment: By channelizing the synergies gained through merchandise and services exports.
Foreingn Trade Policy (FTP) or Export Import(EXIM) Policy of India
- Foreign trade in India is regulated by the Foreign Trade (Development and Regulation) Act, 1992 and is guided by the EXIM Policy of the Government of India.
- FTP is a set of guidelines and instructions established by the Directorate General of Foreign Trade (DGFT) in matters related to the import and export of goods in India.
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- It aims at doubling the overseas sales to $900 billion by 2019-20.
- It provides a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in line with the ‘Make in India’ programme.
- Integrating the foreign trade with “Make in India” and “Digital India” Programme.
- MEIS scheme: A single Merchandise Exports from India Scheme(MEIS) has been formulated by merging five existing schemes to promote merchandize exports.
- The incentives are to be provided in the form of duty scrips as % of FOB (free on board) value of exports.
- SEIS scheme: The Services from India Scheme(SFIS) has been replaced by Service Exports from India Scheme (SEIS). SEIS will be only for India based service providers and will be based on net foreign exchange earned.
Both the SEIS and MEIS schemes are applicable to SEZ units.
- In order to ensure trade facilitation and ease of doing business, Paperless Trade and Online filling of forms has been provided.
- E-commerce export is applicable to items of worth upto Rs 25,000 per consignment.
- Provision for Export oriented units (EOUs), Export hardware Technology Park and software Technology Park.
- The Duty free scrips (form of credits) are provided to the exporters under various exports promotion schemes of the government.The scripts may be transferable or nontransferable.
Directorate General of Foreign Trade (DGFT)
- It is an attached office of the Ministry of Commerce and Industry and is headed by Director General of Foreign Trade.
- Right from its inception till 1991, when liberalization in the economic policies of the Government took place, this organization has been essentially involved in the regulation and promotion of foreign trade through regulation.
- Keeping in line with liberalization and globalization and the overall objective of increasing exports, DGFT has since been assigned the role of “facilitator”.
- The shift was from prohibition and control of imports/exports to promotion and facilitation of exports/imports, keeping in view the interests of the country.
- DGFT is the main governing body in matters related to Exim Policy.
- Foreign Trade (Development and Regulation) Act, 1992: The main objective of the Foreign Trade (Development and Regulation) Act is to provide the development and regulation of foreign trade by facilitating imports into, and augmenting exports from India. The act has replaced the earlier law known as the Imports and Exports (Control) Act 1947.
Regulatory Compliance Portal
Context: The Department for Promotion of Industry and Internal Trade (DPIIT) has launched a portal called “Regulatory Compliance Portal”.
About Regulatory Compliance Portal
- The portal is aimed at minimizing the regulatory burden on businesses and citizens. For that, it will act as a bridge between citizens, industries and the Government.
- It will also act as a first-of-its-kind central online repository of all Central and State-level compliances.
- Nodal Department: DPIIT will act as the nodal department for coordinating the exercise of minimizing regulatory compliance burden for citizens and businesses.
- All Central Ministries and States/UTs will rationalize and simplify their regulatory processes and remove burdensome compliances
- All such changes would be captured and updated on the Regulatory Compliance Portal.
- Industry stakeholders would also be able to submit compliances and proposed recommendations. This will be assessed by concerned Government authority and suitable action would be undertaken to minimize the regulatory compliance burden.
- It will be instrumental in achieving the vision of a truly Atmanirbhar Bharat and help usher ease of doing business for industry and ease of living for citizens.
Section 32A of IBC
Context: The Supreme Court has held that the bidders for a corporate debtor under the Insolvency and Bankruptcy Code (IBC) would be immune from any investigations being conducted either by any investigating agencies.
- IBC was enacted on May 28, 2016, to effectively deal with insolvency and bankruptcy of corporate persons, partnership firms and individuals, in a time-bound manner.
- It has brought about a paradigm shift in laws aimed to maximize the value of assets, providing a robust insolvency resolution framework and differentiating between impropriety and business debacle.
- The predominant object of the Code is the resolution of the Corporate Debtor.
- It has been amended four times to resolve problems hindering objectives of the Code.
What is Section 32A?
- In cases involving property of a corporate debtor, Section 32A covers any action involving attachment, seizure, retention, or confiscation of the property of the corporate debtor as a result of such Proceedings.
- It provides immunity to the corporate debtor and its property when there is the approval of the resolution plan resulting in the change of management of control of the corporate debtor.
- This is subject to the successful resolution applicant being not involved in the commission of the offence.
What were the challenges?
- Since the IBC came into being in 2016, the implementation of the resolution plan of several big cases has been delayed because of various challenges mounted by its own agencies and regulators.
- For example, a debt-laden company, admitted into insolvency in 2017, owes more than Rs 47,000 crore to banks and other financial institutions.
- After a prolonged bidding battle, another won the rights to take over it with a bid of Rs 19,700 crore.
- However, before it could move to take over, the ED/SEBI swooped in, and attached assets worth Rs 4,000 crore citing alleged fraud in a bank loan under the Prevention of Money Laundering Act (PMLA).
Observations made by the SC
- In its judgment, the apex court upheld the validity of Section 32.
- It said it was important for the IBC to attract bidders who would offer reasonable and fair value for the corporate debtor to ensure the timely completion of the corporate insolvency resolution process (CIRP).
- Such bidders, however, must also be granted protection from any misdeeds of the past since they had nothing to do with it.
- Such protection, the court said, must also extend to the assets of a corporate debtor which will help banks clean up their books of bad loans.
- The apex court has, however, also said that such immunity would be applicable only if there are an approved resolution plan and a change in the management control of the corporate debtor.
Significance of SC’s intervention
- With the Supreme Court upholding the validity of Section 32 A will give confidence to other bidders to proceed with confidence while bidding on such disputed companies and their assets.
- The implementation of resolution plan of several big ticket cases has been delayed because of various challenges mounted by its own agencies and regulators.
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Idea of creating a bad bank: Need and Significance
Context: Recently, the Reserve Bank of India (RBI) Governor has agreed to look at a proposal for creating a Bad Bank.
About Bad Bank
- A bad bank conveys the impression that it will function as a bank but has bad assets to start with.
- Technically, a bad bank is an Asset Reconstruction Company (ARC) or an Asset Management Company (AMC) that takes over the bad loans of commercial banks, manages them and finally recovers the money over a period of time.
- The bad bank is not involved in lending and taking deposits, but helps commercial banks clean up their balance sheets and resolve bad loans.
- The takeover of bad loans is normally below the book value of the loan and the bad bank tries to recover as much as possible subsequently.
- US-based Mellon Bank created the first bad bank in 1988, after which the concept has been implemented in other countries including Sweden, Finland, France and Germany.
- The Troubled Asset Relief Programme (TARP) in the US.
- In Ireland, the National Asset Management Agency was established in 2009 to respond to the financial crisis.
Need in India
- Economic Recovery: With the pandemic hitting the banking sector, the RBI fears a spike in bad loans in the wake of a six-month moratorium it has announced to tackle the economic slowdown.
- Government Support: Professionally-run bad banks, funded by the private lenders and supported by the government, can be an effective mechanism to deal with Non-Performing Assets (NPA).
- The presence of the government is seen as a means to speed up the clean-up process.
- Rising NPAs: Financial Stability Report (FSR): The RBI noted in its recent FSR that the gross NPAs of the banking sector are expected to shoot up to 13.5% of advances by September 2021, from 7.5% in September 2020.
- K V Kamath Committee: Noted that corporate sector debt worth Rs 15.52 lakh crore has come under stress after Covid-19 hit India, while another Rs 22.20 lakh crore was already under stress before the pandemic.
- The committee noted that companies in sectors such as retail trade, wholesale trade, roads and textiles are facing stress.
- Sectors that have been under stress pre-Covid include Non-Banking Financial Company (NBFC), power, steel, real estate and construction.
- International Precedents: Many other countries had set up institutional mechanisms to deal with a problem of stress in the financial system.
- Mobilising Capital: Finding buyers for bad assets in a pandemic hit economy will be a challenge, especially when governments are facing the issue of containing the fiscal deficit.
- Not Addressing the Underlying Issue: Without governance reforms, the Public sector banks (accounted for 86%, of the total NPAs) may go on doing business the way they have been doing in the past and may end up piling-up of bad debts again.
- Also, the bad bank idea is like shifting loans from one government pocket (the public sector banks) to another (the bad bank).
- Provisioning Issue Tackled Through Recapitalization: Union Government, in the last few years, has infused nearly Rs 2.6 lakh crore in banks through recapitalisation.
- Those who oppose the concept of bad banks hold that the government has on its part recapitalised the banks to compensate for the write-offs and hence, there is no need for a bad bank.
- Market-related Issues: The price at which bad assets are transferred from commercial banks to the bad bank will not be market-determined and price discovery will not happen.
- Moral Hazard: Former RBI Governor Raghuram Rajan had said that a bad bank may create a moral hazard and enable banks to continue reckless lending practices, without any commitment to reduce NPAs.
- Previous Proposals: In May 2020 the banking sector, led by the Indian Banks’ Association, had submitted a proposal for setting up a bad bank to resolve the NPA problem, proposing equity contribution from the government and banks.
- In 2017 the Economic Survey suggested Public Sector Asset Rehabilitation Agency or PARA, to buy out the NPAs of high value from Indian banks.
Holistic Reforms: So long as Public sector banks managements remain beholden to politicians and bureaucrats, their deficit in professionalism will remain and subsequently, prudential norms in lending will continue to suffer. Therefore, the debate regarding setting up a bad bank must be preceded by proper implementation of holistic reforms in the banking sector, as envisaged under the Indra Dhanush plan launched in 2015.
Tailor Made Approach: It’s a challenge that requires a response on multiple fronts. A bad bank cannot be the sole response. The most efficient approach would be to design solutions tailor-made for different parts of India’s bad loan problem and use Bad Bank only as a last resort once all other methods fail.
Recommendations of Viral Acharya (former RBI Deputy Governor)
It would be better to limit the objective of these asset management companies to the orderly resolution of stressed assets.
Two models to solve the problem of stressed assets –
- A private asset management company (PAMC): Which is said to be suitable for stressed sectors where the assets are likely to have an economic value in the short run.
- National Asset Management Company (NAMC): Which would be necessary for sectors where the problem is not just one of excess capacity but possibly also of economically unviable assets in the short to medium terms.
Presence of the government to speed up the clean-up process: The bad bank is funded by the government initially, with banks and other investors coinvesting in due course.
GI tag for India’s costliest mushroom: Guchhi
Context: Recently, Guchhi mushroom of Jammu and Kashmir’s Doda district received the Geographical Indication (GI) tag.
- The GI tag will create branding and commercial interest for these mushrooms which will help the local farmers get higher prices for their efforts.
About Gucchi Mushroom
- Guchhi mushroom is a species of fungus in the family Morchellaceae of the Ascomycota.
- They are pale yellow in colour with large pits and ridges on the surface of the cap, raised on a large white stem.
- It is primarily obtained from the forests and pastures of Doda district and it is also found in the high altitude areas of Kupwara, Pahalgam, Shopian, Kishtwar and Poonch of Jammu & Kashmir.
- It is one of the costliest mushrooms in the world which is known for its spongy, honeycombed head and savoury flavour.
- Benefits: They are rich in antioxidant and antimicrobial properties that prevent health issues including heart diseases and diabetes by removing reactive oxygen species that harm the body.
- They are also considered a rich source of protein, potassium, copper, carbohydrates and Vitamin B.
- The exotic wild mushrooms are used in pulaos and served during celebratory occasions such as marriages.
About GI Tag
- A geographical indication is a name or sign used on products which correspond to a specific geographical location or origin.
- It possesses the qualities or reputations that are inherent in the products due to that origin.
- It is used for natural, agricultural and manufactured goods.
- The Department for promotion of industry and internal trade (DPIIT) under the Ministry of Commerce and Industry provides the GI tag in India.
Benefits of registration of geographical indications
- It prevents unauthorised use of a Registered Geographical Indication by others.
- It provides legal protection to Indian Geographical Indications which in turn boost exports.
- It promotes the economic prosperity of producers of goods produced in a geographical territory.
India Innovation Index 2020
Context: Recently, the NITI Aayog has released the second edition of India Innovation Index.
Key highlights of India Innovation Index 2020
- India Innovation Index 2020 builds on the previous year’s methodology by introducing more metrics and providing a holistic outlook of the Indian innovation ecosystem.
- The framework has been updated to include globally considered parameters for measuring innovation (such as the percentage of gross domestic product spent on research and development).
- The index captures the trends and provides detailed analyses of the various factors that drive innovation at the country, state, and district levels.
Innovation Ranking of States and Union Territories
- Karnataka ranks first among the ‘Major States’ category and it was also ranked first in the India Innovation Index 2019.
- Maharashtra has leapfrogged Tamil Nadu to bag the second spot in the second edition as compared to 2019 (Tamil Nadu – 2nd and Maharashtra – 3rd).
- Bihar has replaced Jharkhand as the worst performer in the 2020 edition under ‘Major States’ category.
- Among the North East and Hill states, Himachal Pradesh has replaced Sikkim as the best performer in India Innovation Index 2020.
- Delhi has retained top spot among the Union Territory and City States.
- Jammu & Kashmir has been ranked among the Union Territory category in the 2020 edition and it was ranked in North East and Hill States category in 2019.
Enablers Ranking of States and Union Territories
- Kerala has moved up four spots to become the best performer among the ‘Major States’ category.
- Sikkim retained top spot among the North East and Hill states.
- Chandigarh has replaced Delhi as the best performer among the Union Territory and City States.
Performance Ranking of States and Union Territories
- Karnataka has retained spot and Chhattisgarh remained worst performer among ‘Major States’ category.
- Uttarakhand and Delhi retained top spot among the North East and Hill states and Union Territory and City States respectively.
About India Innovation Index
- The India Innovation Index seeks to rank the states and union territories based on their relative performance of supporting innovation.
- It aims to empower the states and union territories to improve their innovation polices by highlighting their strengths and weaknesses.
- The ranking methodology is designed in a way that states can draw lessons from the national leaders in innovation.
- The states and union territories have been divided into 17 ‘Major States’, 10 ‘North-East and Hill States’, and 9 ‘City States and Union Territories’.
- The states and union territories have been ranked on two broad categories i.e. outcome and governance.
- This will lead to a healthy competition among the states and union territories, thereby fostering competitive federalism.
- The index analyzes various factors that drive innovation at the country, state, and district levels.
- This would enable policymakers in identifying catalysts and inhibitors of innovation at the national and sub-national levels.
Rise of shadow entrepreneurship
Context: There has been a global rise of shadow entrepreneurship, in various sectors such as education (certificates), finance (for easy loans), the betting economy (online games) and healthcare (e-pharmacies).
About Shadow entrepreneurs
- They are individuals who manage a business that sells legitimate goods and services but they do not register their businesses.
- This means that they do not pay tax, operating in a shadow economy where business activities are performed outside the reach of government authorities.
- Types of businesses include unlicensed taxicab services, roadside food stalls and small landscaping operations.
- In a study of 68 countries, the Imperial College Business School found that after Indonesia, India has the second highest rate of shadow entrepreneurs.
Causes for Rise in Shadow entrepreneurs
- Taxation & Enforcement: High tax rates accompanied by loose enforcement induce tax avoidance, discourage investment in formal businesses, and drive entrepreneurial activity toward the informal sector.
- Impact of Covid-19: Shadow entrepreneurs, offering technology-mediated services, bring complementary services that traditional service providers may be constrained to offer or consumers might not be able to access due to lockdown constraints.
- Technological Advancements: Shadow entrepreneurship is also promoted through technology-enabled new markets and also entry of new and tech savvy consumers.
- Increase in employment: Most of Informal sector jobs come under shadow entrepreneurship.
- Driver of economic development
- Reduction in Poverty
- Removes pressure on agriculture by providing non agricultural jobs.
- Diversified options for consumers
Challenges of Shadow Entrepreneurs
- Decrease Competitiveness: Small firms will get acquired by large firms. First movers in the space with deep pockets could generate irrationally high valuations.
- Dubious & illegal: Recent events related to app-based loan providers who charge very high interest rates and dubious methods for recovery.
- Economic Loss: Loss of revenue as these businesses is not registered with the government.
- Corruption: They are beyond the reach of law making them vulnerable to corrupt officials.
- Asset Size: Informal entrepreneurs tend to invest in their businesses much less intensively than the formal ones, which imply that formality is positively correlated with asset size.
- Formalisation of Economy: Where proper economic and political frameworks are in place, individuals are more likely to become ‘formal’ entrepreneurs and register their business, because doing so enables them to take advantage of laws and regulations that protect their company.
- Monitoring: Strong monitoring of quality would be essential. This needs to be complemented with non-compliance being punishable with a jail term, clamping down on services and related strict consequences.
- Reward Compliance: Those shadow firms that comply should be welcome to join the dominant mode of service delivery with non-shadow firms.
- Coordination among Agencies: There also needs to be better coordination of activities between authorities of governments (for example the Ministry of Corporate Affairs in regulating shadow entrepreneurship and government departments in healthcare, education or finance).
Secured Overnight Fianancing Right (SOFR)
Context: Recently, State Bank of India (SBI) has executed two inter-bank short term money market deals with pricing linked to SOFR (Secured Overnight Financing Rate).
About Secured Overnight Financing Rate (SOFR)
- SOFR was selected by the Alternative Reference Rates Committee (ARRC) chaired by the New York Federal Reserve in 2017.
- It is a benchmark interest rate for dollar-denominated derivatives and loans.
- It is based on transactions in the Treasury repurchase market.
- Similar to a mortgage rate, SOFR is a secured borrowing rate in the sense that collateral is provided to borrow cash.
- It is seen as preferable to London interbank offered rate (LIBOR) since it is based on data from observable transactions rather than on estimated borrowing rates.
What is LIBOR?
- London Inter-bank Offered Rate is an average interest rate that is calculated based on estimates provided by the leading banks in London.
- It is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans.
- It came into use in the 1970s.
- LIBOR affects both investors and customers. It is used as a reference rate in different types of loans.
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Bank Investment Company (BIC)
Context: The Ministry of Finance is looking at other avenues for affordable capital infusion, including setting up of a Bank Investment Company (BIC).
- The RBI has raised concern over the issuance of zero-coupon bonds for the recapitalisation of public sector banks (PSBs).
- Concerns were raised with regard to calculation of an effective capital infusion made in any bank through this instrument issued at par.
- The mechanism had a cost of interest payment towards the recapitalisation bonds for PSBs.
About Bank Investment Company (BIC)
- It was introduced in 2014 by the Reserve Bank of India’s (RBI) PJ Nayak Committee Report on ‘Governance of Boards of Banks in India’.
- The report recommended transferring shares of the government in the banks to the BIC which would become the parent holding company of all these banks as a result of this, all the PSBs would become ‘limited’ banks.
Power and Functions
- It will be autonomous and it will have the power to appoint the board of directors and make other policy decisions about subsidiaries.
- It would look into the capital needs of banks and arrange funds for them without government support.
- It would also look at alternative ways of raising capital such as the sale of non-voting shares in a bid to garner affordable capital.
- The dependence of PSBs on government support would come down and ease fiscal pressure.
- The government, as per one of the Committee’s recommendations, has already set up a Bank Boards Bureau (in 2016) for selecting the top management of PSBs; it has kept the BIC proposal on hold so far.
What is the Bank Recapitalisation?
- Bank recapitalisation means infusing more capital in state-run banks so that they meet the capital adequacy norms.
- The government, using different instruments, infuses capital into banks facing a shortage of capital.
- The government infuses capital in banks by either buying new shares or by issuing bonds.
- Indian public sector banks are emphasized to maintain a Capital Adequacy Ratio (CAR) of 12%.
- CAR is the ratio of a bank’s capital in relation to its risk-weighted assets and current liabilities.
- The recapitalisation is necessary because the PSBs are facing financial problems and they need money in the context of rising bad debts.
- Similarly, they need funds to meet the higher capital requirements under Basel III norms.
- This helps the government in maintaining its fiscal deficit target as no money directly goes out from its accounts.
- A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental).
- These bonds have a maturity date and when once that is attained, the issuing company needs to pay back the amount to the investor along with a part of the profit.
What are Zero Coupon Bonds?
- These are special types of bonds issued by the Central government specifically to a particular institution.
- It is not tradable and not transferable.
- It is limited only to a specific bank, and it is for a specified period.
Domestic Systemically Important Banks (D-SIBs)
Context: The Reserve Bank of India (RBI) has retained State Bank of India, ICICI Bank and HDFC Bank as Domestic Systemically Important Banks (D-SIBs).
What is D-SIB?
- D-SIBs are also called as too big to fail banks.
- According to the RBI, some banks become systemically important due to their size, cross-jurisdictional activities, complexity and lack of substitute and interconnection.
- Banks whose assets exceed 2% of GDP are considered part of this group.
- If such a bank fails, there would be significant disruption to the essential services they provide to the banking system and the overall economy.
- The government is expected to support these banks in the time of disruption. Therefore, these banks enjoy certain advantages in funding.
- These banks have a different set of policy measures regarding systemic risks and moral hazard issues.
Domestic Systemically Important Banks (D-SIBs) Framework
- In 2014, the RBI had issued the framework for dealing with D-SIBs.
- The framework requires the RBI to disclose the names of banks designated as D-SIBs starting from 2015 and place these banks in appropriate buckets depending upon their Systemic Importance Scores (SISs).
- It classifies the banks under five buckets.
- ICICI Bank and HDFC Bank are in bucket one while SBI falls in bucket three.
- Banks in bucket one need to maintain a 0.15% incremental tier-I capital from April 2018.
- Banks in bucket three have to maintain an additional 0.45%.
- An additional common equity requirement has to be applied to D-SIB based on the bucket in which it is placed.
- A Global Systemically Important Bank (G-SIB) foreign bank having branch presence in India has to maintain-
- Additional CET1 capital surcharge proportionates to its Risk Weighted Assets (RWAs) in India as applicable to it as a G-SIB.
- Some banks become systemically important due to their size, cross-jurisdictional activities, complexity and lack of substitute and interconnection.
- Failure of such bank will lead to significant disruption to the essential services provided by them to the banking system and the overall economy.
- The government is expected to support these banks in case of distress. Thus, these banks enjoy certain advantages in funding.
- They have a different set of policy measures regarding systemic risks and moral hazard issues.
National Innovation Foundation (NIF) – India
Context: Science & Technology minister dedicates an Innovation Portal developed by National Innovation Foundation (NIF) – India to the nation.
- Innovation Portal is developed by the National Innovation Foundation (NIF) – India, which is an autonomous body of the Department of Science and Technology (DST).
- The National Innovation Portal (NIP) is currently home to about 1.15 lakh innovations scouted from common people of the country, covering Engineering, Agriculture, Veterinary and Human Health.
- In terms of domain areas, presently the innovations cover Energy, mechanical, automobile, electrical, electronics, household, nutraceuticals etc.
About National Innovation Foundation (NIF) – India
- An autonomous body of the Department of Science and Technology (DST); set up in February 2000 at Ahmedabad, Gujarat.
- Objective- To provide institutional support for scouting, spawning, sustaining and scaling up the grassroots innovations across the country.
- Its mission is to help India become a creative and knowledge-based society by expanding policy and institutional space for grassroots technological innovators.
Nagi-Nakti Bird Sanctuaries
Context: ‘Kalrav’, Bihar’s 1st state–level festival started at the Nagi-Nakti bird sanctuaries in the Jamui district, Bihar.
About the Festival
- The festival is hosted by the department of forest, environment and climate change.
- The event is intended to create awareness about the conservation of birds and their habitat, the wetlands.
Importance of Birds
- Those who can understand a bird’s behavior can understand that it sends a signal of any impending natural calamity.
- Birds also help in the pollination of plant species.
- Hence, as a part of the bird conservation plan, the forest department has developed a bird ringing station at Bhagalpur
Nagi- Nakti Bird Sanctuaries
- Nagi Dam and Nakti Dam are although two different sanctuariess but they can be taken as one bird area due to their closeness.
- These sanctuaries are a home to wide variety of indigenous species and migratory birds that turn up during the winters from places like Eurasia, Central Asia, the Arctic Circle, Russia and Northern China.
- Over 136 species of birds have been spotted at these sanctuaries.
- Around 1,600 bar-headed geese, which are about 3% of the global population of this variety, have been seen here, as per a report of the Wetlands International.
- The Nagi Dam (791 ha) and Nakti Dam (332 ha) are two sanctuaries so close to each other that they can be taken as one bird area.
- In 2004, Nagi Dam Bird Sanctuary was declared an Important Bird Area (IBA) by BirdLife International.
- The sanctuary is unique for its rock formation, “tor” in Jamui area. In India, this rock formation is available only in Hampi in Karnataka.
Sustainable Geo-hazard Management
Context: Recently, Ministry of Road Transport & Highways (MoRTH) and Defense Research and Development Organization (DRDO) signed a framework Memorandum of Understanding (MoU).
- Aim: to strengthen collaboration in the field of technical exchange and co-operation on sustainable geo-hazard management.
- MoRTH and DRDO will co-operate in conceptual planning of integrated avalanche/landslide protection schemes for all weather connectivity in snow bound areas.
- Objective: To ensure safety of road users on NHs (National Highways) in the country against the adverse effects of landslides and other natural calamities.
Need for Geo-Hazard Management
- Geological conditions capable of causing damage, or loss of property and life, are called geological hazards.
- Geohazards are increasing across the globe due to climate change and increase the risk of long-term disruption to transport systems.
- A reliable and efficient transport system/network is a major catalyst for the development of a country and the backbone of its functioning.
- Disruption to the transport system will cause economic setbacks and impact citizens’ security and access to critical infrastructure such as hospitals, schools, or shelters.
- Therefore, a geohazard risk management perspective that incorporates people, environment, hydrology, geology, and the transportation infrastructure need to be adopted for a robust and resilient transport network.
- Defense Geo-Informatics Research Establishment (DGRE), a premier laboratory of DRDO, is leader in the development of critical technologies for enhancing combat effectiveness with a focus on terrain and avalanches.
- Role: Mapping, forecasting, monitoring, control and mitigation of landslides and avalanches in Himalayan terrain.
- Ministry of Road Transport & Highways (MoRTH) is responsible for development & maintenance of National Highways across the country.
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