15th June, 2018-IAS Current Affairs
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‘India-Vietnam relations’ (GS2: Bilateral relations)
Issue: In a significant move to boost India-Vietnam ties, union defence minister Nirmala Sitharaman inaugurated the first representative office of the state-owned defence equipment manufacturer Bharat Electronics Ltd (BEL) in Hanoi.
BEL is a defence electronics company that has been playing a key role in manufacturing of defence armaments, including air defence and surveillance radars, missiles, cockpit and flight control systems for India’s indigenous light combat aircraft.
Significance of this move
- In recent years, India has been strengthening its political, economic and strategic ties with Southeast Asian countries, signing defence cooperation pacts with Philippines, Malaysia and Indonesia. This comes against the backdrop of an aggressively rising China. Since 2014, India has refashioned its “look East” policy to “Act East” policy.
- India and Vietnam have been in talks for the sale of Brahmos cruise missiles, jointly produced by Russia and India, to Hanoi.
‘Environmental Changes and Vegetable production’ (GS3: Environmental Pollution)
Issue: Environmental changes such as increasing ambient temperature, ozone concentrations and decreasing water availability would decrease yields of leafy vegetables and legume, says a study
Other observations made in the study
- If no action is taken, these changes could reduce average yields of vegetables by 35% and legumes by 9%
- It would also cancel out the potential increase in yield due to increase in carbon-dioxide levels
‘Fed Hike’ (GS2: Effect of policies of developed countries on India’s interests)
Issue: Foreign investors, who have pulled out nearly $240 million from Indian stocks since the beginning of the year, may continue selling after Wednesday’s interest rate increase in the US
What this means for India?
- Higher interest rates tempt large foreign funds to move their money to the US, hurting emerging markets including India which are already struggling with a stronger dollar and expensive crude oil.
What is FII?
- A foreign institutional investor (FII) is an investor or investment fund registered in a country outside of the one in which it is investing. Institutional investors most notably include hedge funds, insurance companies, pension funds and mutual funds. The term is used most commonly in India and refers to outside companies investing in the financial markets of India.
- Countries with the highest volume of foreign institutional investments are those that have developing economies. These types of economies provide investors with higher growth potential than in mature economies. This is why these investors are most commonly found in India, all of which must register with the Securities and Exchange Board of India to participate in the market.
‘Current Account Deficit’ (GS3: Indian Economy)
Issue: Higher oil prices are raising India’s CAD and FDI inflows has come down—leading to greater reliance of FPI inflows, particularly volatile debt inflows and also on short-term credit
Factors increasing CAD in India
- The US Federal Reserve has been raising interest rates and has signaled more rate hikes to come.
- The US Fed’s programme of shrinking its balance sheet, coupled with increased US Treasury issuance to fund a larger government deficit, has already led to dollar liquidity shrinking in international markets, particularly in the debt markets. This is behind the outflows from emerging market debt.
- The rapid deterioration in the trade environment as a result of protectionist policies is also likely to affect export growth, while rising investment demand will result in more imports. The United Nations Conference on Trade and Development, or UNCTAD, had in its recent World Investment report pointed to a slowdown in global foreign direct investment flows.
The higher current account deficit will put downward pressure on the rupee and it may also raise the cost of Indian borrowing abroad.
What is CAD?
- The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the goods and services it exports. The current account includes net income, such as interest and dividends, and transfers, such as foreign aid, although these components make up only a small percentage of the total current account. The current account represents a country’s foreign transactions and, like the capital account, is a component of a country’s balance of payments.
- A country can reduce its current account deficit by increasing the value of its exports relative to the value of imports. It can place restrictions on imports, such as tariffs or quotas, or it can emphasize policies that promote export, such as import substitution, industrialization or policies that improve domestic companies’ global competitiveness. The country can also use monetary policy to improve the domestic currency’s valuation relative to other currencies through devaluation, which reduces the country’s export costs.
- While a current account deficit can imply that a country is spending “beyond its means,” having a current account deficit is not inherently disadvantageous. If a country uses external debt to finance investments that have higher returns than the interest rate on the debt, it can remain solvent while running a current account deficit. If a country is unlikely to cover current debt levels with future revenue streams, however, it may become insolvent.
- Source: https://www.livemint.com/Money/1VBJHUO7olIH25O89pjqsJ/The-rising-risks-to-financing-Indias-current-account-defici.html
‘Mount Deotibba’ (Facts that could be asked in Prelims)
Issue: An all women Naval mountaineering team summited Mount Deotibba
About the Mountain
- Mt Deotibba is the second highest peak (6001M) in the Pir-Panjal range in Himachal Pradesh. It is considered to be a difficult peak to summit
‘Solar power generation’ (GS3: Infrastructure)
Issue: Soft Bank Group Corp has decided to invest $60 billion-$100 billion in solar power generation in India
- India has set a target to achieve an operational solar power capacity of 100 GW by 2022, five times current levels. Soft Bank’s Vision Fund has exposure to solar energy through its investment in the world’s largest such project in Saudi Arabia
‘Trade War’ (GS2: Effect of policies of developed countries on India’s interests)
Issue: EU countries on Thursday approved a raft of retaliatory tariffs, including on whiskey and motorcycles, against painful duties imposed by US President Donald Trump on European metals
Transatlantic ties are at their lowest level for many years due to rows over a host of issues including the tariffs, the Paris climate agreement, the Iran nuclear deal and the new US embassy in Jerusalem.
About European Union
- The European Union (EU) is a political and economic union of 28 member states that are located primarily in Europe. The EU has developed an internal single market through a standardized system of laws that apply in all member states. EU policies aim to ensure the free movement of people, goods, services and capital within the internal market, enact legislation in justice and home affairs and maintain common policies on trade, agriculture, fisheries and regional development. Within the Schengen Area, passport controls have been abolished. A monetary union was established in 1999 and came into full force in 2002 and is composed of 19 EU member states which use the euro currency.
- The EU traces its origins to the European Coal and Steel Community (ECSC) and the European Economic Community (EEC), established, respectively, by the 1951 Treaty of Paris and 1957 Treaty of Rome. The original members of what came to be known as the European Communities were the Inner Six: Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany.
‘Floods and Landslides’ (GS3: Disaster Management)
Issue: Landslips and floods triggered by incessant rain turned large parts of the northern districts into a devastated landscape on Thursday, forcing the administration to seek the help of the National Disaster Response Force (NDRF) for rescue operations, even as the death toll in the monsoon went up to 43.
The National Disaster Response Force (NDRF) is a specialized force constituted “for the purpose of specialist response to a threatening disaster situation or disaster” under the Disaster Management Act, 2005.
The Chairman of the NDMA is the Prime Minister.
- The responsibility for Disaster Management in India’s federal system is that of the State Government. The ‘nodal Ministry’ in the central government for management of natural disasters is the Ministry of Home Affairs (MHA).
- When ‘calamities of severe nature’ occur, the Central Government is responsible for providing aid and assistance to the affected state, including deploying, at the State’s request, of Armed Forces, Central Paramilitary Forces, National Disaster Response Force (NDRF), and such communication, air and other assets, as are available and needed.
- National Disaster Response Force (NDRF) is under the National Disaster Management Authority. The head of the NDRF is designated as Director General. The Director Generals of NDRF are IPS officers on deputation from Indian police organisations.
- The aim of the National Disaster Management Authority is to build a safer and disaster resilient India by developing a holistic, proactive, multi-disaster and technology driven strategy for disaster management. This has to be achieved through a culture of prevention, mitigation and preparedness to generate a prompt and efficient response at the time of disasters. This national vision inter alia, aims at inculcating a culture of preparedness among all stakeholders.
- NDRF has proved its importance in achieving this vision by highly skilled rescue and relief operations, regular and intensive training and re-training, familiarization exercises within the area of responsibility of respective NDRF Bns, carrying out mock drills and joint exercises with the various stakeholders.
‘Oil supply from Iran’ (GS2: Effect of policies of developed countries on India’s interests)
Issue: India’s imports of Iranian oil may be hit from end-August after State Bank of India (SBI) informed refiners it will not handle payments for crude from Tehran from November
Reason for pulling out
- The move by the state-controlled bank, India’s biggest, comes after US President Donald Trump pulled out of an international nuclear deal with Iran last month, pledging to re-impose tough sanctions within 180 days
- Although New Delhi had cut imports from Tehran in 2017-18 due to a dispute over a giant gas field, Iran remained its third-biggest oil supplier. Iran supplied about 458,000 barrels per day (bpd), or about a tenth of India’s more than 4.5 million bpd of imports, in the fiscal year to 31 March 2018.
‘Share Buyback’ (GS3: Indian Economy)
Issue: India’s biggest IT company Tata Consultancy Services Ltd (TCS) today announced a Rs 16,000 crore share buyback offer, sending its shares 3% higher.
What is a share buyback?
- A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market. Companies buy back shares for a number of reasons, such as to increase the value of remaining shares available by reducing the supply or to prevent other shareholder from taking a controlling stake.
- A buyback allows companies to invest in them. Reducing the number of shares outstanding on the market increases the proportion of shares owned by investors. A company may feel its shares are undervalued and do a buyback to provide investors with a return, and because the company is bullish on its current operations a buyback also boosts the proportion of earnings a share is allocated.
Buybacks are carried out in two ways:
- Shareholders might be presented with a tender offer, where they have the option to submit, or tender, all or a portion of their shares within a given timeframe at a premium to the current market price. This premium compensates investors for tendering their shares rather than holding on to them.
- Companies buy back shares on the open market over an extended period of time and may even have an outlined share repurchase program that purchases shares at certain times or at regular intervals.
‘Trade Deficit’ (GS3: Indian Economy)
Issue: India’s trade deficit widened to a four-month high of $14.62 billion in May as imports surged nearly 15%
What is Trade Deficit?
- A trade deficit is an economic measure of international trade in which a country’s imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets. It is also referred to as a negative balance of trade (BOT)
- Trade Deficit = Total Value of Imports – Total Value of Exports
- The trade balance is the largest section of the current account and measures the income that a country receives from its exports and the cost of imports. A country that exports more than it imports will have a trade surplus since the inflow of currency is greater than the outflow of currency. Most countries attempt to export more goods and services than they import to obtain greater currency inflows. However, it is not uncommon to see trade deficits in a country’s current account. Because the trade balance is the largest section of the current account, a trade deficit (or surplus) usually translates to a current account deficit (or surplus).
‘Bhilai Steel Plant’ (GS3: Infrastructure)
Issue: Prime Minister Narendra Modi on Thursday dedicated Steel Authority of India Ltd’s recently modernized Bhilai Steel Plant to the nation, marking the completion of the state owned steel major’s Rs 70,000 crore modernizations and expansion programme (MODEX) to raise its total steel-making capacity across five integrated plants to 21 million tonne per annum
About the steel plant
- The Bhilai Steel Plant (BSP), located in Bhilai, in the Indian state of Chhattisgarh, is India’s first and main producer of steel rails, as well as a major producer of wide steel plates and other steel products. The plant also produces Bobby Sista and markets various chemical by-products from its coke ovens and coal chemical plant. It was set up with the help of the USSR in 1955
- Iron-ore : Durg, Chandrapur, Bastar
- Coal: Korba, Jharia, Raniganj
- Limestone: Nandini quarries
- Manganese: Balaghat
- Water: Tendula Track tank