16th Oct, 2018-IAS Current Affairs
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Data localization and RBI (GS3: Indian Economy)
Issue: The Reserve Bank of India (RBI) may not immediately penalize payment companies for not meeting its data localization deadline of October 15. About 80 percent of industry players including Amazon, Alibaba and WhatsApp have complied with data storage norms. The remaining will have to submit a schedule for adhering to RBI’s guidelines on data storage if they haven’t done so already
What was the directive of RBI to payment companies?
All system providers should ensure that the entire data relating to payment systems operated by them are stored in a system only in India. This data should include the full end-to-end transaction details/information collected/carried/processed as part of the message/payment instruction
Exports (GS3: Indian Economy)
Issue: The steady slide in the Indian rupee against the US dollar notwithstanding, India’s merchandise exports slipped into the negative zone for the first time this financial year, declining 2.15 per cent in September this year on an annual basis, government data reported
Reasons cited for dip in Exports
The dip in exports has been attributed to a correction on account of the base effect and seasonal factors. Imports, however, went up by 10.45 per cent in September. This decline is entirely due to the base effect resulting from September 2017 being an abnormally high growth month of about 26 per cent due to imminent cut off then for drawbacks at pre-GST rates
India’s trade deficit meanwhile narrowed to $13.98 billion in September from $17.4 billion in August despite high oil prices
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
Nations of the world record their trades in their balance of payment (BOP) ledgers. One of the primary accounts in the balance of payments is the current account, which keeps track of the goods and services leaving (exports) and entering (imports) a country. The current account shows direct transfers such as foreign aid, asset income such as foreign direct investment (FDI) and net income – income received by residents minus income paid to foreigners – and the BOT.
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).
Chandra Observatory (GS3: Science)
Issue: NASA’s Chandra X-Ray Observatory, observing the universe in high-energy light since 1999, is back in action after suffering a glitch due to the failure of the gyroscope and going into safe mode last week.
On October 10, Chandra X-ray Observatory entered safe mode, in which the observatory is put into a safe configuration, critical hardware is swapped to back-up units, the spacecraft points so that the solar panels get maximum sunlight, and the mirrors point away from the Sun.
About the mission
The Chandra X-ray Observatory (CXO), previously known as the Advanced X-ray Astrophysics Facility (AXAF), is a Flagship-class space observatory launched on STS-93 by NASA on July 23, 1999. Chandra is sensitive to X-ray sources 100 times fainter than any previous X-ray telescope, enabled by the high angular resolution of its mirrors. Since the Earth’s atmosphere absorbs the vast majority of X-rays, they are not detectable from Earth-based telescopes; therefore space-based telescopes are required to make these observations. Chandra is an Earth satellite in a 64-hour orbit, and its mission is ongoing as of 2018.
Chandra is one of the Great Observatories, along with the Hubble Space Telescope, Compton Gamma Ray Observatory (1991–2000), and the Spitzer Space Telescope. The telescope is named after the Nobel Prize-winning Indian-American astrophysicist Subrahmanyan Chandrasekhar. Its mission is similar to that of ESA’s XMM-Newton spacecraft, also launched in 1999.
About S Chandrasekhar
He was an Indian American astrophysicist who spent his professional life in the United States. He was awarded the 1983 Nobel Prize for Physics with William A. Fowler for “…theoretical studies of the physical processes of importance to the structure and evolution of the stars”. His mathematical treatment of stellar evolution yielded many of the best current theoretical models of the later evolutionary stages of massive stars and black holes. The Chandrasekhar limit is named after him.
Chandrasekhar worked on a wide variety of physical problems in his lifetime, contributing to the contemporary understanding of stellar structure, white dwarfs, stellar dynamics, stochastic process, radiative transfer, the quantum theory of the hydrogen anion, hydrodynamic and hydromagnetic stability, turbulence, equilibrium and the stability of ellipsoidal figures of equilibrium, general relativity, mathematical theory of black holes and theory of colliding gravitational waves
Security (GS3: Security challenges and agencies in India)
Issue: India has moved a step closer to dealing with contemporary and new threats with the Cabinet Committee on Security recently clearing the formation of three agencies, the Defence Cyber Agency, the Defence Space Agency and the Special Operation Division
All three will be tri-service agencies, which means they will draw from each service and serve under the command of the Chairman, Chief of Staff Committee
About the programme
In 2012, the Chiefs of Staff Committee recommended the formation of three separate joint commands — cyber, space and special operations —to deal with new and emerging threats. The Centre has also been pushing for more synergy and “jointness” to prepare for threats from the “emerging triad” of space, cyberspace and special operations for future combat.
Need for such divisions?
China, for instance, has already demonstrated its offensive capabilities in the space. In February, it demonstrated its capability to destroy a target in space. It used a long-range missile interceptor, identified as the DN-3, to accomplish the mission. Earlier in 2010, China used a midcourse interceptor to destroy a target missile roughly 62 miles above the earth’s surface.
China is the second country after the US to have demonstrated this capability.
Women in agriculture (GS2: Issue related to Human resources)
Issue: The government has allocated more than 30% funds for women under various major schemes, programs and development related activities in order to bring women in the agriculture mainstream this was stated by the minister of agriculture on the occasion of ‘Mahila Kisan Diwas’
About 18% of the agricultural households in India are led by women. In addition to agriculture, women have been making exceptional contribution in horticulture, fisheries, animal husbandry, beekeeping etc
Women related schemes taken by Ministry of Agriculture
Under the National Cooperative Union of India (NCUI), 38.78 lakh women have been trained in the last two years. Similarly, 6.07 lakh and 7000 women have benefited through KVKs and skill training respectively. A total of 53.34 lakh women have benefited during the year 2016-17 and 2017-18. Government’s revised ATMA scheme is providing support to the Food Security Groups of the farmers to ensure food security at the domestic and community levels. Under this, the Women’s Food Security Groups are being given financial assistance at the rate of 2 groups / per block and at the rate of Rs 10,000 per group / per year.
Air quality early warning system (GS3: Conservation of Environment)
Issue: Air Quality Early Warning System for Delhi was launched in Delhi by the Union Minister for Earth Sciences and Environment.
About the programme
The System is designed to predict extreme air pollution events and give alerts to take necessary steps as per Graded Response Action Plan (GRAP) of the Government of India. The air pollution system has been developed jointly by the scientists at Indian Institute of Tropical Meteorology (IITM), Pune, India Meteorological Department and National Centre for Medium Range Weather Forecasting (NCMRWF).
The early warning system will help in proactively forewarning, 3-4 days in advance, any large scale air pollution events which may occur over the Delhi region. Outlining a series of efforts that the central government has taken the Union Minister said that the Central Pollution Control Board (CPCB) has constituted a 41 member team which will continuously monitor the air pollution levels in Delhi and NCR region and will report to the board.
The warning system consists of a) real time observations of air quality over Delhi region and details about natural aerosols like dust (from dust storms) and particulate matter using different satellite data sets b) Predictions of air pollutants from two different air quality prediction systems based on state-of-the-art atmospheric chemistry transport models and c) Warning Messages and Alerts and Bulletins.
Oil demand in India (GS3: Indian Economy)
Issue: India’s oil demand is expected to rise by 5.8 million barrels per day (bpd) by 2040, accounting for about 40% of the overall increase in global demand during the period
Retail fuel prices in India, the world’s third biggest oil consumer and importer, recently touched record levels due to high oil prices and a weakening rupee, leading to protests across the country.
6 effects of rising crude oil prices on the Indian economy
- Higher prices: adverse impact on fiscal deficit: India imports 1.5 billion barrels of crude oil each year. This comes up to around 86% of its annual crude oil requirement. So, the surge in crude oil prices could increase India’s expenditure
- Impact on the rupee
- Impact on Current Account Deficit (CAD):
India’s dependency on crude oil imports has only been increasing over the past few years. The dependency rose from 77.3% in FY2014 to 83.7% in FY2018. The rise in crude oil price has a big impact on the Indian Current Account Deficit (CAD). CAD is a measure of India’s trade where the value of goods and services imported exceeds the value of goods and services exported.
- Impact on Sensex, midcaps:
The Indian stock markets have faced a lot of pressure due to the rise in crude oil prices. Between 1 and 24 May, 2018 alone, the Sensex fell by 2.3%. In comparison, the BSE small cap and mid cap indices have had it worse with a drop of nearly 8%. With crude oil prices touching $80 per barrel, there has been a sell-off in small cap and mid cap stocks.
- Impact on stocks:
A lot of Indian companies depend on healthy crude oil prices. This includes tyre, lubricants, footwear, refining and airline companies. The profitability of these companies is adversely affected due to higher input costs.
- Impact on inflation:
Oil is a very important commodity and it is required to meet domestic fuel needs. And in addition to that, it is a necessary raw material used in a number of industries. An increase in the price of crude oil means that would increase the cost of producing goods.
India energy forum (GS3: Infrastructure)
Issue: Saudi Arabia pledged its commitment to meet all of India’s energy needs, particularly in oil. A statement was made by the Saudi Arabia’s energy minister while he was participating in India energy forum
Saudi Aramco’s investment of $44 billion in the Ratnagiri refinery was “just the start” and that the company was keen to invest in an integrated downstream business, including on the retail side, as well as in storage capacity.
Wholesale price inflation (GS3: Indian Economy)
Issue: Wholesale inflation accelerated to 5.13% in September, driven in large part by quickening inflation in the primary articles segment and stabilising food prices, according to official data released
Inflation in the primary articles category stood at 2.97% in September, up from a contraction of 0.15% seen in August.
What is Wholesale price index (WPI)?
Wholesale Price Index (WPI) measures the average change in the prices of commodities for bulk sale at the level of early stage of transactions. The index basket of the WPI covers commodities falling under the three major groups namely Primary Articles, Fuel and Power and Manufactured products. (The index basket of the present 2011-12 series has a total of 697 items including 117 items for Primary Articles, 16 items for Fuel & Power and 564 items for Manufactured Products.) The prices tracked are ex- factory price for manufactured products, mandi price for agricultural commodities and ex-mines prices for minerals. Weights given to each commodity covered in the WPI basket is based on the value of production adjusted for net imports. WPI basket does not cover services.
In India WPI is also known as the headline inflation rate.
In India, Office of Economic Advisor (OEA), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry calculates the WPI.
The main uses of WPI are the following:
- To provide estimates of inflation at the wholesale transaction level for the economy as a whole. This helps in timely intervention by the Government to check inflation in particular, in essential commodities, before the price increase spill over to retail prices.
- WPI is used as deflator for many sectors of the economy including for estimating GDP by Central Statistical Organisation (CSO).
- WPI is also used for indexation by users in business contracts.
- Global investors also track WPI as one of the key macro indicators for their investment decisions.
The Government periodically reviews and revises the base year of the WPI as a regular exercise to capture structural changes in the economy and improve the quality, coverage and representativeness of the indices. The Wholesale Price Index (WPI) series in India has undergone six revisions in 1952-53, 1961-62, 1970-71, 1981-82, 1993-94 and 2004-05 so far. The base year of All-India WPI has been revised from 2004-05 to 2011-12 on 12 May 2017 to align it with the base year of other macroeconomic indicators like the Gross Domestic Product (GDP) and Index of Industrial Production (IIP). The current series is the seventh revision.
The revision entails not just shifting the base year to 2011-12 from 2004-05, but also changing the basket of commodities and assigning new weights to the commodities.
The new series with base 2011-12=100, was based on the recommendations of the Working Group which was constituted on 19th March 2012 under the chairmanship of Late Dr. Saumitra Chaudhuri, Member, erstwhile Planning Commission. The committee submitted its report in March 2014.
Difference between WPI and CPI
WPI reflects the change in average prices for bulk sale of commodities at the first stage of transaction while CPI reflects the average change in prices at retail level paid by the consumer.
The prices used for compilation of WPI are collected at ex-factory level for manufactured products, at ex-mine level for mineral products and mandi level for agricultural products. In contrast, retail prices applicable to consumers and collected from various markets are used to compile CPI.
The reasons for the divergence between the two indices can also be partly attributed to the difference in the weight of food group in the two baskets. CPI Food group has a weight of 39.1 per cent as compared to the combined weight of 24.4 per cent (Food articles and Manufactured Food products) in WPI basket.
The CPI basket consists of services like housing, education, medical care, recreation etc. which are not part of WPI basket. A significant proportion of WPI item basket represents manufacturing inputs and intermediate goods like minerals, basic metals, machinery etc. whose prices are influenced by global factors but these are not directly consumed by the households and are not part of the CPI item basket.
Thus even significant price movements in items included in WPI basket need not necessarily translate into movements in CPI in the short run. The rise or fall in prices at wholesale level spill over to the retail level after a lag.
Similarly, the movement in prices of non-tradable items included in the CPI basket widens the gap between WPI and CPI movements. The relative price trends of tradable vis a vis non-tradable is an important explanatory factor for divergence in the two indices in the short term.
Internal security cooperation agreement (GS2: India-China bilateral ties)
Issue: For the first time, India and China will sign an internal security cooperation agreement next week, marking a new beginning in bilateral relations
About the pact
The proposed pact is expected to cover areas of intelligence sharing, exchange programme, sharing of best practices, co-operation in disaster mitigation besides others. This will be the first such agreement between the authorities that look after internal security of the two countries