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TOPIC: GS 3 Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Prudence prevails

What is the news?

The Finance Ministry has put to rest all speculation about the inflation targeting framework that will guide the interest rate decisions of the RBI’s Monetary Policy Committee over the five­ year period starting on April 1.

Brief about notification

  • The Department of Economic Affairs announced that the inflation target for the recurring five years ending on March 31, 2026, will be 4%, with an upper tolerance level of 6% and a lower tolerance level of 2%.
  • Economic Affairs Secretary addressed that the framework’s parameters would remain unchanged from what had prevailed in the five years that ended on March 31.

Importance about Monetary policy framework

The government’s announcement is a significant step in reiterating that inflation targeting remains the centre piece of the monetary policy framework and signals that the fiscal and monetary authorities are in lockstep in ensuring the primacy of price stability as the bedrock for all macro­economic development.

Economic slowdown

  • Inflation pressures are mounting in an economy that is still struggling to regain its footing from the devastating contraction in the just ended fiscal year, when the COVID­19 pandemic and the drastic measures to curb its spread resulted in widespread Uncertainty.
  • The latest Consumer Price Index data show retail inflation accelerated by almost 100 basis points to a three month high of 5.03% in February, with food and fuel costs continuing to remain volatile.
  • Also, with the prices of multiple raw materials on an upward curve

Report on inflation impact

HIS Markit India Business Outlook survey last month showed companies were planning to raise selling prices over the coming 12 months to cope with rising costs.

RBI Intervention

  • The RBI’s officials have in recent months maintained an unwavering focus on emphasising the need to retain the flexible inflation targeting framework.
  • In a December working paper titled ‘Measuring Trend Inflation in India’, the Deputy Governor overseeing monetary policy, Michael Debabrata Patra, and a colleague under-scored the importance of ensuring the appropriateness of the inflation target.

Research work :

  1. Observing that there had been a steady decline in trend inflation to a 4.1%­4.3% band since 2014, they said a target far lower than the trend ran the risk of imparting a ‘that would dampen economic momentum, while a goal much above the trend could engender expansionary monetary conditions that would likely lead to inflation shocks.
  2. In February, the RBI’s researchers authoring its Report on Currency and Finance — themed ‘Reviewing the Monetary Policy Framework’ — made clear that the framework had served the economy well, attested by a decline in inflation volatility and more credible anchoring of inflation expectations

 Way forward

The government’s economic officials have heeded these work will certainly reassure investors and savers that inflation remains a central concern for all policymakers.

Mains question

Inflation targeting is the core measure of RBI. Examine

Source: https://www.thehindu.com/opinion/editorial/prudence-prevails-on-speculation-about-inflation/article34226375.ece

TOPIC : GS 2 India and its Neighborhood- Relations.

U.S., Iran agree to indirect nuclear talks

What is the news?

Announcement marks the first major progress in efforts to return both countries to the 2015 accord

Major break through

The announcement marked the first major progress in efforts to return both countries to the 2015 accord, which bound Iran to restrictions on its nuclear programmes in return for relief from U.S. and international sanctions

American government said that getting back into the accord was a priority, but Iran and the U.S. have disagreed over Iran’s demands that sanctions be lifted first, and the stalemate threatened to become an early foreign policy setback for American administration

History of the sanctions

The U.S. was pulled out of the accord in 2018, opting for a “maximum pressure” campaign of stepped up U.S. sanctions and other tough actions.

Iran responded by intensifying its enrichment of uranium and building of centrifuges, while maintaining its insistence that its nuclear development was for civilian and not military purposes.

Iran’s moves increased pressure on major world powers over the American administration’s sanctions and raised tensions among U.S. allies and strategic partners in West Asia.

Direct talks came after the EU helped broker a virtual meeting of officials from Britain, China, France, Germany, Russia and Iran, which have remained in the accord, known as the Joint Comprehensive Plan of Action ( JCPOA)

Primary Issue

The primary issues that will be discussed are the nuclear steps that Iran would need to take in order to return to compliance with the terms of the JCPOA, and the sanctions relief steps that the U.S. would need to take in order to return to compliance

Vienna session

This session would be aimed to “rapidly finalize sanction lifting & nuclear measures for choreographed removal of all sanctions, followed by Iran ceasing remedial measure” .

Way forward

Any return of the United States would involve complications. Iran has said before it resumes compliance with the deal, the U.S. needs to return to its own obligations by dropping the sanction

Mains question

Vienna session announcement marks the first major progress in efforts to return both countries to the 2015 accord. Critically Analyze 

PRELIMS PUNCHERS

  1. Emergency Credit Line Guarantee Scheme (ECLGS):

It is the  loan for which 100% guarantee would be provided by National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs), and which will be extended in the form of additional working capital term loan facility in case of Scheduled Commercial Banks (SCBs) and Financial Institutions (FIs), and additional term loan facility in case of Non-Banking Financial Companies (NBFCs), to eligible MSMEs/ Business Enterprises and interested Pradhan Mantri Mudra Yojana (PMMY) borrowers. The Scheme is a specific response to the unprecedented situation COVID-19.

The Emergency Credit Line Guarantee Scheme provides 100% guarantee coverage by NCGTC to Member lending institution  of up to Rs. 3 lakh crore to eligible MSME. MSMEs for the purpose of this Scheme will include MSMEs/ Business Enterprises which are constituted as Proprietorships, Partnerships, Registered Companies, Trusts and Limited Liability Partnerships (LLPs), and also interested borrowers under PMMY.

Source: https://economictimes.indiatimes.com/small-biz/sme-sector/govt-extends-emergency-credit-line-guarantee-scheme-till-june/articleshow/81781576.cms

  1. Monetary policy committee

The Monetary Policy Committee is responsible for fixing the benchmark interest rate in India. The committee comprises six members – three officials of the Reserve Bank of India and three external members nominated by the Government of India. They need to observe a “silent period” seven days before and after the rate decision for “utmost confidentiality”. The Governor of Reserve Bank of India is the chairperson ex officio of the committee. Decisions are taken by majority with the Governor having the casting vote in case of a tie.

The Reserve Bank of India Act, 1934 was amended by Finance Act (India), 2016 to constitute MPC which will bring more transparency and accountability in fixing India’s Monetary Policy.

Source: https://www.thehindu.com/opinion/editorial/prudence-prevails-on-speculation-about-inflation/article34226375.ece

  1. Ukraine

It is a country in Eastern Europe. It is bordered by Russia to the east and north-east,  Belarus to the north; Poland, Slovakia and Hungary to the west and Romania, Moldova and the Black Sea to the south including Crimea.

Ukraine is a large country in Eastern Europe known for its Orthodox churches, Black Sea coastline and forested mountains. Its capital, Kiev, features the gold-domed St. Sophia’s Cathedral, with 11th-century mosaics and frescoes. Overlooking the Dnieper River is the Kiev Pechersk Lavra monastery complex, a Christian pilgrimage site housing Scythian tomb relics and catacombs containing mummified Orthodox monks.

Source : https://www.thehindu.com/news/international/russia-warns-us-against-deployment-to-ukraine/article34225791.ece

  1. Future contract

Futures are derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price. Here, the buyer must purchase or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date.

Underlying assets include physical commodities or other financial instruments. Futures contracts detail the quantity of the underlying asset and are standardized to facilitate trading on a futures exchange. Futures can be used for hedging or trade speculation

Source : https://www.businessinsider.in/policy/economy/news/bidens-stimulus-looks-bigger-than-the-new-deal-economics-professor-says/articleshow/81763812.cms

Prelims Question

Qn 1.Consider the following statement regarding Monetary Policy Committee

  1. The committee comprises Ten members
  2. They need to observe a “silent period” eight days before and after the rate decision for “utmost confidentiality” for decision making

Select the correct statement using code given below.

(a).A only       (b) B only

(c).Both       (d). None of above

Answer: D

The Monetary Policy Committee is responsible for fixing the benchmark interest rate in India. The committee comprises six members – three officials of the Reserve Bank of India and three external members nominated by the Government of India. They need to observe a “silent period” seven days before and after the rate decision for “utmost confidentiality”. The Governor of Reserve Bank of India is the chairperson ex officio of the committee. Decisions are taken by majority with the Governor having the casting vote in case of a tie.

The Reserve Bank of India Act, 1934 was amended by Finance Act (India), 2016 to constitute MPC which will bring more transparency and accountability in fixing India’s Monetary Policy.

Qn 2.Consider the following statement regarding Emergency Credit Line Guarantee Scheme (ECLGS)

  1. The Emergency Credit Line Guarantee Scheme provides 100% guarantee coverage by NCGTC to Member lending institution of up to Rs. 5 lakh crore to eligible MSME
  2. The Scheme is a specific response to the unprecedented situation COVID-19

Select the correct statement using code given below.

(a).A only       (b) B only

(c).Both       (d). None of above

Answer: B

It is the  loan for which 100% guarantee would be provided by National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs), and which will be extended in the form of additional working capital term loan facility in case of Scheduled Commercial Banks (SCBs) and Financial Institutions (FIs), and additional term loan facility in case of Non-Banking Financial Companies (NBFCs), to eligible MSMEs/ Business Enterprises and interested Pradhan Mantri Mudra Yojana (PMMY) borrowers. The Scheme is a specific response to the unprecedented situation COVID-19.

The Emergency Credit Line Guarantee Scheme provides 100% guarantee coverage by NCGTC to Member lending institution of up to Rs. 3 lakh crore to eligible MSME. MSMEs for the purpose of this Scheme will include MSMEs/ Business Enterprises which are constituted as Proprietorships, Partnerships, Registered Companies, Trusts and Limited Liability Partnerships (LLPs), and also interested borrowers under PMMY.