TOPIC : GS 2 Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
RBI extends States’ Ways and Means credit to September
What is the news?
In August 2019, the RBI had appointed an Advisory Committee under the Chairmanship of Sudhir Shrivastava to review the Ways and Means Advances (WMA) limits for State Governments/UTs.
The Committee has recently recommended an overall revised limit of Rs 47,010 crore for all states, as against the current limit of Rs 32,225 crore (fixed in February 2016).
Further, in order to enable the states to tide over the crisis due to COVID-19, the RBI had increased the WMA limit to Rs 51,000 crores in 2019.
This was applicable until March 31, 2021. The Committee has recommended the RBI to continue with the enhanced limit up to September 30,2021.
The RBI has accepted both the recommendations given by this committee.
Ways and Means Advances (WMA)
⦁ The RBI acts as banker to the government i.e., it lends money to the Central and State Government.
⦁ Earlier, the government relied on ad-hoc Treasury bills to borrow money from RBI. However, it was replaced by Ways and Means advances in 1997.
What is it?
It acts as a loan facility to the central and state governments to meet their cash requirements. This facility is availed by the Government due to the temporary mismatches in their receipts and expenditure.
Duration:
The loan taken by the government through ways and means advances need to be paid back in 90 days.
⦁ Interest rate: The interest rate of WMA currently is the repo rate.
⦁ Limits on borrowing: The limits for WMA are mutually decided by the RBI and Government of India.
⦁ Can the limit be exceeded? When the WMA limit is crossed the government takes recourse to overdrafts. The interest rate on overdrafts would be 2 percent more than the repo rate.
Reasons for replacing Ad-Hoc T-Bills with WMAs
⦁ Earlier, under an agreement between RBI and Government, the central government needed to always hold certain amount of cash balances.
⦁ The minimum cash limit was fixed in order to ensure smooth conduct of Government business and to ensure that government has sufficient cash to meet its operational requirements.
⦁ However, if the cash balances reduced to below the threshold level fixed, the RBI provided the cash through the creation of ad-hoc treasury bills.
⦁ The ad hoc Treasury Bills, which were meant to be temporary, gained a permanent as well as a cumulative character.
⦁ Further, ad-hoc treasury bills became an attractive source of financing Government expenditures since it was available at an interest rate which was below the market rate of interest.
⦁ Thus, the ad-hoc treasury bills led to increase in the government borrowings leading to poor financial discipline.
Differences between ad-hoc Treasury Bills and WMA.
⦁ Firstly, WMA is not a source of financing Budget Deficit. It is only a mechanism to cover day-to-day mismatches in receipts and payments of the Government.
⦁ Secondly, limits on WMA will be fixed and any excess withdrawal by Government beyond the limit will become permissible for not more than 10 consecutive working days.
⦁ Thirdly, WMA will be charged at market related interest rate i.e., Repo rate.
Mains question
Ways and Advances will be resort for temporary mismatch in cash flows .Discuss
Source: https://www.thehindu.com/business/Economy/rbi-extends-interim-wma-limit-of-51560-cr-to-states-till-september/article34261447.ece
PRELIMS PUNCHERS
1. Thwaites Glacier
Thwaites Glacier, sometimes referred to as the Doomsday Glacier, is an unusually broad and vast Antarctic glacier flowing into the Pine Island Bay, part of the Amundsen Sea, east of Mount Murphy, on the Walgreen Coast of Marie Byrd Land. Its surface speeds exceed 2 kilometres per year near its grounding line. Its fastest flowing grounded ice is centred between 50 and 100 kilometres east of Mount Murphy.
Thwaites Glacier is closely watched for its potential to raise sea levels. Along with the Pine Island Glacier, it has been described as part of the “weak underbelly” of the West Antarctic Ice Sheet, due to its apparent vulnerability to significant retreat. This hypothesis is based on both theoretical studies of the stability of marine ice sheets and observations of large changes on these two glaciers. In recent years, the flow of both of these glaciers has accelerated, their surfaces have lowered, and their grounding lines have retreated.
Sources: https://indianexpress.com/article/explained/explained-thwaites-glacier-finding-doomsday-melting-worry-7269124/
2. India’s Antarctica programme
India launched the 40thscientific expedition to Antarctica. This Indian expedition marks four decades of country’s scientific endeavour to the southern white continent. The 40th expedition journey will be flagged off from Goa on January 5, 2021, with 43 members onboard. The chartered ice-class vessel MV Vasiliy Golovnin will make this journey and will reach Antarctica in 30 days. On return, it will also bring back the winter team of the preceding trip.
The focus is to support the ongoing scientific projects on climate change, geology, ocean observations, electric and magnetic flux measurements, environmental monitoring; resupplying of food, fuel, provisions and spare; and accomplishing the return of the winter crew. The expedition will duly follow all protocols for the deployment of men and material as per Council of Managers of National Antarctic Programs(COMNAP).
Sources : https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1686148
3. Department for Promotion of Industry and Internal Trade (DPIIT)
Department for Promotion of Industry and Internal Trade (DPIIT) is established in 1995 . It is under Ministry of Commerce and Industry . DPIIT will regulate and administer the industrial sector and facilitate investment and technology flows with monitor industrial development.
Formulation of Foreign Direct Investment (FDI) Policy and promotion, approval and facilitation of FDI are its main function . Policies relating to Intellectual Property Rights in the fields of Patents, Trademarks, Industrial Designs and Geographical Indications of Goods and administration of regulations, rules made there under.
Sources: https://dipp.gov.in/
4. Red sea
It is a seawater inlet of the Indian Ocean, lying between Africa and Asia. Its connection to the ocean is in the south, through the Bab el Mandeb strait and the Gulf of Aden. To its north lie the Sinai Peninsula, the Gulf of Aqaba, and the Gulf of Suez (leading to the Suez Canal). It is underlain by the Red Sea Rift, which is part of the Great Rift Valley. he Red Sea was formed by the Arabian peninsula being split from the Horn of Africa by movement of the Red Sea Rift. This split started in the Eocene and accelerated during the Oligocene.
The Red Sea also has extensive shallow shelves, noted for their marine life and corals. The sea is the habitat of over 1,000 invertebrate species and 200 types of soft and hard coral. It is the world’s northernmost tropical sea, and has been designated a Global 200 ecoregion.
Sources : https://www.thehindu.com/news/international/iran-state-tv-acknowledges-ship-attacked-in-red-sea/article34261229.ece
PRELIMS QUESTION
1. Consider the following statement with regarding Red sea
1. It is a seawater inlet of the Indian Ocean, lying between Europe and Asia
2. This split started in the Eocene and accelerated during the miocene.
Select the correct statement using code given below.
(a). 1only (b) 2 only
(c). Both of them (d). None of the above
Answer : B
It is a seawater inlet of the Indian Ocean, lying between Africa and Asia. Its connection to the ocean is in the south, through the Bab el Mandeb strait and the Gulf of Aden. To its north lie the Sinai Peninsula, the Gulf of Aqaba, and the Gulf of Suez (leading to the Suez Canal). It is underlain by the Red Sea Rift, which is part of the Great Rift Valley. he Red Sea was formed by the Arabian peninsula being split from the Horn of Africa by movement of the Red Sea Rift. This split started in the Eocene and accelerated during the Oligocene.
The Red Sea also has extensive shallow shelves, noted for their marine life and corals. The sea is the habitat of over 1,000 invertebrate species and 200 types of soft and hard coral. It is the world’s northernmost tropical sea, and has been designated a Global 200 ecoregion.
2. Department for Promotion of Industry and Internal Trade (DPIIT) is under which of following ministry
a. Ministry of Heavy Industries and Public Enterprises
b. Ministry of Corporate Affairs
c. Ministry of Finance
d. Ministry of Commerce and Industry
Answer : D
Department for Promotion of Industry and Internal Trade (DPIIT) is established in 1995 . It is under Ministry of Commerce and Industry . DPIIT will regulate and administer the industrial sector and facilitate investment and technology flows with monitor industrial development.
Formulation of Foreign Direct Investment (FDI) Policy and promotion, approval and facilitation of FDI are its main function . Policies relating to Intellectual Property Rights in the fields of Patents, Trademarks, Industrial Designs and Geographical Indications of Goods and administration of regulations, rules made there under.