Current Affairs Reverse Engineering – CARE (08-08-2024)
| News at a Glance |
| Environment and Ecology: As big cat population plummets, Chhattisgarh approves country’s third largest Tiger reserve |
| Science and Technology: Government to allow up to 35% bio-bitumen mixing, to save ₹10,000 crore of foreign exchange outflows |
| Economy: RBI keeps repo rate unchanged at 6.5% for ninth time in row |
| What is Yen carry trade and why did it help trigger a global stock market fall? |
| Geography: How Pyrocumulonimbus clouds are formed when wildfires spit storms, lightning |
| Polity: Lok Sabha passes Finance Bill, amends LTCG tax provision on immovable properties |
As big Cat Population plummets, Chhattisgarh approves country’s third largest tiger reserve
Source: Indian Express
https://indianexpress.com/article/india/chhattisgarh-fourth-tiger-reserve-third-largest-9500998/
UPSC Syllabus Relevance: GS 3 `Environment and Ecology
Context: New tiger reserve
Why in News
- Chhattisgarh cleared a long-pending proposal to notify a new tiger reserve – the third largest in the country.
Overview of the New Tiger Reserve
- Name: Guru Ghasidas-Tamor Pingla Tiger Reserve.
- Size: 2,829 square kilometers, making it the third largest tiger reserve in India.
- Location: Spans four northern districts of Chhattisgarh: Manendragarh-Chirmiri-Bharatpur, Koriya, Surajpur, and Balrampur.
- Composition: Integrates the existing Guru Ghasidas National Park with the Tamor Pingla Sanctuary.
Context and Need
- Decline in Tiger Population: Chhattisgarh’s tiger population dropped dramatically from 46 in 2014 to just 17 in 2022. This decline has raised serious concerns about the conservation of these big cats.
- High Court Involvement: The Chhattisgarh High Court intervened in response to a Public Interest Litigation (PIL) filed by wildlife activist Ajay Dubey. The court had given the state government a deadline to address the issue of notifying the area as a tiger reserve.
Government Action
- Approval Process: The state cabinet has now merged the Guru Ghasidas National Park and the Tamor Pingla Sanctuary to create the new reserve. This move was spurred by the need to address the plummeting tiger population and align with recommendations from conservation authorities.
- Economic and Social Impact: The creation of the tiger reserve is expected to boost eco-tourism, create job opportunities for local communities (e.g., as guides, vehicle operators, and resort managers), and generate additional funds for reserve operations through the National Project Tiger Authority.
Historical and Ongoing Issues
- Previous Delays: Efforts to notify the Guru Ghasidas National Park as a tiger reserve were stalled due to opposition and the presence of mining activities in the area. This led to delays in the reserve’s official status.
- Activist Efforts: Ajay Dubey’s PIL highlighted the urgency of the situation and criticized the government for inaction despite previous approvals.
Largest Tiger Reserves in India
- Nagarjunasagar Srisailam Tiger Reserve (Andhra Pradesh): The largest in the country, covering 3,296.31 square kilometers.
- Manas Tiger Reserve (Assam): The second largest, with an area of 2,837.1 square kilometers.
Guru Ghasidas-Tamor Pingla Tiger Reserve
- Guru Ghasidas National Park is predominantly covered by sub-tropical and deciduous forests.
- The primary species of flora in the National Park is the Sakhua or Sal trees.
- Guru Ghasidas National Park is home to a diverse range of flora and fauna, making it a significant attraction in Chhattisgarh.
- Other types of vegetation found include teak, Saja, Salai, Mahua, Sisham, Kari, Gurjan, Achar, Tendu, and Bamboo, among several others.
What are Tiger Reserves?
- A protected area designated for the conservation of the striped big cats (tigers) is referred to as Tiger Reserve. However, a tiger reserve may also be a national park or wildlife sanctuary.
- Tiger Reserves are notified by State Governments as per provisions of Section 38V of the Wildlife (Protection) Act, 1972 on advice of the National Tiger Conservation Authority.
- Presently, India accommodates a total of 54 Tiger Reserves (with the most recent addition being the Dholpur-Karauli Tiger Reserve).
| CARE MCQ | UPSC PYQ |
| Q1. Which of the following is true about the Guru Ghasidas-Tamor Pingla Tiger Reserve in Chhattisgarh?
A) It is the smallest tiger reserve in India. B) It combines parts of the Guru Ghasidas National Park and the Tamor Pingla Sanctuary. C) It is the first tiger reserve in Chhattisgarh. D) Its creation was primarily motivated by the need for agricultural development. |
Q. Consider the following protected areas: (2012)
Which of the above are declared Tiger Reserves? (a) 1 and 2 only Ans: (b) |
| Answer 1- B
Explanation:
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RBI Policy: RBI keeps repo rate unchanged at 6.5% for ninth time in row
Source: Indian Express
https://indianexpress.com/article/business/economy/rbi-repo-rate-inflation-gdp-9501826/
UPSC Relevance: GS3- Economy
Context: Monetary Policy Committee (MPC) and repo rate
Why in News
- The Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.5 per cent for the ninth time amid risks from higher food inflation.
Monetary Policy Context
- Repo Rate: The repo rate is the rate at which the RBI lends money to commercial banks. By maintaining the repo rate at 6.5%, the RBI is signaling that it aims to keep borrowing costs stable despite ongoing inflationary pressures.
- Monetary Policy Stance: The RBI has also continued with its stance of “withdrawal of accommodation,” which means it is maintaining a tighter monetary policy to prevent the economy from overheating. This stance is intended to control inflation and stabilize the economy.
- Voting: The six-member Monetary Policy Committee (MPC) voted with a majority of four out of six members in favor of keeping the repo rate unchanged.
Implications for Borrowers and Lenders
- External Benchmark Lending Rates (EBLR): These rates, which are tied to the repo rate, will not increase further. This provides relief to borrowers with loans linked to EBLR, as their equated monthly installments (EMIs) will remain stable.
- Marginal Cost of Funds-Based Lending Rate (MCLR): Loans linked to MCLR may see higher interest rates if banks decide to adjust their rates. The full transmission of the previous 250 basis points hike in the repo rate has not yet been fully reflected in MCLR-linked loans.
Historical Rate Changes
- Rate Cuts and Hikes:
- The RBI cut the repo rate by 40 basis points to 4% in May 2020 as a response to the economic slowdown caused by the COVID-19 pandemic.
- Since then, the RBI has increased the repo rate by 250 basis points to 6.50% to combat rising inflation as the economy recovered from the pandemic.
- Market Performance:
- The equity benchmark indices, Sensex and Nifty, saw a decline following the announcement.
- Both indices were already down before the announcement and continued to drop immediately after it, reflecting investor sentiment and possible concerns over ongoing inflation and global uncertainties.
Industry Reactions
- CEO Adhil Shetty highlighted that inflation remains high, particularly food prices, and global uncertainties like tensions in the Middle East.
- While average rates on new loans have reached a one-year low, there is still divergence in financial trends, with some central banks tightening policies while others soften them.
- Founder Pradeep Aggarwal noted that the RBI’s decision was anticipated and aimed at controlling inflation.
- He expressed optimism that if the monsoon is good, there might be a potential for rate cuts in the future, which could boost real estate sales and provide opportunities for homebuyers.
Summary
- RBI’s Decision: By keeping the repo rate unchanged at 6.5%, the RBI is focusing on controlling inflation and maintaining economic stability. This decision reflects a cautious approach amid persistent inflation and global uncertainties.
- Impact: Borrowers linked to repo rates will benefit from stable EMIs, while those linked to MCLR might face higher costs. The stock market’s reaction indicates investor concern over inflation and economic conditions.
- Future Outlook: Industry experts are hopeful that favorable conditions, such as a good monsoon, might lead to rate cuts in the future, which could stimulate economic activity and benefit sectors like real estate.
What is Monetary policy?
- Monetary policy refers to the policy of the central bank with regard to the use of monetary instruments under its control to achieve the goals specified in the Act.
- The primary objective of the RBI’s monetary policy is to maintain price stability while keeping in mind the objective of growth.
- Price stability is a necessary precondition to sustainable growth.
- The amended RBI Act, 1934 also provides for the inflation target (4% +-2%) to be set by the Government of India, in consultation with the Reserve Bank, once in every five years.
| CARE MCQ | UPSC PYQ |
Q2. Consider the following statements about the impact of RBI’s recent monetary policy decision:
Which of the above statements is/are correct?
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Q. With reference to Indian economy, consider the following: (2015)
Which of the above is/are component/ components of Monetary Policy? (a) 1 only Ans: (c)
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| Answer 2 – B
Explanation –
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What is Yen carry trade and why did it help trigger a global stock market fall?
Source: Indian Express
UPSC Relevance: GS 3- Economy
Context: Yen Carry Trade and Its Recent Impact
Why in News
- Recently, major stock markets across the world experienced their sharpest decline in decades.
What is Yen Carry Trade?
- The yen carry trade is a type of financial strategy where investors borrow money in a country with low interest rates and invest it in countries with higher interest rates to earn a profit from the interest rate differential.
How it works?
- Borrowing in Low-Interest Rate Currency: Investors borrow money in yen, which has low interest rates due to Japan’s monetary policy.
- For example, the Bank of Japan (BoJ) kept interest rates at or below zero for years to stimulate economic activity.
- Investing in High-Interest Rate Assets: Investors convert the borrowed yen into currencies of countries with higher interest rates (e.g., Brazilian real, Mexican peso, Indian rupee) and invest in assets in these countries to earn higher returns.
- Profit from Interest Rate Differential: The profit comes from the difference between the low cost of borrowing yen and the higher returns earned on investments in higher interest rate countries.
Why Was the Yen Carry Trade Popular?
- For years, Japan’s central bank maintained very low interest rates to boost economic growth.
- This created an attractive environment for global investors to borrow cheap yen and invest in higher-yielding assets elsewhere.
- This influx of investment into emerging markets and other countries helped drive global capital flows and investments.
Interest Rate Increase by the BoJ:
- From mid-March to July-end, the BoJ raised interest rates from -0.10% to 0.25%.
- While this increase might seem minor compared to interest rates in other countries, in Japan’s context, it was significant.
- It marked a shift from an extended period of ultra-low rates and signaled a potential end to the policy of cheap money.
Impact on Yen Carry Trade:
- Stronger Yen: Higher interest rates in Japan led to the appreciation of the yen against other currencies. When the yen gains strength, assets denominated in other currencies lose value in yen terms.
- Reduced Profitability: The increased interest rates in Japan narrow the profit margin of the carry trade. The cost of borrowing yen is now higher, and the returns on investments in other countries are less attractive relative to the yen’s increased yield.
- Unwinding of Carry Trades: As the yen strengthened, investors who had borrowed in yen and invested in other currencies faced losses. To mitigate these losses, they began selling off their foreign investments, leading to a global market sell-off.
Why Did This Lead to Market Declines?
- Market Reactions: Investors unwinding their yen carry trades sold assets in emerging markets and other countries, leading to sharp declines in those markets. This sell-off contributed to a broader decline in global stock markets.
- Exchange Rate Impact: The appreciation of the yen meant that assets priced in other currencies became less valuable when converted back to yen. This created a ripple effect in global financial markets as investors adjusted their portfolios.
- Higher Opportunity Costs: With the possibility of further rate hikes in Japan, the opportunity cost of maintaining investments in higher-yielding currencies increased, prompting further asset sales.
| CARE MCQ | UPSC PYQ |
| Q3. Which of the following best describes the “yen carry trade”?
A. Borrowing money in a country with high interest rates and investing it in a country with low interest rates. B. Borrowing money in a country with low interest rates and investing it in a country with high interest rates. C. Borrowing money in a country with moderate interest rates and investing it in a country with similar interest rates. D. Investing money in a country with low inflation rates to benefit from currency appreciation. |
Q. If a commodity is provided free to the public by the Government, then (2018)
(a) the opportunity cost is zero. Answer: C |
| Answer 3 B
Explanation
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How Pyrocumulonimbus clouds are formed when wildfires spit storms, lightning
Source: Indian Express
UPSC Syllabus Relevance: GS1- Geography
Context: Pyrocumulonimbus’ clouds.
Why in News
- The wildfires currently raging in the United States and Canada are so intense that they have created ‘pyrocumulonimbus’ clouds.
Formation of Pyrocumulonimbus Clouds:
- Pyrocumulonimbus clouds are formed when intense wildfires (or volcanic eruptions) produce extremely hot air.
- This hot air, laden with water vapor, smoke, and ash, rises into the atmosphere.
- As it ascends, it cools and expands.
Cloud Evolution:
- Pyrocumulus Cloud: Initially, the rising hot air cools enough to condense the water vapor on the ash and smoke particles, forming a pyrocumulus cloud (also called a ‘fire cloud’).
- This cloud appears gray or brown.
- Pyrocumulonimbus Cloud: If the conditions are right—especially if there is sufficient water vapor and the upward air movement is strong—these clouds can develop into a pyrocumulonimbus cloud.
- These can reach heights of up to 50,000 feet. The intense heat and vertical movement can lead to the formation of thunderstorms within the cloud system.
- Effects: Pyrocumulonimbus clouds can produce lightning but generally do not generate much rain.
- They can spark new wildfires many kilometers away from the main blaze. Additionally, these clouds can cause strong winds that further accelerate and spread the wildfire.
Increase in Frequency
- Historical Context: Before 2023, the global average was about 102 pyrocumulonimbus clouds per year, with a significant portion occurring in Canada.
- However, in the extreme wildfire season of 2022, Canada alone recorded 140 of these clouds.
Reasons for Increased Frequency:
- Climate Change: While the exact reasons for the increase in pyrocumulonimbus cloud events are not fully understood, there is evidence suggesting that climate change is a factor.
- More Intense Wildfires: Higher temperatures can increase the frequency and intensity of wildfires. More intense fires produce hotter air, which is more likely to create the conditions necessary for pyrocumulonimbus cloud formation.
- Increased Dryness: Warmer temperatures can lead to drier conditions, which may fuel wildfires and contribute to the development of pyrocumulonimbus clouds.
- Research and Studies: The study of pyrocumulonimbus clouds is relatively new, and ongoing research aims to better understand their formation and impacts. Current observations link the increased occurrence of these clouds to the broader trend of intensifying wildfires due to climate change.
Reconstitution of NITI Aayog
- Implications:
- Wildfire Management: The formation of pyrocumulonimbus clouds complicates wildfire management. These clouds can exacerbate the wildfire by igniting new fires far from the original blaze and creating unpredictable wind patterns.
- Climate Impact: The increase in such extreme phenomena highlights the broader impacts of climate change, emphasizing the need for comprehensive strategies to address and mitigate the effects of rising global temperatures on wildfire intensity and behavior.
| CARE MCQ | UPSC PYQ |
Q4. Which of the following statements accurately describes the formation of pyrocumulonimbus clouds?
Which of the above statements is/are correct?
|
Q. Consider the following statements: (2022)
Which of the statements given above is/are correct? (a) 1 only Ans: (d) |
| Answer 4 B
Explanation
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Government to allow up to 35% bio-bitumen mixing, to save ₹10,000 crore of foreign exchange outflows
Source: The Hindu
UPSC Syllabus Relevance: GS 3- Environment and Ecology
Context: Mixing of lignin in petroleum-based bitumen
Why in news
- Union Road Transport Minister recently said that the government will allow mixing of lignin up to 35% in petroleum-based bitumen.
What is Bitumen?
- Bitumen is a black, sticky substance derived from the distillation of crude oil.
- It is commonly used for road construction and roofing due to its waterproofing and adhesive properties.
Current Bitumen Consumption and Cost
- Consumption: In 2023-24, India consumed 88 lakh tonnes of bitumen. This consumption is projected to increase to 100 lakh tonnes in 2024-25.
- Import Dependency: India imports 50% of its bitumen, leading to an annual import cost of ₹25,000-30,000 crore.
- Cost Comparison: Petroleum-based bitumen costs ₹50 per kg, whereas bio-bitumen from biomass is cheaper at ₹40 per kg.
Introduction of Bio-Bitumen:
- Bio-Bitumen Development: Bio-bitumen is produced from paddy straw (rice straw) and offers an alternative to traditional petroleum-based bitumen. It is developed by the Central Road Research Institute (CRRI) and the Indian Institute of Petroleum, Dehradun.
- Components from Paddy Straw: One tonne of paddy straw can produce 30% bio-bitumen, 350 kg of bio-gas, and 350 kg of biochar.
Benefits of Bio-Bitumen
- Cost and Efficiency: Substituting up to 35% of bio-bitumen into conventional bitumen is successful and provides a cost-effective alternative. This substitution is expected to save ₹10,000 crore in foreign exchange.
- Environmental Impact: Bio-bitumen helps reduce greenhouse gas (GHG) emissions by decreasing reliance on petroleum-based products. It also mitigates air pollution issues related to stubble burning.
Agricultural and Environmental Impact
- Use of Rice Straw: Converting rice straw into bio-bitumen and other products like bio-CNG helps address the problem of stubble burning, which contributes to air pollution, especially in regions like Haryana, Punjab, and Western Uttar Pradesh.
- Farmer Benefits: Farmers can earn ₹2,500 per tonne for supplying rice straw, providing them with additional income and contributing to sustainable agricultural practices.
Projects and Research
- Ethanol and Bio-Fuels: The Indian Oil Corporation has a project in Panipat focusing on producing ethanol from rice straw, alongside bio-bitumen and bio-aviation fuel.
- Research Initiatives: The Ministry has sanctioned research projects to evaluate the performance of bio-bitumen.
- This includes collaborations with IIT Roorkee and CRRI, and trials on NH-709AD and NH-40 to assess its viability in road construction.
NHAI Initiatives
- The National Highways Authority of India (NHAI) is implementing eco-friendly measures, including the use of fly ash, bamboo crash barriers, plastic and rubber waste in bitumen, and steel slag in road construction.
Benefits of Bio-Bitumen
- The main advantages of bio-bitumen include reducing bitumen imports, cutting GHG emissions, and creating opportunities for farmers and small businesses.
- This approach supports sustainable development and environmental protection.
| CARE MCQ | UPSC PYQ |
Q5. Which of the following statements correctly describes the use and characteristics of bitumen?
Which of the above statements is/are correct? (a) 1 only |
Q. With reference to ‘fly ash’ produced by the power plants using coal as fuel, which of the following statements is/are correct? (2015)
Select the correct answer using the code given below: (a) 1 and 2 Ans: (a) |
| Answer 5 B
Explanation
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Lok Sabha passes Finance Bill, amends LTCG tax provision on immovable properties
Source: The Hindu
UPSC Syllabus Relevance: GS 3 Economy
Context: New capital gains tax on real estate
Why in News
- The Finance Bill 2024 was passed in the Lok Sabha with an amendment relaxing the recently introduced new capital gains tax on real estate.
Background
- The Finance Bill 2024 introduced a new capital gains tax regime for real estate transactions.
- The proposed tax rate was reduced to 12.5% from the previous 20%, but it removed the indexation benefit, which allows for adjusting the purchase price of the asset for inflation, potentially reducing the taxable gain.
Amendment to Capital Gains Tax
The Lok Sabha passed an amendment allowing taxpayers the option to choose between:
- A new tax regime with a lower 12.5% rate without indexation benefits.
- The old regime with a higher 20% tax rate but with indexation benefits.
Implications:
- This change provides flexibility to taxpayers and addresses criticisms regarding the removal of indexation, which could lead to higher tax liabilities for those selling assets bought long before the introduction of the new tax regime.
Criticisms and Responses:
- Finance Minister Nirmala Sitharaman addressed concerns that the middle class was facing heavy taxation.
- She argued that the Budget aimed at promoting investment and benefiting the middle class by:
- Simplifying the tax regime.
- Reducing customs duties.
- Increasing the tax exemption limit on long-term capital gains for listed equities and bonds.
Simplification and Tax Reforms
- The Finance Minister highlighted the government’s commitment to simplifying tax governance.
- The reduction in tax slabs and an increase in standard deductions for the salaried class are part of the government’s strategy to ease tax compliance and enhance benefits for taxpayers.
Opposition Demand:
- The Opposition demanded the removal of the 18% GST on health and life insurance premiums.
- They argued that the GST on these premiums increases the financial burden on individuals.
Government’s Stance:
- The finance minister explained that the GST on insurance premiums replaced the previous state taxes on these premiums, and that GST revenue is shared with states.
- Any change to GST rates or exemptions requires approval from the GST Council, which comprises representatives from both central and state governments.
- The finance minister clarified that amendments to GST laws require approval from the GST Council, indicating that unilateral changes by the central government are not possible without broader consensus.
Long-term capital gain tax:
- Long-term capital gain tax is a tax on earnings made from the sale of an asset held for longer than a year.
- Long-term capital gains are normally taxed at a lower rate than short-term capital gains.
- The rationale behind the lower tax rate for long-term capital gains is to encourage individuals to store assets for longer periods of time, which can stimulate long-term investment and economic growth. Individuals may be more eager to hang onto their assets instead of selling them fast for a profit if the tax rate on long-term profits is reduced.
- Long-term capital gains tax rates for 2022 and 2023 are 0%, 15%, or 20% of earnings, depending on the filer’s income. The income levels are modified on an annual basis.
| CARE MCQ | UPSC PYQ |
Q6. Consider the following statements with reference to the Finance Bill 2024:
Which of the above statements are correct?
|
Q. Under which of the following circumstances may “capital gains” arise? (2012)
Select the correct answer using the codes given below :
Abs: B |
| Answer 6 – B
Explanation:
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